Articles 1207 to 1222: Different Kinds of Obligations: Joint and Solidary Obligations

1. Ronquillo v. CA
Facts: INDIVIDUALLY AND JOINTLY IS SOLIDARY CASE
1) Ernesto Ronquillo (―Ronquillo‖) was one of four defendants in a Civil Case filed by respondent Antonio So (―So‖) for the
collection of P118,498.98, the value of the check issued by the said defendant in payment for foodstuffs delivered to and
received by them.
2) The said checks were dishonored by the drawee bank.
3) The lower court rendered a decision based on the compromise agreement by the parities. The agreement reduced the claim to
P110,000 and bound the defendants to initially pay P55,000 of the debt before December 24, 1978. The defendants agreed to
pay the balance ―individually and jointly‖ within a period of six months or before June 30, 1980.
4) So filed a Motion for Execution on the ground that the defendants failed to make the initial payment of P55,000 as provided in
the abovementioned decision. Ronquillo opposed the motion for execution alleging that his inability to make the payment was
due to So‘s own act of making himself inaccessible.
5) Ronquillo tendered the amount of P13,750 as his share of the P55,000 initial payment. Another defendant, Pilar Tan (―Tan‖)
offered to pay the same amount. Because So refused to accept their payments, demanding the full initial payment. Ronquillo
and Tan deposited the amount with the court. The court ordered the issuance of a writ of execution for the balance of the initial
amount payable to the two other defendants.
6) So sought the reconsideration of the Order and prayed for the execution of the decision in its entirety against all defendants,
jointly and severally. So opposed the motion arguing that the lower court held that the liability of the 4 defendants was not
expressly declared to be solidary, consequently each defendant is obliged to pay only his own pro-rata or 1/4 of the amount due
and payable.
7) A writ of execution was issued by the court for the payment of P82,500 [P55,000 (balance from the whole debt) + 27500 (unpaid
shares of initial payment from two other defendants or P13,750 + P13750)] against the properties of the defendants including
Ronquillo, ―singly or jointly liable.‖ The sheriff issued a notice for the sale of certain furniture and appliances found in
Ronquillo‘s residence to satisfy the sum of P82,500.
Issue:
W/N the liability of the 4 defendants including Ronquillo solidary.
Held: Yes.
1) The pertinent provisions are Art. 1207 and Art. 1208. By the terms of the compromise agreement and the decision based upon
it, the defendants obligated themselves to pay their obligation ―individually and jointly.‖
2) An agreement to be ―individually liable‖ undoubtedly creates a several obligation. A several obligation is one by which one
individual binds himself to perform the whole obligation.

2. Malayan Insurance v. CA
DOCTRINE
An insurer is not a solidary debtor in a case of joint tortfeasors where a third party liability insurance contract exists as their liability
for payment is based on different obligations – one is based on tort and the other on contract.
The law states that the responsibility of two or more persons who are liable for a quasi-delict is solidary, however jurisprudence has
interpreted this to mean that only be the owner and the driver of the vehicle who are guilty of tort [joint tortfeasors] who will be
solidarily liable, and this liability will not include the insurance company. While it is true that where the insurance contract provides
for indemnity against liability to third persons, such third persons can directly sue the insurer, however, the direct liability of the
insurer under indemnity contracts against third party liability does not mean that the insurer can be held solidarily liable with the
insured and/or the other parties found at fault. The liability of the insurer is based on contract; that of the insured is based on tort.
If the insurer were solidarily liable with said two joint tortfeasors by reason of the indemnity contract against third party liability,
under which an insurer can be directly sued by a third party, this will result in a violation of the principles underlying solidary
obligation and insurance contracts.
In solidary obligation, the creditor may enforce the entire obligation against one of the solidary debtors. On the other hand,
insurance is defined as „a contract whereby one undertakes for a consideration to indemnify another against loss, damage, or
liability arising from an unknown or contingent event.
FACTS
1) On 29 March 1967, Malayan Insurance Co., Inc., issued in favor of Sio Choy a personal (P600) and third party liability (P20,000)
insurance policy over Choy‘s Willy‘s jeep, effective from 18 April 1967 to 18 April 1968. The jeep had a Motor No. ET-03023,
Serial No. 351672, and Plate No. J-21536, Quezon City, 1967.
2) During the effectivity of said insurance policy, on 19 December 1967, at about 3:30 o‘clock in the afternoon, the insured jeep
collided with a passenger bus at the national highway in Barrio San Pedro, Rosales, Pangasinan. The jeep was driven by Juan P.
Campollo, employee of San Leon Rice Mill, Inc., and the bus was owned by Pangasinan Transportation Co., Inc. (PANTRANCO, for
short). Damage was caused to the insured vehicle and injuries to the driver Campollo, and jeepney passenger Martin C. Vallejos.
Campollo later died.
3) Vallejos filed an action for damages against Sio Choy, Malayan Insurance Co., Inc. and the PANTRANCO before the Court of First
Instance of Pangasinan. Vallejos prayed that defendants be ordered to pay him, jointly and severally, the amount of P15,000.00,
 as reimbursement for medical and hospital expenses; P6,000.00, for lost income; P51,000.00 as actual, moral and compensatory
damages; and P5,000.00, for attorney‘s fees.
4) Answering, PANTRANCO laid the blame on the jeep of Sio Choy, which was then operated at an excessive speed and bumped
the PANTRANCO bus which had moved to, and stopped at, the shoulder of the highway in order to avoid the jeep; and that it
had observed the diligence of a good father of a family to prevent damage, especially in the selection and supervision of its
employees and in the maintenance of its motor vehicles. It prayed that it be absolved from any and all liability.
5) Sio Choy Malayan also denied liability, claiming that the fault in the accident was solely imputable to the PANTRANCO. Sio Choy,
however, later filed a separate answer with a cross-claim against Malayan, alleging that he had actually paid Vallejos, the
amount of P5,000.00 for hospitalization and other expenses. Sio Choy also alleged that Malayan had issued in his favor a private
car comprehensive policy obligating itself to indemnify Sio Choy, as insured, for the damage to his motor vehicle, as well as for
any liability to third persons arising out of any accident during the effectivity of such insurance contract, which was in effect
when the vehicular accident complained of occurred.
6) Malayan also filed a third-party complaint against San Leon Rice Mill, Inc. on the basis of Art. 2180 of the Civil Code, and prayed
that the Mill be liable for reimbursing Malayan any sum ordered to be paid to Vallejos.
7) TC ruled for Vallejos, and adjudged Sio Choy, Malayan and third-party defendant San Leon Rice Mill, Inc., held jointly and
severally liable. The court limited Malayan‘s liability to P20,000.00, following the terms of the insurance contract.
8) CA affirmed, adding only that San Leon Rice Mill, Inc. has no obligation to indemnify or reimburse the Malayan for whatever
amount it has been ordered to pay on its policy, since the Mill is not a privy to the contract of insurance.
ISSUE/S : Whether Malayan, Sio Choy and San Leon Rice Mill, Inc. are solidarily liable to respondent Vallejos.
HELD NOOOOOOOOoooooo
1) Only respondents Sio Choy and San Leon Rice Mill, Inc, to the exclusion of insurer Malayan, are solidarily liable to Vallejos for
the damages awarded to Vallejos as the basis of their liabilities differ.
2) Sio Choy is made liable to said plaintiff as owner of the ill-fated Willys jeep, pursuant to Article 2184 of the Civil Code [OWNER];
The basis of liability of San Leon Rice Mill, Inc. is by being the employer of the driver of the Willys jeep at the time of the motor
vehicle mishap, under Article 2180 of the Civil Code [EMPLOYER]; - Sio Choy and San Leon Rice Mill, Inc. are the principal
tortfeasors who are primarily liable to respondent Vallejos, as the law states that the responsibility of two or more persons who
are liable for a quasi-delict is solidary.
3) In the Guingon case, the court clarified that in cases of tort where the vehicle is insured it is only the owner and the driver of the
jeepney at fault, not the insurance company, who are solidarily liable to the heirs of the victim.
4) While it is true that where the insurance contract provides for indemnity against liability to third persons, such third persons can
directly sue the insurer, however, the direct liability of the insurer under indemnity contracts against third party liability does
not mean that the insurer can be held solidarily liable with the insured and/or the other parties found at fault. The liability of
the insurer is based on contract; that of the insured is based on tort.
5) In the case at bar, Malayan as insurer of Sio Choy, is liable to respondent Vallejos, but is not solidarily liable with the two
principal tortfeasors. For if Malayan were solidarily liable with the tortfeasors by reason of the indemnity contract against third
party liability (under which an insurer can be directly sued by a third party) this will result in a violation of the principles
underlying solidary obligation and insurance contracts.
6) In solidary obligation, the creditor may enforce the entire obligation against one of the solidary debtors. On the other hand,
insurance is defined as „a contract whereby one undertakes for a consideration to indemnify another against loss, damage, or
liability arising from an unknown or contingent event.

ISSUE: Whether Malayan is entitled to be reimbursed by San Leon Rice Mill, Inc. for whatever amount petitioner has been adjudged
to pay respondent Vallejos on its insurance policy.
HELD: YES, this follows the principle of subrogation in insurance contracts.
1) When the insurance company pays for the loss, such payment operates as an equitable assignment to the insurer of the
property and all remedies which the insured may have for the recovery thereof. That right is not dependent upon, nor does it
grow out of, any privity of contract, (italics supplied) or upon written assignment of claim, and payment to the insured makes
the insurer an assignee in equity.
2) Malayan, upon paying respondent Vallejos the amount of not exceeding P20,000.00, shall become the subrogee of the insured,
the respondent Sio Choy; as such, it is subrogated to whatever rights the latter has against respondent San Leon Rice Mill, Inc.
Article 1217 of the Civil Code gives to a solidary debtor who has paid the entire obligation the right to be reimbursed by his co-
debtors for the share which corresponds to each.

3. RCBC v. CA
DOCTRINE:
Where an obligation expressly states a solidary liability, the concurrence of two or more creditors or two or more debtors in one and
the same obligation implies that each one of the former has a right to demand, or that each one of the latter is bound to render,
entire compliance with the prestation (Article 1207, Civil Code). The creditor may proceed against any one of the solidary debtors or
some or all of them simultaneously (Article 1216, Civil Code).
As held in Zenith Insurance Corporation vs. Court of Appeals (No. L-57957, 29 December 1982,119 SCRA 485), the extent of a surety's
liability is determined only by the clause of the contract of suretyship. It cannot be extended by implication, beyond the terms of the
contract. Conversely, liability therefor may not be restricted unless expressly so stated.
FACTS:
1) On 4 May 1979, Alfredo Ching signed a 'Comprehensive Surety Agreement' with Rizal Commercial Banking Corporation (RCBC),
binding himself to jointly and severally guarantee the prompt payment of all Philippine Blooming Mills [PBM] obligations owing
RCBC in the aggregate sum of Forty Million (P40,000,000.00) Pesos.
2) Between 8 September to 30 October 1980, (PBM) filed several applications for letters of credit with RCBC. Through said
applications, PBM obligated itself, among other things, to pay on demand for all draft(s) drawn under or purporting to be drawn
under the credits. Everything being in order, RCBC opened the corresponding letters of credit and imported various goods for
PBM's account. In due time the imported goods arrived and were released, in trust, to PBM who acknowledged receipt thereof
through various trust receipts. All in all, PBM's obligations stood at P7,982,649.08.
3) Less than a year later, or on 7 August 1981, RCBC filed a Complaint for collection of said sum against respondents PBM and
Alfredo Ching with the then Court of First Instance of Pasig, docketed as CV-42333. Upon filing of a bond satisfactory to the
Court, a Writ of Preliminary Attachment was issued against the assets and properties of respondents PBM and Ching on the
same day. By way of special and affirmative defenses they alleged that "although the trust receipts stipulate due dates, the true
intent and agreement of the parties was that the maturity dates of the trust receipts were to be extended at the end of the
stipulated dates, as had been the customary practice of RCBC with PBM."
4) On 23 September 1981, PBM and Ching moved to discharge the attachment, which RCBC opposed. On 4 December 1981 the
Court issued an Order lifting the attachment upon their filing of a satisfactory counter-bond.
5) Meanwhile, on 1 April 1982, PBM filed a Petition for Suspension of Payments with the Securities and Exchange Commission,
docketed as SEC Case No. 2250, seeking at the same time its rehabilitation.
6) In an injunctive Order, dated 6 July 1982, all actions for claims against PBM pending before any Court or tribunal, in whatever
stage the same may have been, were ordered suspended by the SEC in order to give the Commission the opportunity to pass
upon the feasibility of any rehabilitation plans. And on 26 April 1982, SEC approved the revised rehabilitation plan and ordered
its implementation.
7) On 14 October 1982, RCBC pursued its claims with the Trial Court and filed, unopposed, a Motion for Summary Judgment in CV-
42333, a motion for extension to file said opposition having been earlier withdrawn. RCBC contended that respondents PBM
and Ching had not denied their indebtedness to RCBC and, therefore, no genuine issue was raised in the pleadings.
8) On 25 November 1982, the CFI rendered such summary judgment** in RCBC's favor, declaring:
9) WHEREFORE, judgment is hereby rendered against the defendants (PBM and Ching) in favor of plaintiff (RCBC) ordering
defendants to pay plaintiff jointly and severally the following:
a) P7,982,649.08 inclusive of interest, service charges and penalties as of August 7, 1981 on account of their liability in
solidum arising from the trust receipts and comprehensive surety agreements plus such other additional amount by
way of interest, service charges and penalties from August 7,1981 until fully paid; and
b) P10,000.00 as attorney's fees.
10) With costs against the defendants.
11) SO ORDERED (p. 192, Original Record).
12) On appeal, respondent Court of Appeals,*** ruling that it was precipitate and improper for the lower Court to have continued
with the proceedings despite the SEC Order of suspension, set aside the lower Court Decision and ordered it to hold in abeyance
the determination of the merits invoked in CV-42333 pending the outcome of SEC Case No. 2250. On 6 October 1988, the
Appellate Court denied RCBC's Motion for Reconsideration.
13) Hence, this Petition for Review, to which we gave due course on 31 May 1989, and required the filing of Memoranda by the
parties, the last of which was submitted on 27 July 1989.
14) RCBC takes the position that the SEC injunctive Order pertains and affects only PBM, the corporation under rehabilitation, and
that its right, as creditor, to proceed against respondent Ching, as Surety, is not affected by said Order. In fine, RCBC avers that
to hold the injunctive Order applicable to both respondents PBM and Ching is to deprive RCBC of its right to proceed against the
Surety based on the latter's separate and independent undertaking.
15) PBM and Ching counter that the liabilities incurred by PBM were corporate in character and, hence, as a corporate officer,
Alfredo Ching cannot be held liable therefor; that the pendency of SEC Case No. 2250 and the rendition of an Order therein on
26 April 1988 implementing respondent PBM's rehabilitation plan must necessarily benefit the Surety, inasmuch as payment of
PBM obligations must be made pursuant to that plan; and that the liability of the Surety can not be more than what would
remain after payment of all the obligations of the principal. Moreover, they continue, it is usual for majority stockholders to act
as co-signors with their respective corporations where promissory notes, collaterals or guaranty or security agreements are
involved. Respondent Ching's action may, it is claimed, be classified as a corporate act.
ISSUE:
Will a Securities and Exchange Commission (SEC) Order suspending, during the pendency of a rehabilitation proceeding, payment of
all claims against the principal debtor bar or preclude the creditor from recovering from the surety?
HELD: NOOOOOOoo
1) Where an obligation expressly states a solidary liability, the concurrence of two or more creditors or two or more debtors in one
and the same obligation implies that each one of the former has a right to demand, or that each one of the latter is bound to
render, entire compliance with the prestation (Article 1207, Civil Code). The creditor may proceed against any one of the
solidary debtors or some or all of them simultaneously (Article 1216, Civil Code).
2) That there exists a Comprehensive Surety Agreement between RCBC and respondent Ching is admitted. There is no escaping the
attendant liability that binds respondent Ching, as Surety. He is charged as an original promissor by virtue of his primary
obligation under the Suretyship Agreement. That Agreement is bare of words imputing to respondent Ching any liability other
than that of a Surety who binds himself to insure a debt in his personal capacity, lacking consideration therefor notwithstanding
(p. 94, Original Record). That respondent Ching acted for and on behalf of respondent PBM as part of its usual corporate
procedure is not supported by the evidence nor the pleadings on record, nor the Agreement itself .We can not give any
additional meaning to the plain language of the subject agreement. It is basic that the parties are bound by the terms of their
contract, which is the law between them. As held in Zenith Insurance Corporation vs. Court of Appeals (No. L-57957, 29
December 1982,119 SCRA 485), the extent of a surety's liability is determined only by the clause of the contract of suretyship. It
cannot be extended by implication, beyond the terms of the contract. Conversely, liability therefor may not be restricted unless
expressly so stated.
3) Neither can respondent Ching seek refuge behind the SEC injunctive Order. Under Section 3 of P.D. 902-A, as amended by P.D.
1758, the Commission is given absolute jurisdiction, supervision and control only over corporations or associations, which are
grantees of a primary franchise and/or a license or permit issued by the government to operate in the Philippines. The SEC
injunctive Order can not effect a suspension of payment of respondent Surety's due and demandable obligation, it being clear
therefrom that the rehabilitation receivers were limited "to tak(ing) custody and control over all the existing assets and property

4. Tan Quiombing v. CA
DOCTRINE
Where the obligation of the parties is solidary, either one of the parties is indispensable, and the other is not even necessary because
complete relief may be obtained from either.
FACTS
1) This case stemmed from a "Construction and Service Agreement" 1 concluded on August 30, 1983, whereby Nicencio Tan
Quiombing and Dante Biscocho, as the First Party, jointly and severally bound themselves to construct a house for private
respondents Francisco and Manuelita Saligo, as the Second Party, for the contract price of P137,940.00, which the latter agreed
to pay.
2) On October 10, 1984, Quiombing and Manuelita Saligo entered into a second written agreement 2 under which the latter
acknowledged the completion of the house and undertook to pay the balance of the contract price in the manner prescribed in
the said second agreement.
3) On November 19, 1984, Manuelita Saligo signed a promissory note for P125,363.50 representing the amount still due from her
and her husband, payable on or before December 31, 1984, to Nicencio Tan Quiombing. 3 On October 9, 1986, Quiombing filed
a complaint for recovery of the said amount, plus charges and interests, which the private respondents had acknowledged and
promised to pay but had not, despite repeated demands as the balance of the contract price for the construction of their house.
4) Instead of filing an answer, the defendants moved to dismiss the complaint on February 4, 1987, contending that Biscocho was
an indispensable party and therefore should have been included as a co-plaintiff. The motion was initially denied but was
subsequently reconsidered and granted by the trial court. The complaint was dismissed, but without prejudice to the filing of an
amended complaint to include the other solidary creditor as a co-plaintiff.
5) Rather than file the amended complaint, Quiombing chose to appeal the order of dismissal to the respondent court, where he
argued that as a solidary creditor he could act by himself alone in the enforcement of his claim against the private respondents.
Moreover, the amounts due were payable only to him under the second agreement, where Biscocho was not mentioned at all.
The respondent court sustained the trial court and held that it was not correct at that point to assume that Quiombing and
Biscocho were solidary obliges only.
6) It noted that as they had also assumed the reciprocal obligation of constructing the house, they should also be considered
obligors of the private respondents under the contract. If, as was possible, the answer should allege a breach of the agreement,
"the trial court cannot decide the dispute without the involvement of Biscocho whose rights will necessarily be affected since he
is a part of the First Party." Refuting the petitioner's second contention, the respondent court declared that the "second
agreement referred to the Construction and Service Agreement as its basis and specifically stated that it (was) merely a `part of
the original agreement.'"
ISSUE/S
(1) May one of the two solidary creditors sue by himself alone for the recovery of amounts due to both of them without joining the
other creditor as a co-plaintiff? YES
(2) In such a case, is the defendant entitled to the dismissal of the complaint on the ground of non-joinder of the second creditor as
an indispensable party? NO.
(3) More to the point, is the second solidary creditor an indispensable party? NO.
HELD
1) Either solidary creditor may sue by himself. Although he signed the original Construction and Service Agreement, Biscocho need
not be included as a co-plaintiff in the complaint filed by the petitioner against the private respondents. Quiombing as solidary
creditor can by himself alone enforce payment of the construction costs by the private respondents and as a solidary debtor
may by himself alone be held liable for any possible breach of contract that may be proved by the private respondents. In either
case, the participation of Biscocho is not at all necessary, much less indispensable.
2) According to Justice Jose Y. Feria, "where the obligation of the parties is solidary, either one of the parties is indispensable,
and the other is not even necessary (now proper) because complete relief may be obtained from either."
3) The question of who should sue the private respondents was a personal issue between Quiombing and Biscocho in which the
spouses Saligo had no right to interfere.
4) It did not matter who as between them filed the complaint because the private respondents were liable to either of the two as a
solidary creditor for the full amount of the debt.
5) Full satisfaction of a judgment obtained against them by Quiombing would discharge their obligation to Biscocho, and vice
versa; hence, it was not necessary for both Quiombing and Biscocho to file the complaint. Inclusion of Biscocho as a co-
plaintiff, when Quiombing was competent to sue by himself alone, would be a useless formality.
6) Article 1212 of the Civil Code provides: Each one of the solidary creditors may do whatever may be useful to the others, but not
anything which may be prejudice to the latter. Suing for the recovery of the contract price is certainly a useful act that
Quiombing could do by himself alone.
7) Parenthetically, it must be observed that the complaint having been filed by the petitioner, whatever amount is awarded
against the debtor must be paid exclusively to him, pursuant to Article 1214.
8) This provision states that "the debtor may pay any of the solidary creditors; but if any demand, judicial or extrajudicial, has been
made by any one of them, payment should be made to him."
9) If Quiombing eventually collects the amount due from the solidary debtors, Biscocho may later claim his share thereof, but that
decision is for him alone to make.
10) It will affect only the petitioner as the other solidary creditor and not the private respondents, who have absolutely nothing to
do with this matter. As far as they are concerned, payment of the judgment debt to the complainant will be considered
payment to the other solidary creditor even if the latter was not a party to the suit. Regarding the possibility that the private
respondents might plead breach of contract in their answer, we agree with the petitioner that it is premature to consider this
conjecture for such it is at this stage.
11) The possibility may seem remote, indeed, since they have actually acknowledged the completion of the house in the second
agreement, where they also agreed to pay the balance of the contract price. At any rate, the allegation, if made and proved,
could still be enforceable against the petitioner alone as one of the solidary debtors, subject to his right of recourse against
Biscocho.
12) Solidary Obligation distinguished from joint obligation
13) The concept of the solidary obligation requires a brief restatement.
14) Distinguishing it from the joint obligation, Tolentino makes the following observations in his distinguished work on the Civil
Code: A joint obligation is one in which each of the debtors is liable only for a proportionate part of the debt, and each creditor
is entitled only to a proportionate part of the credit. A solidary obligation is one in which each debtor is liable for the entire
obligation, and each creditor is entitled to demand the whole obligation.
15) Hence, in the former, each creditor can recover only his share of the obligation, and each debtor can be made to pay only his
part; whereas, in the latter, each creditor may enforce the entire obligation, and each debtor may be obliged to pay it in full.
16) The same work describes the concept of active solidarity thus:
17) The essence of active solidarity consists in the authority of each creditor to claim and enforce the rights of all, with the resulting
obligation of paying every one what belongs to him; there is no merger, much less a renunciation of rights, but only mutual
representation.
18) (2&3) As either party is indispensible, there is no non-joinder nor is the secondary solidary creditor be considered an
indispensible party.
19) The complaint could have been filed alone by the petitioner.
20) The rest of the pieces should easily fall into place. Section 7, Rule 3 of the Rules of Court mandates the inclusion of
indispensable parties as follows: Sec. 7. Compulsory joinder of indispensable parties. Parties in interest without whom no final
determination can be had of an action shall be joined either as plaintiffs or defendants. Indispensable parties are those with
such an interest in the controversy that a final decree would necessarily affect their rights, so that the court cannot proceed
without their presence.
21) Necessary parties are those whose presence is necessary to adjudicate the whole controversy, but whose interests are so far
separable that a final decree can be made in their absence without affecting them. 9 (Necessary parties are now called proper
partiesunder the 1964 amendments of the Rules of Court.).

5. Republic Planters Bank v. CA

FACTS:
1) In 1979, World Garment Manufacturing, through its board authorized Shozo Yamaguchi (President) and Fermin Canlas
(Treasurer) to obtain credit facilities from Republic Planters Bank (RPB). For this, 9 promissory notes were executed. They were
authorized to apply for credit facilities with the petitioner bank. The two officers signed the promissory notes issued to secure
the payment of the obligations.
2) The note became due and no payment was made. RPB eventually instituted an acitio for collection of money against Yamaguchi
and Canlas. Canlas, in his defense, averred that he should not be held personally liable for such authorized corporate acts that
he performed inasmuch as he signed the promissory notes in his capacity as officer of the defunct Worldwide Garment
Manufacturing.
ISSUE:
Whether Yamaguchi and Canlas are solidarily liable.
HELD: YEEEeessssss
1) Canlas is solidarily liable on each of the promissory notes to which his signature appears. The solidary liability of private
respondent Fermin Canlas is made clearer and certain, without reason for ambiguity, by the presence of the phrase ―joint and
several‖ as describing the unconditional promise to pay to the order of Republic Planters Bank.
2) Where an instrument containing the words ―I promise to pay‖ is signed by two or more persons, they are deemed to be jointly
and severally liable thereon.
3) Canlas is solidarily liable on each of the promissory notes bearing his signature for the following reasons: The promissory notes
are negotiable instruments and must be governed by the Negotiable Instruments Law.
4) Under the Negotiable Instruments Law, persons who write their names on the face of promissory notes are makers and are
liable as such. By signing the note, the maker promises to pay to the order of the payee or any holder the tenor of the
obligation. Based on the above provisions of the law, there is no denying that Canlas is one of the co-makers of the promissory
note.

6. Inciong v. CA
DOCTRINE
Where the promissory note expressly states that the three signatories therein are jointly and severally liable, any one, some or all of
them may be proceeded against for the entire obligation - the choice is left to the solidary creditor to determine against whom he will
enforce collection.
FACTS
1) Baldomero Inciong, Jr. executed a promissory note for P50,000.00 together with Rene C. Naybe and Gregorio D. Pantanosas on
February 3, 1983, holding themselves jointly and severally liable to private respondent Philippine Bank of Communications
[PBC/the bank], Cagayan de Oro City branch.
2) The promissory note was due on May 5, 1983.
3) The due date expired without the promissors having paid their obligation, consequently several letters of demand were sent via
telegram (on November 14, 1983; June 8, 1984), with the final letter of demand sent by registered mail on December 11, 1984
to Rene C. Naybe.
4) Since both obligors did not respond to the demands made, the bank filed on January 24, 1986 a complaint for collection of the
sum of P50,000.00 against the three obligors.
5) The complaint was initially dismissed on On November 25, 1986, for failure to prosecute the case. On reconsideration, January
9, 1987, the lower court reversed and required the sheriff to serve the summonses. On January 27, 1987, the lower court
dismissed the case against defendant Pantanosas as prayed for by the private respondent herein. Meanwhile, only the
summons addressed to petitioner was served as the sheriff learned that defendant Naybe had gone to Saudi Arabia.
6) Inciong alleged in his defense that he had only signed the promissory notes as a favor to a friend, Rudy Campos, who
approached him in January 1983 for his help for the grant of the approval of a loan for his falcata logs operation business.
Campos said he and his partner Pio Tio (branch manager PBC, Cagayan de Oro City) needed his help as co-maker of the loan that
will be used for expanding the business with Rene C. Naybe.
7) Naybe was interested in the business, would contribute a chainsaw to the venture, and had been promised by Pio Tio that
although Naybe had no money, the loan to be co-signed by Campos would be approved. Campos then persuaded petitioner to
act as a co-maker in the said loan.
8) Inciong acceded, but with the understanding that he would only be a co-maker for the loan to the extent of P5,000.00. Inciong
said 5 copies of a blank promissory note were brought to him by Campos at his office, and he affixed his signature to all of them,
writing in one copy that he bound himself only for the amount of P5,000.00.
9) The TC ruled for PBC, adjudged Inciong solidarily liable for ―the amount of FIFTY THOUSAND PESOS (P50,000.00), with interest
thereon from May 5, 1983 at 16% per annum until fully paid; and 6% per annum on the total amount due, as liquidated
damages or penalty from May 5, 1983 until fully paid; plus 10% of the total amount due for expenses of litigation and
attorneyÊs fees; and to pay the costs.‖
10) The TC also noted that the typewritten figure 50,000· clearly appears directly below the admitted signature of the petitioner in
the promissory note. 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.
11) The lower court added that it was rather odd for petitioner to have indicated in a copy and not in the original, of the promissory
note, his supposed obligation in the amount of P5,000.00 only. Finally, the lower court held that, even granting that said limited
amount had actually been agreed upon, the same would have been merely collateral between him and Naybe and, therefore,
not binding upon the private respondent as creditor-bank. Cross-claim and counter-claim dismissed.
12) On appeal to the CA, the court affirmed. The MR was denied.
13) In the present appeal Inciong presented new evidence, the affidavit of co-maker MTCC judge Pantanosas, executed on 3 May
1988, after the rendition of judgment by the TC.
14) The affidavit is clearly intended to buttress petitioner‘s contention in the instant petition that the Court of Appeals should have
declared the promissory note null and void on the following grounds:
a. (a) the promissory note was signed in the office of Judge Pantanosas, outside the premises of the bank;
b. (b) the loan was incurred for the purpose of buying a secondhand chainsaw which cost only P5,000.00;
c. (c) even a new chainsaw would cost only P27,500.00;
d. (d) the loan was not approved by the board or credit committee which was the practice, as it exceeded P5,000.00;
e. (e) the loan had no collateral;
f. (f) petitioner and Judge Pantanosas were not present at the time the loan was released in contravention of the bank
practice, and
g. (g) notices of default are sent simultaneously and separately but no notice was validly sent to him.
15) Finally, petitioner contends that in signing the promissory note, his consent was vitiated by fraud as, contrary to their
agreement that the loan was only for the amount of P5,000.00, the promissory note stated the amount of P50,000.00.
16) Petitioner also argued on appeal that the dismissal of the complaint against Naybe, the principal debtor, and against
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 cites as basis for his argument, Article 2080 of the Civil Code
which provides that: The guarantors, even though they be solidary, are released from their obligation whenever by some act of
the creditor, they cannot be subrogated to the rights, mortgages, and preferences of the latter.
ISSUE/S
Whether Inciong is solidarily liable under the promissory note.
HELD YES.
1. The SC is not a trier of facts
1) First, it is too late for petitioner to present the affidavit this late in the course of the trial, the SC 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 of discretion on the part of the court below. Had he presented Judge
Pantanosas‘ affidavit before the lower court, it would have strengthened his claim that the promissory note did not reflect
the correct amount of the loan.
2. The parol evidence rule does not require that the written document be a public document.
1) What is required is that the agreement be in writing as the rule is in fact founded on „long experience that written evidence is
so much more certain and accurate than that which rests in fleeting memory only, that it would be unsafe, when parties have
expressed the terms of their contract in writing, to admit weaker evidence to control and vary the stronger and to show that the
parties intended a different contract from that expressed in the writing signed by them.
2) Thus, for the parol evidence rule to apply, a written contract need not be in any particular form, or be signed by both parties. As
a general rule, bills, notes and other instruments of a similar nature are not subject to be varied or contradicted by parol or
extrinsic evidence.
3) By alleging fraud in his answer, petitioner was actually in the right direction towards proving that he and his co- makers agreed
to a loan of P5,000.00 only considering that, where a parol contemporaneous agreement was the inducing and moving cause of
the written contract, it may be shown by parol evidence.
4) However, fraud must be established by clear and convincing evidence, mere preponderance of evidence, not even being
adequate. Petitioner‘s attempt to prove fraud must, therefore, fail as it was evidenced only by his own uncorroborated and,
expectedly, self-serving testimony.
3. Dismissal of the action against the co-maker’s of the promissory note did not release Inciong’s liability, as he is a solidary
debtor and not a mere guarantor.
1) Petitioner signed the promissory note as a solidary co-maker and not as a guarantor. This is patent even from the first sentence
of the promissory note.10
2) 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.
3) On the other hand, Article 2047 of the Civil 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.
4) 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 a case the contract is called a suretyship.
5) While a guarantor may bind himself solidarily with the principal debtor, the liability of a guarantor is different from that of a
solidary debtor. Thus, Tolentino explains: A guarantor who binds himself in solidum with the principal debtor under the
provisions of the second paragraph does not become a solidary co-debtor to all intents and purposes. There is a difference
between a solidary co-debtor and a fiador in solidum (surety).
6) The latter, outside of the liability 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 a solidary co-debtor has no
other rights than those bestowed upon him in Section 4, Chapter 3, Title I, Book IV of the Civil Code
7) 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, the presumption is that the obligation is joint so that each
of the debtors is liable only for a proportionate part of the debt.
8) There is a solidary liability only when the obligation expressly so states, when the law so provides or when the nature of the
obligation so requires.
9) Because the promissory note involved in this case expressly states that the three signatories therein are jointly and severally
liable, any one, some or all of them may be proceeded against for the entire obligation. The choice is left to the solidary creditor
to determine against whom he will enforce collection.
10) Consequently, the dismissal of the case against Judge Pantanosas may not be deemed as having discharged petitioner from
liability as well. As regards Naybe, suffice it to say that the court never acquired jurisdiction over him. Petitioner, therefore, may
only have recourse against his co-makers, as provided by law.
7. Tiu v. CA

Before us is a petition seeking the review and the consequent reversal of the decision of the Court of Appeals in CA-G.R. CV No.
249671 entitled, "George T. Tiu and Rosalina Tiu vs. Juan Go and Sps. Juanito Lim and Lim Lee Show Fong", promulgated on
September 30, 1992, which affirmed the summary judgment dated August 21, 1989 and the Order dated October 30, 1989 of the
Regional Trial Court of Manila Branch 35 in its Civil Case No. 88-43782.
The fcts of the case are as follows:
Petitioner George T. Tiu and his mother, Rosalina Tiu, filed an action for reformation of contract, delivery of personal property, and
damages before the regional trial court against Juan Go and the Spouses Juanito Lim and Lim Lee Show Fong.
Among the allegations of the complaint, as quoted by the Court of Appeals, are the following:
4. That plaintiff George Tiu is the registered owner of Two (2) CONDOMINIUM UNITS identified and described as
follows —
UNIT 9-A of the Condominium located on the ninth floor, with an area of 133.48 sq. mts., more or less, with 3
rooms and 3 comfort rooms, of the Blue Diamond Tower Condominium Project.
UNIT 9-B of the Condominium located on the ninth floor, with an area of 98.26 sq. mts., more or less, with 3 rooms
and 3 comfort rooms, of the Blue Diamond Tower Condominium Project" covered by CONDOMINIUM CERTIFICATE
OF TITLE NOS. 4583 and 4584, respectively, of the REGISTER OF DEEDS FOR THE CITY OF MANILA, copies of which
are hereto attached as Annexes "A" and "B", respectively;
5. That sometime in March, 1986, plaintiff GEORGE TIU and plaintiff ROSALINA TIU, his mother, negotiated a loan
of P300,000.00 with defendant JUAN GO who then asked for a mortgage of the aforesaid CONDOMINIUM UNITS of
plaintiff GEORGE TIU as security for the payment therefor and additional thereto, a pledge of jewelries and checks
from plaintiff ROSALINA TIU;
6. That in that transaction, defendant JUAN GO agreed to extend the loan without any fixed period of re-payment
and with the further condition that the plaintiffs shall have ample time to pay when demanded and that they can
remain in possession of the said CONDOMINIUM UNITS of plaintiff GEORGE TIU in the event of mortgage;
7. That with that agreement, defendant JUAN GO then prepared, based on copies of the CONDOMINIUM
CERTIFICATE OF TITLE NOS. 4583 and 4584 of plaintiff GEORGE TIU earlier given to him, a document denominated
as "DEED OF SALE OF A CONDOMINIUM WITH RIGHT TO REPURCHASE" and another as "CONTRACT OF LEASE", the
former was prepared in favor of defendant JUANITO LIM AND LIM LEE SHOW FONG, while the latter was prepared
in favor of plaintiff GEORGE TIU;
8. That when the said documents were presented to the plaintiffs by defendant JUAN GO, plaintiff GEORGE TIU
asked him why the documents had to be drawn in that form and why there a need to involve the defendant
spouses JUANITO LIM AND LIM LEE SHOW FONG, both total strangers to the plaintiffs, when the transaction of
loan was purely between GEORGE TIU, plaintiff ROSALINA TIU, his mother, and defendant JUAN GO, but defendant
JUAN GO then said that he cannot carry a real estate property in his own name, as he is a Chinese National, and
that there was no harm in having the covering instruments made in that way and in that form, as their agreement
of mortgage intended to secure the loan will always prevail, stand and govern over the said instruments, for which
reason plaintiff GEORGE TIU agreed to sign the said DEED OF SALE OF A CONDOMINIUM WITH RIGHT TO
REPURCHASE and CONTRACT OF LEASE and after signing them, plaintiff ROSALINA TIU handed to defendant JUAN
GO jewelries with a value of P200,000.00 and PCIB Check No. 51405, drawn to the sum of P200,000.00, signed by
plaintiff ROSALINA TIU but undated, and another PCIB Check No. 51428, signed by plaintiff ROSALINA TIU but
without any stated amount and date, as additional collateral for the loan just received and which the defendant
JUAN GO then required in their agreement;
9. That the said DEED OF SALE OF A CONDOMINIUM WITH RIGHT TO REPURCHASE and CONTRACT OF LEASE were
later verified before a notary public and then later registered by the defendants' agent with the REGISTER OF
DEEDS FOR THE CITY OF MANILA and subsequently annotated at the back of CONDOMINIUM CERTIFICATE OF
TITLE NOS. 4583 and 4584, as now evidenced by certified true copies hereto attached as Annexes "C" and "D",
respectively;
10. That, from the date of execution of said documents, Annexes "C" and "D", to this time of filing, plaintiff
GEORGE TIU, with plaintiff ROSALINA TIU, has remained and continue to remain in possession of said
Condominium Units as lessee;
11. That plaintiff GEORGE TIU, in executing the said DEED OF SALE OF A CONDOMINIUM UNIT WITH RIGHT TO
REPURCHASE, has merely agreed to a mortgage of the properties, for which reason reformation is proper,
pursuant to the provisions of the Civil code which state, thus —
Art. 1365. If two parties agree upon the mortgage or pledge of real or personal property, but the
instrument states that the property is absolutely sold or with a right to repurchase, reformation
is proper.
 12. That the said DEED OF SALE OF A CONDOMINIUM WITH RIGHT TO REPURCHASE executed by plaintiff GEORGE
TIU is in law an equitable mortgage at the same time on two of the specified grounds, for which reformation is also
proper on either one, in accordance with the provisions of the Civil Code, thus —
Art. 1602. The contract shall be presumed to be an equitable mortgage, in any of the following
cases:
xxx xxx xxx
(2) When the vendor remains in possession as lessee or otherwise;
xxx xxx xxx
(6) In any other case where it may fairly be inferred that the real intention of the parties is that
the transaction shall secure the payment of a debt or the performance of any other obligation.
13. That the real intention of the parties on the transaction covered by the DEED OF SALE OF A CONDOMINIUM
WITH RIGHT TO REPURCHASE being a mortgage, and not a sale, plaintiff GEORGE TIU is entitled to the redemption
of the property as sanctioned by Article 1601 of the Civil Code;
14. That, after a lapse of the unlawful period of repurchase stated in the DEED OF SALE OF A CONDOMINIUM WITH
RIGHT TO REPURCHASE, plaintiff GEORGE TIU tried to redeem the mortgaged condominium units, but the
defendants refused redemption;
15. That when plaintiff GEORGE TIU tried to redeem the said properties, plaintiff ROSALINA TIU also attempted to
get back the jewelries and checks given as additional collateral, but defendant JUAN GO who refused the
redemption of the mortgaged properties also refused to return the said jewelries and checks to plaintiff ROSALINA
TIU;
16. That, after the redemption offer was made by plaintiff GEORGE TIU and the return of the personal properties
were asked by plaintiff ROSALINA TIU, defendant JUAN GO, after filing the blanks in PCIB Check No. 51405 and
PCIB Check No. 51428, presented them to the bank for encashment, but were returned, for which there is now a
demand made upon plaintiff ROSALINA TIU for her to pay for the value thereof;
17. That defendant JUAN GO and JUANITO LIM have acted with evident bad faith, unlawfully and contrary to the
agreement, and in violation of the plaintiffs' right;
18. That by reason of the unlawful acts of the said defendants, the plaintiffs suffered sleepless nights, anxiety,
besmirched reputation and social humiliation, for which they now seek the sum of not less than P100,000.00 as
payment for moral damages, plus litigation expenses;
19. That the plaintiffs were forced to litigate in this action and in so doing, they were compelled to engage the
services of the undersigned counsel for an attorney's fee of P50,000.00;
20. That as corrective measure to those who unlawfully act contrary to their agreements and in violation of the
rights of others, an exemplary damage to be determined by the Honorable Court is also sought.
(pp. 25-29, Rollo.)
The Spouses Lim filed a separate answer with counterclaim, denying the material allegations of the complaint and, as special and
affirmative defenses, claimed that by virtue of George Tiu's failure, as vendor a retro, to exercise his right to repurchase the
condominium units within the period expressly stipulated in the contract, the spouses thereupon irrevocably acquired the absolute
ownership of said condominium units; that absolute ownership thereof has been consolidated in their names; that the deed of sale
is clear, without any ambiguity, mistake, or imperfection and the deed is and should only be the repository of the truth of the
contractual relations of the parties and no parol evidence is admissible to alter the stipulations, terms, and conditions of the
contract (See CA Decision, p. 29, Rollo).
The Tius filed a reply and answer to the counterclaim of the Spouse Lim.
On the other hand, Go, in his answer with counterclaim, alleged that while indeed the Tius had incurred various amounts of loans on
different dates, the totality is much greater than the sum of P200,000.00 alleged in the complaint, and which remained unpaid; that
the two checks mentioned in Paragraph 8 of the complaint issued in partial payment on the Tius various loans were dishonored
when presented by Go for encashment; and that the Tius had not offered or given any other security to answer for the payment of
their overdue loans and obligations to Go; that he (Go) is merely one of the instrumental witnesses to, and has nothing to do with,
the Tius' transactions with the Spouses Lim, which should thus be treated separately and distinctly from the various loan
transactions between the Tius and Go; that Go never committed the supposed acts of misrepresentation in the execution of the
deeds as alleged in the complaint.
As compulsory counterclaim, Go alleged that Rosalina Tiu had secured, on different dates, loan advances in the total amount of
P1,060,000.00, which remained unpaid despite demands.
The Tius filed a reply and answer to the counterclaim of Go, admitting receipt by Rosalina Tiu of the money stated in respondent
Go's counterclaim, but alleging that the loans had already been paid for by tobacco delivered to Go.
Go subsequently filed a motion for leave to admit third party-complaint for a sum of money and damages against Joaquin Tiu,
alleging that on different dates, the latter had, for himself and in behalf of the Tius, received the money as loan or advances in
connection with the latter's tobacco business, in the total amount of P700,000.00, for which amount Joaquin Tiu should be held
jointly and severally liable with the Tius.
Over the opposition of the Tius, the motion for leave to admit third-party complaint was granted by the trial court on June 22, 1988.
Pre-trial was conducted on May 13 and November 14, 1988.
On August 21, 1989, the trial court rendered summary judgment, disposing as follows:
WHEREFORE, judgment is hereby rendered as follows:
1. The complaint of the plaintiffs is DISMISSED;
2. Plaintiff Rosalina Tiu is ordered to pay defendant Juan Go the sum of P1,060,000.00;
3. The third party complaint of Juan Go against Joaquin Go is DISMISSED;
4. The respective counterclaim of the two groups of defendants in their separate answers for moral and exemplary
damages, and for attorney's fees are DENIED and DISMISSED;
5. Plaintiffs George Tiu and Rosalina Tiu are ordered to pay the costs of the present action.
SO ORDERED.
(p. 30, Rollo.)
The Tius and Joaquin Tiu (third-party defendant) appealed while the Lims filed a "Motion for Supplemental/Additional Relief or
Decision".
Go filed a motion for reconsideration of the summary judgment.
On October 30, 1989, the trial court issued an order resolving the respective motions of the Lims and Go, thus —
ACCORDINGLY, the motion of defendants-spouses Juanito Lim and Lim Lee Show Fong, and the Register of Deeds
of the City of Manila is hereby ordered to make the corresponding note of consolidation and cancel the
Condominium Certificates of Title Nos. 4583 and 4584 in the name of George Tiu, and, in lieu thereof, issue an new
Condominium Certificate of Title in the name of Juanito Lim and Lim Lee Show Fong.
The motion for reconsideration by defendant and third party plaintiff is Denied for lack of merit.
The Tius, including Joaquin, appealed, arguing that the trial court erred when it (1) accepted the Deed of Sale of Condominium Units
with Right of Repurchase as the true agreement of the contracting parties; and (2) held Rosalina Tiu liable for the total amount of
P1,060,000.00 claimed by Go.
Go, who also appealed, on the other hand, lamented the failure of the trial court to hold George Tiu and Joaquin Tiu jointly and
solidarily liable with Rosalina Tiu on the amount of P1,060,000.00, and for dismissing both his third-party complaint and
counterclaim for moral and exemplary damages, and for attorney's fees.
The Court of Appeals (Paras [P], Ordoñez-Benitez, Montenegro, JJ.) upheld and affirmed the summary judgment rendered by the
trial court. Hence, the instant petition anchored on the general assertion that the decision of respondent Court of Appeals is not in
accord with law.
We vote to sustain the appellate court. The summary judgment of the trial court was properly rendered.
A summary judgment is one granted by the court, upon motion by either party, for an expeditious settlement of the case, there
appearing from the pleadings, depositions, admissions, and affidavits that there are no genuine questions or issues of fact involved
(except as to the amount of damages) — and that, therefore , the moving party is entitled to a judgment as a matter of law (Sections
1, 2, and 3, Rule 34; Justice E.L. Paras, Revised Rules of Court, Ann., Vol. I, 1989 Ed., p. 632).
In the present case, the Tius maintain that there are as yet unresolved questions of fact that preclude summary judgment, such as
whether there was indeed a loan contract between the Tius and Go, which was secured by a mortgage on the condominium units
owned by George Tiu and a pledge by Rosalina Tiu of her pieces of jewelry and checks; and, assuming the existence of a loan,
whether reformation is feasible in order that the true agreement of the parties on an equitable mortgage may be reflected in the
deed of sale.
In the instant petition, the Tius narrate a series of events and loan transactions between Rosalina Tiu and Juan Go that would
negate, in their opinion, the sale transaction between the Tius and the Spouses Lim, and would thus necessitate trial on the merits
to determine the true agreement or intention of the parties. The appellate court, however, brushed aside this argument thusly:
Under Rule 34 of the Rules of Court, summary judgment may be rendered by the court upon application of a party
when 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. By genuine issue is meant an issue of fact which calls for the presentation of evidence as
distinguished from an issue which is sham, fictitious, contrived, set up in bad faith and patently unsubstantial so as
not to constitute a genuine issue for trial. The court can determine this on the basis of the pleadings, admissions,
documents, affidavits and/or counter affidavits submitted by the parties to the Court. Where the facts pleaded by
the parties are disputed or contested, proceedings for a summary judgment cannot take the place of a trial. (Paz
vs. CA, 181 SCRA 26).
(p. 32, Rollo)
The appellate court then continued :
The lower court correctly rendered the summary judgment on the basis of the pleadings, admissions, documents
and affidavits submitted by the parties.
Appellants Tiu admitted not only the due execution, genuineness and authenticity of the Deed of Sale of
Condominium with Right to Repurchase and Contract of Lease (Exhs. C & D). They also admitted that they read and
understood the contents of said deeds before they signed the said documents (tsn., May 13, 1988, p. 26) which
 deeds were later annotated at the back of Condominium Certificate of Title Nos. 4583 and 4584. They failed to
offer any counter-affidavit to controvert the statement of the Notary Public, Florante C. de la Cruz before whom
the parties acknowledged and ratified their agreement that he (de la Cruz) ascertained the agreement of the
parties before preparing the document. In his affidavit, Notary Public Florante C. de la Cruz swore:
"That on March 25, 1986 George Tiu, together with Sps. JUANITO LIM and LIM LEE SHOW FONG
requested me to prepare a DEED OF SALE of Condominium Units with a Right to Repurchase and
a CONTRACT OF LEASE over the same CONDOMINIUM Units which I notarized as Doc. No. 412;
Page No. 64; Book No. 83; Series of 1986 and Doc. 413; Page No. 64; Book No. 83; Series of 1986
respectively, both documents signed by the parties therein and their instrumental witnesses,
copies of said Deed of Sale and Contract of Lease is hereto attached and marked as Annex A & B
respectively;
"That prior to March 25, 1986 George Tiu accompanied by Juan Go came to my office and
requested me to prepare a Contract of which they would sell the two (2) Condominium Units in
favor of Sps. JUANITO LIM and LIM LEE SHOW FONG with a reservation for Vendor to Repurchase
the same within one (1) year for the amount of FOUR HUNDRED THOUSAND PESOS
(P400,000.00), and that Tiu shall remain in possession for one (1) year from March 1986 but since
Sps. Vendees Juanito Lim and Lim Lee Show Fong were not around, I instructed George Tiu to
return with said Sps. Vendees;
"That it was on March 25, 1986, that all the parties mentioned in the documents above
mentioned were present and after determining and ascertaining what they have agreed I
prepared said documents after explaining to them both in Tagalog and in Ilocano; that there is no
other Contract of Agreement written or verbal regarding the subject matter of sale or lease that I
prepared except the two (2) aforementioned DEED OF SALE of a Condominium Units with a Right
to Repurchase and the CONTRACT OF LEASE as aforementioned."
In addition thereto, appellants Tiu admitted that they have updated the real estate taxes due on the condominium
only up to the time of the transaction after which they have never paid anymore the taxes thereon belying their
claim that they continued paying the taxes even after the execution of deeds (tsn., Nov. 24, 1988, pp. 15 & 16).
Also the said appellants admitted that they did not file an opposition to the petition for consolidation of ownership
and that they filed the present complaint for reformation six (6) days after receipt of a copy of the said petition
(tsn, Nov. 24, 1988, pp. 23 & 26). If it were true that their agreement was one of mortgage, then, they could have
filed at least an opposition to the said petition.
(pp. 32-34, Rollo.)
The Court of Appeals also disregarded the claim of the Tius that a deed of sale with right of repurchase was drawn up in favor of the
Spouses Lim instead of a mortgage with Go as creditor-mortgagee because Go cannot own real estate being a Chines citizen, re-
echoing, in the process, the conclusion of the trial court that aliens or non-Filipino citizens are not disqualified from being
mortgagees of real estate properties.
Upon the foregoing premises, we agree with the Court of Appeals that summary judgment was properly rendered by the trial court
as there was no genuine issue of fact that would necessitate formal trial.
On the feasibility of reformation of the deed of sale with right of repurchase, we also agree with the appellate court, that the Tius'
complaint did not aver ultimate facts that would constitute a cause of action for reformation of instrument despite the Tius'
insistence that paragraphs 11, 12, 13, 14 and 15 of their complaint contain allegations of fraud and inequitable conduct, upon which
reformation may be premised.
A perusal of these paragraphs (reproduced earlier) would show that indeed, as pointed out by the Court of Appeals, the allegations
therein are mere conclusions of law or opinion; hence, reformation is not feasible. Section 5 of Rule 8 of the Revised Rules of Court
directs a party averring fraud or mistake to state with particularity the circumstances constituting such fraud or mistake, with
particularity is conspicuously absent in the complaint.
Further, in view of Rosalina Tiu's failure to controvert the allegations of the Mario Obar Trading Center denying any trading
partnership with Go, (and in effect, debunking Rosalina Tiu's claim that payments to the trading firm were payments to Juan Go),
summary judgment holding Rosalina Tiu liable was proper.
We shall also not disturb the ruling of the Court of Appeals that George and Joaquin Tiu are not solidary liable with Rosalina Tiu on
the amount of P1,060,000.00, for apt and correct are the findings of the appellate court on this point:
The various receipts (Exhs. 1-15-Go) clearly show that the appellant George Tiu never signed the receipts nor
received any money from appellant Go while appellant Joaquin Tiu signed and received the money for an in behalf
of Rosalina. Consequently, they are not liable solidarily for the said amounts even if the money were used for
tobacco business. And even if they admitted that they received the money, both are not liable in solidum because
there was no express provision in said receipts that appellants George and Joaquin Tiu should be liable in solidum.
There is solidary obligation only when the obligation expressly so states or when the law or nature of the
obligation requires solidarity (Article 1207, NCC).
 And there is no truth to the allegation that appellants George and Joaquin Tiu admitted that they are jointly and
solidarily liable for said amount. What they admitted was that they received said money. Appellants' failure to
deny the allegations in pars. 8, 9, 10 of appellant Go's third party complaint does not amount to an admission that
they are solidarily liable. Be it noted that appellants Tiu, in their reply and answer to the counterclaim of appellant
Go, admitted that only appellant Rosalina Tiu received the monies. The allegation in appellant Go's third party
complaint is essentially the same with the allegations in the counterclaim of appellant Go. Thus, it was not
necessary for them to deny the allegations in the third party complaint.
Assuming arguendo that they admitted their solidary liability, still they are not liable. As aptly held by the lower
court:
At any rate, the doctrine laid down on the case of Un Fak Leang vs. Nigurra, 9 Phil. 381, falls
squarely on the point wherein the Supreme Court ruled that an admission of two debtors in their
brief that their liability in the contract is a solidary one does not convert the joint character of
their obligation as appearing in their contract, for what determines the nature of the obligation is
the tenor of their contract itself, not the admission of the parties.
On Go's prayer for attorney's fees, moral and exemplary damages, all that has to be said perhaps is that simply because the Tius did
not prevail in their suit against Go would it necessarily follow that they should be made liable for attorney's fees and damages. An
adverse result of a suit in law does not mean that the same is wrongful as to justify assessment of damages against the actor (Rubio
vs. Court of Appeals, 141 SCRA 488 [1986]).
WHEREFORE, the decision appealed from is AFFIRMED in toto. No special pronouncement as to costs

8. Cembrano v. City of Butuan

The Antecedents

CVC Lumber Industries, Inc. (CVC) was a timber concession licensee in Bunawen and Veruela, Agusan del Sur. Cembrano, then its
Marketing Manager, participated in a bidding for the supply of piles and poles which were to be used for the construction of
the new City Hall of Butuan City. The contract was awarded to CVC, under which it was to deliver to the City of Butuan 757
timber piles at a unit cost of P1,485.00 or a total of P1,124,145.00 within 60 days from receipt of the order; in the event of
delay in the delivery, CVC would be liable for liquidated damages, to be deducted from the total value of the contract price,
and in case of partial delivery, liquidated damages would be deducted from the total value of the delivered portion, per Rule
9 of Presidential Decree (P.D.) No. 526.[5]

On May 6, 1991, the City of Butuan issued a Purchase Order[6] for 757 timber piles to CVC or Gil Cembrano. To partly finance the
purchase of the merchandise, petitioner Cembrano, along with Gener Cembrano, secured a P150,000.00 loan from the DBP, as
evidenced by a Promissory Note[7] dated June 4, 1991. To secure the loan, they executed a real estate mortgage over a parcel of land
covered by Transfer Certificate of Title (TCT) No. T-5491.[8] The purchase order was modified on August 22, 1991 with respect to the
specifications of the timber piles. The seller/supplier furnished the same to CVC or Gil M. Cembrano.[9]

Within the 60-day period, CVC was able to make two (2) deliveries of 117 and 57 pieces which respondent accepted and paid for. On
August 26 and September 9, 1991, Cembrano received payment of P148,574.25 and P84,645.00, respectively, for the aforesaid
deliveries, as evidenced by the disbursement vouchers issued by the City in favor of CVC Lumber Industries, Inc. It appears on the face
of the vouchers that the payee is CVC or Gil Cembrano.[10]

On November 13, 1991, the 60-day period for CVC to make deliveries of the timber piles expired. CVC offered to deliver 100
timber piles worth P148,500.00, but respondent refused. On November 19, 1991, CVC, through petitioner Cembrano, requested for
an extension, until December 11, 1991, to complete the delivery of timber piles. [11] City Engineer Edgardo T. Sanchez denied this
request, and recommended that a new bidding be held on the unexecuted portion of the contract. [12] The re-bidding was held
on December 2, 1991 with the approval of former City Mayor Guillermo Sanchez, without notice to CVC.

At the instance of CVC, through Cembrano, an investigation regarding the unilateral cancellation of the contract and the
subsequent re-bidding was conducted. The City Legal Officer rendered a report upholding the validity of the contract with CVC and
the purchase order issued by the City to it, considering the suspicious haste attendant to its termination and the irregularities
surrounding the re-bidding process.[13] The City Legal Officer made the following recommendation to the Mayor:
 1. To honor the contract with CVC Lumber Industries, Inc. or Mr. Gil M. Cembrano and compromise with
the same by requiring the said contractor to complete delivery of timber piles within the period of 45 calendar days
without charging the provided liquidated damages, which Compromise Agreement shall provide for its automatic
expiration after the lapse of the above-mentioned period;

2. To declare the December 2, 1991 bidding Null and Void and confirm the stop payment order of this office
permanently;

3. To endorse to the Committee on Good Government and to the Office of the Ombudsman the irregular
acts of the City General Service Department Head for appropriate Administrative and Criminal action[s], respectively;

4. To suspend the City General Service Department Head for a period of not more than 90 days for him to
fully face the charges filed against him before the Committee on Good Government;

5. To request the Committee on Good Government to conduct further investigation within the Office of the
City General Service to determine involvement of other government employees in the said irregularities [14]

CVC and Cembrano, through Go as counsel, filed a complaint for breach of contract and damages against respondent, claiming
that CVC sustained damages amounting to P856,695.00 - the value of the timber piles which it was ready to deliver and the value of
those it failed to deliver on account of the cancellation of the contract on November 13, 1992. Cembrano alleged therein that he was
the Marketing Supervisor and an agent of CVC, that he secured a loan from the DBP and executed a real estate mortgage over his
property as collateral to partly finance the purchase of the timber poles/piles. The case was docketed as Civil Case No. 3851.

In its Answer, the City of Butuan admitted the allegations in the complaint.

Meanwhile, during a meeting of the CVC Board of Directors on September 3, 1992, Monico Pag-Ong was elected President
and Isidro B. Plaza as Corporate Secretary.[15] Plaza also became the resident manager of the corporation.

On May 27, 1996, the trial court rendered judgment in favor of the defendants and ordered the dismissal of the complaint
on the following ratiocination:

It may be recalled that as of November 13, 1991 the contract had already been terminated for failure of
the plaintiff [CVC and Cembrano] to complete deliveries on the original period. Since the request for extension by
the plaintiff was denied, the defendant [City] was no longer obliged to accept any delivery as said acceptance can
be considered a waiver or abandonment of the right to rescind. The obligation of plaintiff to make complete
delivery, according to the contract, expired on November 13, 1991. The law is clear that obligations arising from
contracts have the force of law between the contracting parties and should be complied with in good faith. The
power to rescind is given to the injured party which, in this case is the defendant. The plaintiff being a party who
did not perform the undertaking which [sic] he was bound by the terms of the agreement to perform, it is not
entitled to insist upon the performance of the contract by the defendant or recover damages by reason of the
breach.[16]

Cembrano appealed the decision to the CA. The appeal was docketed as CA-G.R. CV No. 55049. The CA rendered judgment
reversing the decision of the trial court and ordered the City of Butuan to pay its liability to Cembrano and CVC. The dispositive portion
of the Decision[17] reads:

IN VIEW OF THE FOREGOING, the decision appealed from is hereby REVERSED and SET ASIDE. Defendant City of
Butuan is directed to pay the plaintiffs the total sum of P926,845.00 in accordance with the above computation,
with 6% interest as of the date this decision attains finality.

Costs against defendant-appellee.

SO ORDERED.[18]

The appellate court declared that it was undisputed that CVC, through Cembrano, its Marketing Supervisor, participated and
won the bidding for the supply of 757 timber piles and poles,[19] and that the contract was between CVC and the City of Butuan. The
CA likewise affirmed the findings of the Investigation Report made by the City Legal Officer, and CVCs entitlement to damages
amounting to P926,845.00.[20]

The City of Butuan thereafter filed a petition for review on certiorari with this Court, docketed as G.R. No. 149466. However,
the petition was denied on November 12, 2001 for failure to observe the 15-day period to appeal, and failure to serve a copy thereof
to the CA.[21] The City filed a motion for reconsideration, which the Court denied with finality on January 16, 2002.[22] Thus, the CA
decision became final and executory.

On March 1, 2002, Cembrano, in his behalf and as attorney-in-fact of CVC, executed a Deed of Assignment[23] covering of the
monetary award of the CA in favor of Go, his uncle.

In a letter[24] dated March 19, 2002, Go wrote the City Mayor of Butuan City, requesting payment of the P926,845.00
awarded to it via the decision in CA-G.R. CV No. 55049 plus interests, to avoid the embarrassment of the implementation of a writ of
execution against the City. However, in a letter[25] dated July 15, 2002, CVC, through its Resident Manager Isidro B. Plaza, informed
the City Mayor that it was laying claim to the money judgment and requested that the amount be remitted it.

In a 2nd Indorsement[26] dated July 17, 2002, the City Legal Officer recommended that the Sangguniang
Panglungsod appropriate P926,845.00 to pay for the award in favor of CVC under CA-G.R. CV No. 55049. During a meeting with
the Sangguniang Panglungsod Chairman and Members of the Committee on Appropriation and Finance, Cembrano and Go agreed
that under the decision, the amount due to CVC was P926,845.00 with 6% interest per year. The Sanggunian resolved to refer the
matter to the City Budget Officer.[27]
In a letter[28] dated October 30, 2002, the City Legal Officer requested the City Budget Officer to release P926,845.00 plus 6%
legal interest to CVC. The City Treasurer and the City Mayor signed a check [29] dated November 5, 2002 for the said amount with CVC
LUMBER INDUSTRIES, INC/MONICO E. PAG-ONG as payee. The check was received by Pag-Ong for CVC, as evidenced by a
disbursement voucher.[30]

Thereafter, Atty. Go, acting as counsel for CVC and Cembrano, filed a Alternative Motion for Issuance of a Writ of Execution
or Entry of Judgment[31] in the RTC in Civil Case No. 3851. The court issued an order granting the motion. The Sheriffs arrived in the
Office of the City Mayor to enforce the writ on November 28, 2002, but were told that the City had already remitted the amount.
Thus, the Sheriffs submitted a Return on the Writ of Execution declaring that they failed to enforce the writ on account of the Citys
claim that it had already remitted the P926,845.00 to CVC.

In a letter[32] dated November 29, 2002, Plaza wrote the City Treasurer that the proceeds of the 210 piles of poles and piles
delivered to the City at the price of P311,850.00 had not been remitted to CVC. He requested that CVC be furnished copies of vouchers,
checks, official receipts, including Cembranos authority to transact business with the city government and other documents. Plaza,
likewise, informed Go that the amount of P120,000.00 as his attorneys fees and litigation expenses under the decision in CA-G.R. CV
No. 55049 was ready for claiming.[33]
The City Legal Officer filed a Manifestation,[34] also dated November 29, 2002, that it had already paid the P926,845.00 to
CVC, through Pag-Ong, its President. Go filed an Urgent Motion (To Direct Sheriffs To Garnish Defendants Bank Account), [35] alleging
that the payment by the City of Butuan to Monico Pag-Ong was not in compliance with the decision in CA-G.R. CV No. 55049, as
affirmed by the Supreme Court. It was, likewise, asserted that the creditors under the CA decision were CVC Unit VI and
Cembrano, not Plaza or Pag-Ong. It insisted that the payment made by the City to Pag-Ong did not discharge its obligation to
Cembrano. It was, likewise, asserted that the creditors under the CA decision were CVC Unit IV and Cembrano, not Plaza or Pag-Ong.
It insisted that the payment made by the City to Pag-Ong did not discharge its obligation to Cembrano. It was alos averred that the
logging operations of CVC and Triumph-Timber Corporation were consolidated in one timber concession license, and that the two
corporations conducted the operations under an independent and separate entity which was CVC Unit VI. The plaintiffs-movants
prayed that:

WHEREFORE, it is respectfully prayed of this Honorable Court to issue an order directing Sheriffs ROGER
KINANAHAS, with the assistance of VICENTE TIU and ARTHUR CALO, to enforce the writ of execution by way of
garnishment of defendants bank accounts pursuant to Section 9, Rule 39, specifically paragraph (c) of the Revised
Rules of Court.

Plaintiffs further pray for such other remedies that may be just and equitable in the premises. [36]

The City opposed the motion, contending that Cembrano was merely the agent or marketing supervisor of CVC as alleged in
the complaint in Civil Case No. 3851; although Cembrano was impleaded as one of the plaintiffs, the real party-in-interest entitled to
the sum of P926,845.00 was CVC. Cembrano was bound by his allegation in the complaint that he was merely the Marketing Supervisor
for CVC. It pointed out that Go and Cembrano failed to implead Plaza and Pag-Ong, who were indispensable parties in their motion;
hence, the motion was a mere scrap of paper. The City of Butuan suggested that the issue of who between plaintiff CVC or Cembrano
was entitled to the amount of P926,845.00 should be resolved by them.[37]

For his part, Pag-Ong filed a Manifestation, stating that he refrained from intervening in the case for the simple reason that
he was the President of CVC, thus clothed with the authority to receive the P926,845.00. He appended thereto the minutes of the
meeting of the CVC Board of Directors on September 3, 1982, during which he was appointed President. [38]

On January 8, 2003, the court issued an Order[39] granting the motion of Ong and Cembrano, and ordered the Sheriff to garnish
the bank account of the City of Butuan in the DBP for the enforcement of the writ of execution. It ruled that the payment made by the
City of Butuan to Pag-Ong was illegal because it was made in a motion for writ of execution, and Pag-Ong was not a party to the case
and had no personality. For their part, Go and Cembrano filed a motion to compel the DBP to remit the garnished amount to them.
On February 3, 2003, the trial court issued an Order[40] granting the motion and ordered the DBP to remit P926,845.00 to Cembrano
and Go in cash. The dispositive portion of the Order reads:

WHEREFORE, in view of the foregoing, the garnishee, Development Bank of the Philippines, Butuan City
Branch, through its manager, Mr. Wilfred Alava, is hereby ordered to release one half of the garnished amount or
the sum of P490,609.955 in CASH to Atty. Dollfuss R. Go.

As there is no showing from the pleadings filed by defendant City of Butuan that CVC Lumber Industries,
Inc., still exist, Mr. Wilfred Alava is likewise ordered to release the remaining half of the garnished amount in the
sum of P490,609.955 in CASH to plaintiff Gil M. Cembrano.

IT IS SO ORDERED.[41]

The DBP complied and released the amount of P981,219.91 to CVC and Cembrano.[42]

On February 4, 2003, the City of Butuan filed a Petition for Certiorari and Prohibition[43] with the CA against CVC, Pag-Ong,
Plaza and Cembrano, assailing the January 8, 2003 Order of the trial court. The case was docketed as CA-G.R. SP No. 75328. It insisted
that it had already paid respondent CVC and Cembrano as ordered by the CA in CA-G.R. CV No. 55049.

Atty. Go filed a Comment[44] on the petition for and in behalf respondents except Pag-Ong and Plaza, alleging that the RTC
had the inherent power to rule that such payment made by the City of Butuan to Pag-Ong was illegal.

For its part, the City of Butuan filed a Reply,[45] claiming that the petition had become moot and academic because the DBP
had already released the money to Go and Cembrano on February 4, 2003.

On August 5, 2003, the CA rendered judgment granting the petition. The fallo reads:

IN VIEW OF ALL THE FOREGOING, the instant petition is hereby GRANTED and the assailed Orders RECALLED and SET ASIDE,
and a new one entered RECALLING and DECLARING NULL and VOID the Orders dated January 8, 2003 and February
3, 2003, and altogether quashing the writ of execution or garnishment issued in this case. As a further consequence
of this order, Atty. Dollfuss R. Go and plaintiff Gil M. Cembrano are ordered each to return to the petitioner City of
Butuan the amount of P490,605.955, which they received as a result of the implementation of the writ of
garnishment issued in the case. Costs against the respondents.

SO ORDERED.[46]

The CA ruled that, under the Decision of the CA in CA-G.R. CV No. 55049, either respondent Cembrano or Pag-Ong could
receive the award of P926,845.00 for the respondent CVC. Moreover, the City of Butuan acted in good faith in delivering the check to
the President of CVC. Inasmuch as it had already remitted the judgment debt, the City was released of its obligation under the Decision
in CA-G.R. CV No. 55049; hence, the trial court committed grave abuse of its discretion amounting to excess of jurisdiction when it
ordered the garnishment of the bank account of petitioner Butuan City with the DBP, and in ordering the bank to release P490,609.955
to Atty. Dollfuss R. Go, and the remaining half to Cembrano.
 The CA, likewise, declared that: [w]hatever intra-corporate disputes over any controversy existing between Cembrano, on
the one hand, and Pag-Ong on the other, is something which they have to thresh out in an appropriate proceeding and not in the case
before it.[47] Consequently, the appellate court ordered Go and Cembrano to return what each received from the DBP to the City
of Butuan. The appellate court also stated the judgment creditor can very well satisfy the judgment debt even before a writ of
execution shall have been issued by the court for the implementation of its decision.[48]

Go and Cembrano filed a Motion for Reconsideration, insisting that the trial court did not commit any grave abuse of its
discretion in issuing the assailed orders of the trial court. As gleaned from the evidence on record in Civil Case No. 3851, the transaction
subject matter thereof was between Cembrano and the City of Butuan, and Plaza and Pag-Ong had no participation or involvement
therein whatsoever. Cembrano maintained that it was he who funded the purchase and delivery of the timber poles and piles to the
City of Butuan, since he secured the P150,000.00 loan from the DBP, the amount CVC used to finance the purchase of timber poles
and piles.
This is gleaned from the evidence adduced during the trial, consisting of the Promissory Note he executed in favor of DBP
for P150,000.00, and the real estate mortgage executed by him in favor of the DBP over the property belonging to his mother covered
by TCT No. 17068 as security for the payment of said loan. [49] They appended to the motion the real estate mortgage executed by
Cembrano in favor of the DBP and their formal offer of evidence filed in Civil Case No. 3851.

The CA, however, denied the motion for reconsideration in a Resolution [50] dated April 5, 2005.

Cembrano and Go, now petitioners, assail the Decision and Resolution of the CA on the following grounds:

I
BOTH PETITONERS WERE DEPRIVED OF THEIR CONSTITUTIONAL AND PROCEDURAL DUE PROCESS WHEN THE
HONORABLE COURT OF APPEALS ORDERED THEM TO RETURN TO THE CITY OF BUTUAN THE AMOUNT
OF P490,609.955[51]

II
THAT THE HONORABLE COURT OF APPEALS COMMITTED SERIOUS ERRORS OF LAW NAY GRAVE ABUSE OF
DISCRETION IN DECLARING PAYMENT BY THE CITY OF BUTUAN TO MONICO PAG-ONG AND ISIDRO PLAZA, WHO
WERE NOT PARTIES TO CIVIL CASE NO. 3851 AND CA-G.R. CV No. 55049, IS A VALID PAYMENT OF THE JUDGMENT
DEBT IN CA-G.R. CV No. 55049 AND IN SETTING ASIDE AND DECLARING NULL AND VOID THE WRIT OF
GARNISHMENT ISSUED BY THE COURT A QUO. [52]

III
THE DECISION OF THE HONORABLE COURT OF APPEALS IN CA G.R. CV No. 55049 HAD BECOME FINAL AND
EXECUTORY AND COULD NOT BE CHANGED BY THE HONORABLE COURT OF APPEALS 1 ST DIVISION ON A MERE
PETITION FOR CERTIORARI IN CA-G.R. SP No. 75328.[53]

Petitioner Go avers that he was merely the counsel of petitioner Cembrano in Civil Case No. 3851, and was not a party in said case nor
in CA-G.R. CV No. 55049. He and petitioner Cembrano were deprived of their right to due process when they were ordered by the CA
in CA-G.R. SP No. 75328 to return the P490,609.955 garnished by the Sheriff in Civil Case No. 3851. The proper recourse of the
respondent City was to file a separate complaint to resolve the issue of who is entitled to the amount; the issue of whether petitioner
Go was obliged to return the amount which he received as attorneys fees and reimbursement of litigation expenses and whether
petitioner Cembrano was entitled to the P490,609.95 would have to be ventilated and resolved after a full-blown trial.

Petitioners aver that the CA committed a serious error when it declared that the payment by the respondent Butuan City to respondent
CVC, through its President Pag-Ong, validly discharged it from its obligation in CA-G.R. CV No. 55049; it likewise erred in ruling that the
acceptance of P926,845.00 by respondent Pag-Ong released the City of Butuan from its obligations on the premise that Pag-Ong, as
president of CVC, could be considered as a person in possession of credit.

Petitioner Cembrano, being one of the plaintiffs in Civil Case No. 3851 and an appellant in CA-G.R. CV No. 55049, is entitled
to one-half of the award, which he had already assigned to petitioner Go; hence, the latter is entitled to one-half of the award,
or P490,609.955. Petitioner Go maintains that the deed of assignment is a valid contract between him and petitioner
Cembrano. Petitioners cite the ruling of this Court in Harry E. Keeler Electric Co. v. Rodriguez.[54]
Petitioner Go avers that he was not a party in Civil Case No. 3851 (CA-G.R. CV No. 55049 and CA-G.R. SP No. 75328). He was merely
the counsel of the plaintiffs in Civil Case No. 3851, and who were the appellants
CA-G.R. CV No. 55049. Hence, the CA in CA-G.R. SP No. 75328 cannot compel him to return the P490,609.955 he received from the
DBP. Petitioners insist that the proper remedy of respondent City of Butuan is to file the proper complaint against them so that they
can file the appropriate pleadings in their defense.

For its part, the respondent City of Butuan avers that it complied with the decision in CA-G.R. CV No. 55049 when it remitted
the full amount of P926,845.00 to respondent CVC. Contrary to his claim, petitioner Cembrano is not entitled to one-half of the
monetary award in CA-G.R. CV No. 55049 for the simple reason that he was merely CVC Marketing Supervisor, and happened to
participate in the public bidding for the supply of timber piles solely in that capacity. As ruled by the CA in CA-G.R. SP No. 75328,
petitioner Cembrano admitted in his Urgent Motion (to Direct Sheriff to Garnish Defendants Account) that he was clothed with the
proper authority to participate in the bidding and deliver the timber piles under the contract. It maintains that what should prevail is
the dispositive portion of the decision in CA-G.R. CV No. 55049, and that a writ of execution which does not strictly adhere to the
dispositive portion of the decision is invalid.

It further maintains that it acted on its honest belief that respondent Pag-Ong, as CVC president, was authorized to receive payment
in behalf of said corporation. Citing Article 1240 of the New Civil Code, respondent City maintains that its payment to CVC, through its
President, satisfied its obligations under the decision of the CA in CA-G.R. CV No. 55049. It was completely unaware of any dispute
between CVC and Cembrano. Moreover, if petitioners believed that they were entitled to the P490,609.955 out of its remittance
of P926,845.00 to CVC, they should have presented evidence in the RTC to prove their claim.

For their part, respondents Pag-Ong and Plaza aver that as president of CVC and chief executive officer, Pag-ong was authorized to
receive the amount of P926,845.00 from respondent Butuan City.
The threshold issues in this case are: (1) whether or not the remittance of the P926,845.00 made by respondent City of Butuan to the
respondent CVC, through its president respondent Pag-Ong, released it from its obligation under the decision in CA-G.R. CV No. 55049;
and (2) whether the CA erred in ordering the petitioner to return the P981,219.91 to the account of respondent City with the DBP.

The Ruling of the Court

On the first issue, the respondent City, as judgment debtor, is burdened to prove with legal certainty that its obligation under
the CA decision in CA-G.R. CV No. 55049 has been discharged by payment, which under Article 1240 of the Civil Code, is a mode of
extinguishing an obligation.[55] Article 1240 of the Civil Code provides that payment shall be made to the person in whose favor the
obligation has been constituted, or his successor-in-interest, or any person authorized to receive it.[56]

Payment made by the debtor to the person of the creditor or to one authorized by him or by the law to receive it extinguishes
the obligation.[57] When payment is made to the wrong party, however, the obligation is not extinguished as to the creditor who is
without fault or negligence even if the debtor acted in utmost good faith and by mistake as to the person of the creditor or through
error induced by fraud of a third person.[58]

In general, a payment in order to be effective to discharge an obligation, must be made to the proper person. Thus, payment
must be made to the obligee himself or to an agent having authority, express or implied, to receive the particular payment. Payment
made to one having apparent authority to receive the money will, as a rule, be treated as though actual
authority had been given for its receipt. Likewise, if payment is made to one who by law is authorized to act for the creditor, it will
work a discharge. The receipt of money due on a judgment by an officer authorized by law to accept it will, therefore, satisfy the
debt.[59]

When there is a concurrence of several creditors or of several debtors or of several creditors and debtors in one and the same
obligation, it is presumed that the obligation is joint and not solidary. [60] The most fundamental effect of joint divisible obligations is
that each creditor can demand only for the payment of his proportionate share of the credit, while each debtor can be held liable only
for the payment of his proportionate share of the debt. As a corollary to this rule, the credit or debt shall be presumed, in the absence
of any law or stipulation to the contrary, to be divided into as many shares as there are creditors and debtors, the credits or debts
being considered distinct from one another.[61] It necessarily follows that a joint creditor cannot act in representation of the others.
Neither can a joint debtor be compelled to answer for the liability of the others. [62] The pertinent rules are provided in Articles
1207[63] and 1208[64] of the Civil Code.

We agree with the petitioners contention that, under the fallo of the CA decision in CA-G.R. CV No. 55049, respondent City was ordered
to pay P926,845.00 to the plaintiffs in Civil Case No. 3851:
 IN VIEW OF THE FOREGOING, the decision appealed from is hereby REVERSED and SET ASIDE. Defendant City of
Butuan is directed to pay the plaintiffs the total sum of P926,845.00 in accordance with the above computation
with 6% interest as of the date this decision attains finality.
Costs against defendant-appellee.[65]
xxx

The Court adopts with approval the investigation report of the City Legal Officer. As a consequence of which, We
find plaintiffs to be entitled to damages as follows:

- The value of the timber piles defendants

refused to accept computed at
P1,485.00 per timber pile .. P148,500.00

- The value of 447 timber piles which

plaintiffs were ready and could
have delivered were it not for the
unilateral termination of the
contract P708,345.00
- Attorneys fees P 50,000.00

- Litigation expenses P 20,000.00

or a total of P926,845.00[66]

As gleaned from the complaint in Civil Case No. 3851, the plaintiffs therein are petitioner Gil Cembrano and respondent CVC;
as such, the judgment creditors under the fallo of the CA decision are petitioner Cembrano and respondent CVC. Each of them is
entitled to one-half (1/2) of the amount of P926,845.00 or P463,422.50 each.

In compliance with the decision of the CA in CA-G.R. CV 55409, respondent City remitted the P926,845.00 to respondent CVC, and that
respondent Pag-Ong received the amount for and in behalf of CVC and not in his personal capacity. Considering that respondent Pag-
ong as CVC president was authorized to receive the money, respondent Citys payment discharged respondent City of its obligation
under the decision in CA-G.R. CV No. 55049. However, since petitioner Cembrano did not receive any centavo out of the P926,845.00
remitted to respondent CVC, the obligation to remit one-half of the amount, or P463,422.50, to petitioner Cembrano was not
extinguished.

The petitioners and the respondent City are correct in their contention that the general rule is that the fallo or the dispositive
portion of the decision is the subject of execution. Where there is a conflict between the dispositive portion and the opinion of the
court contained in the text or body of the decision, the former must prevail over the latter on the theory that the dispositive portion
is the final order, while the opinion is merely a statement ordering nothing. [67] The other parts of the decision may be resorted to in
order to determine the ratio decidendi of the dispositive portion of the decision.[68] Where the inevitable conclusion from the body of
the decision is so clear as to show that there was a mistake in the dispositive portion, the body of the decision will prevail.[69]

In this case, the fallo or dispositive portion of the CA decision in CA-G.R. CV No. 55049 is plain and unambiguous in that respondent
City was ordered to pay to petitioner Cembrano and respondent CVC the amount of P926,845.00 plus interest. In the body of its
decision, the CA declared that the plaintiffs are to be entitled to damages, as follows:

The Court adopts with approval the investigation report of the City Legal Officer. As a consequence of which, We
find plaintiffs to be entitled to damages as follows:

- The value of the timber piles defendants

refused to accept computed at
P1,485.00 per timber pile .. P148,500.00

- The value of 447 timber piles which

plaintiffs were ready and could
have delivered were it not for the
unilateral termination of the
contract P708,345.00
- Attorneys fees P 50,000.00

- Litigation expenses P 20,000.00

or a total of P926,845.00[70]

We note that under the decision of the appellate court, the value of 447 timber piles which the plaintiffs could have delivered to
respondent City was P708,345.00.

We agree with respondents contention that under the decision of the CA, the winning bidder for the sale and supply of timber
piles/poles was respondent CVC, and that petitioner Cembrano was merely the CVC Marketing Supervisor who represented it during
the bidding, and that this was also alleged in the complaint before the RTC. The CA in CA-G.R. CV No. 55049 further declared that
respondent CVC, not petitioner Cembrano, secured the DBP loan to augment its capital. Consequently, respondents argue, CVC being
the contracting party and petitioner Cembrano being a mere agent of CVC, the latter is entitled to the value of the timber poles/piles
subject to be supplied to respondent City contrary to the plain and unambiguous fallo of the decision. However, if this contention of
respondents had been correct, the CA should have dismissed the complaint insofar as petitioner Cembrano was concerned, on the
premise that he had no cause of action against respondent City. The CA did not do so, and instead ordered respondent City to
pay P926,845.00 to petitioner Cembrano and respondent CVC.

It bears stressing that there were two plaintiffs in Civil Case No. 3851. It appears in the complaint that petitioner Cembrano
was a party-plaintiff. He alleged that it was he who secured a loan from the DBP of P150,000.00 and mortgaged the property of his
uncle as security therefor to partly finance the purchase of timber poles/piles to the respondent City. The plaintiffs adduced in
evidence the Promissory Note executed by Cembrano and the Real Estate Mortgage he executed in favor of the DBP. [71] The Purchase
Order issued by the City was delivered to respondent CVC or Cembrano. Based on the disbursement voucher for the payment of
the P24,640.00 paid
by the respondent City for the supply of poles/piles, it appears that the payee is CVC or Cembrano. In the report of the City Legal
Officer which was approved by the Court of Appeals, it declared that the contract of respondent City for the supply of timber
poles/piles was CVC or Cembrano. In fine, Cembrano was a party-plaintiff in his personal capacity and not merely as Marketing
Supervisor of respondent CVC. The CA resolved that, based on the evidence on record, petitioner Cembrano and respondent CVC were
entitled to the amount of P926,845.00.

To reiterate, it is the dispositive part of the judgment that actually settles and declares the rights and obligations of the
parties, finally, definitively, authoritatively, notwithstanding the existence of inconsistent statements in the body that may tend to
confuse; it is the dispositive part that controls, for purposes of execution. [72]

Respondent CVC did not file any motion for the reconsideration of the CA decision in CA-G.R. CV No. 55049. Since petitioner
Cembrano had assigned his rights and interests under the decision to petitioner Go, the latter received the amount of P490,609.955
on the basis of the deed of assignment executed by petitioner Cembrano. Petitioner Go cannot be compelled to return the same to
respondent City.
Since respondent CVC was entitled to only P490,605.955 under the CA decision in CA-G.R. CV No. 55049 but
received P926,845.00, there was, in fine, an overpayment of P490,605.955 made by respondent City. Thus, respondent CVC is obliged
to return the amount of P490,605.955 to respondent City. Since petitioner Cembrano had already assigned P490,609.955 to petitioner
Go, the latter likewise had the right to receive the P490,609.955 from DBP. Petitioner Cembrano should thus be made to return the
amount of P490,609.955 he received from the DBP to respondent City.

IN LIGHT OF ALL THE FOREGOING, the petition is PARTIALLY GRANTED. The decision of the Court of Appeals is AFFIRMED with
MODIFICATION. Petitioner Gil Cembrano is ORDERED to return to respondent City of Butuan the amount of P490,609.955, with 6%
interest per annum to be computed from the finality of this decision. Respondent CVC is ORDERED to return to
respondent Butuan City the amount of P490,609.955, with 6% interest per annum to be computed from the date of finality of this
decision. No costs.

SO ORDERED.
9. Republic Glass v. Qua

The Facts

Petitioners Republic Glass Corporation (RGC) and Gervel, Inc. (Gervel) together with respondent Lawrence C. Qua (Qua) were
stockholders of Ladtek, Inc. (Ladtek). Ladtek obtained loans from Metropolitan Bank and Trust Company (Metrobank) [5] and Private
Development Corporation of the Philippines[6] (PDCP) with RGC, Gervel and Qua as sureties. Among themselves, RGC, Gervel and Qua
executed Agreements for Contribution, Indemnity and Pledge of Shares of Stocks (Agreements).[7]

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

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

Under the same Agreements, Qua pledged 1,892,360 common shares of stock of General Milling Corporation (GMC) in favor of RGC
and Gervel. The pledged shares of stock served as security for the payment of any sum which RGC and Gervel may be held liable under
the Agreements.

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

In a letter dated 7 November 1988, RGC and Gervels counsel, Atty. Antonio C. Pastelero, demanded that Qua pay P3,860,646,
or 42.22% of P8,730,543.55,[11] as reimbursement of the total amount RGC and Gervel paid to Metrobank and PDCP. Qua refused to
reimburse the amount to RGC and Gervel. Subsequently, RGC and Gervel furnished Qua with notices of foreclosure of Quas pledged
shares.
Qua filed a complaint for injunction and damages with application for a temporary restraining order, docketed as Civil Case
No. 88-2643 (Foreclosure Case No. 88-2643), with RTC-Branch 63 to prevent RGC and Gervel from foreclosing the pledged
shares. Although it issued a temporary restraining order on 9 December 1988, RTC-Branch 63 denied on 2 January 1989 Quas Urgent
Petition to Suspend Foreclosure Sale. RGC and Gervel eventually foreclosed all the pledged shares of stock at public auction. Thus,
Quas application for the issuance of a preliminary injunction became moot. [12]

Trial in Foreclosure Case No. 88-2643 ensued. RGC and Gervel offered Quas Motion to Dismiss[13] in Collection Case No. 8364
as basis for the foreclosure of Quas pledged shares. Quas Motion to Dismiss states:

8. The foregoing facts show that the payment of defendants Republic Glass Corporation and Gervel, Inc.
was for the entire obligation covered by the Continuing Surety Agreements which were Annexes B and C
of the Complaint, and that the same naturally redound[ed] to the benefit of defendant Qua herein, as
provided for by law, specifically Article 1217 of the Civil Code, which states that:

xxx

10. It is very clear that the payment of defendants Republic Glass Corporation and Gervel, Inc. was much more than
the amount stipulated in the Continuing Surety Agreement which is the basis for the action against them
and defendant Qua, which was just SIX MILLION TWO HUNDRED [THOUSAND] PESOS (P6,200,000.00),
hence, logically the said alleged obligation must now be considered as fully paid and extinguished.
 RGC and Gervel likewise offered as evidence in Foreclosure Case No. 88-2643 the Order dismissing Collection Case No.
8364,[14] which RTC-Branch 149 subsequently reversed on Metrobanks motion for reconsideration.Thus, RTC-Branch 149 reinstated
Collection Case No. 8364 against Qua.

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

WHEREFORE, premises considered, this Court hereby renders judgment ordering defendants jointly and
severally liable to return to plaintiff the 1,892,360 shares of common stock of General Milling Corporation which
they foreclosed on December 9, 1988, or should the return of these shares be no longer possible then to pay to
plaintiff the amount of P3,860,646.00 with interest at 6% per annum from December 9, 1988 until fully paid and to
pay plaintiff P100,000.00 as and for attorneys fees. The costs will be for defendants account.

SO ORDERED.[15]

However, on RGC and Gervels Motion for Reconsideration, RTC-Branch 63 issued its Order of 3 May 1996 (3 May 1996 Order)
reconsidering and setting aside the 12 January 1996 Decision. The 3 May 1996 Order states:

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

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

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

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

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

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

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

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

Whether or not the surety agreements signed by the parties and the creditors were novated is not material
in this controversy. The fact is that there was payment of the obligation. Hence, the Indemnity Agreements govern.
 In the final analysis, defendants payments gave rise to plaintiffs obligation to reimburse the former. Having
failed to do so, upon demand, defendants were justified in foreclosing the pledged shares of stocks.

xxx

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

Likewise, defendants counterclaim is also dismissed.

SO ORDERED.[16] (Emphasis supplied)

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

Aggrieved, Qua appealed to the Court of Appeals. During the pendency of the appeal, Qua filed a Manifestation [17] with the
Court of Appeals attaching the Decision[18] of 21 November 1996 rendered in Collection Case No. 8364. The dispositive portion of the
decision reads:
WHEREFORE, premises considered, judgment is hereby rendered ordering defendants Ladtek, Inc. and
Lawrence C. Qua:

1. To pay, jointly and severally, the plaintiff the amount of P44,552,738.34 as of October 31, 1987
plus the stipulated interest of 30.73% per annum and penalty charges of 12% per annum from November 1, 1987
until the whole amount is fully paid, less P7,000,000.00 paid by defendants Republic Glass Corporation and Gervel,
Inc., but the liability of defendant Lawrence C. Qua should be limited only to P5,000,000.00 and P1,200,000.00,
the amount stated in the Continuing Suretyship dated June 15, 1983, Exh. D and Continuing Suretyship dated
December 14, 1981, Exh. D-1, respectively, plus the stipulated interest and expenses incurred by the plaintiff.

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

3. To pay the cost of suit.

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

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

SO ORDERED.[19] (Emphasis supplied)

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

Hence, this petition.

The Ruling of the Court of Appeals

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

The liability of each party under the indemnity agreements therefore is premised on the payment by any of them of
the entire obligation. Without such payment, there would be no corresponding share to reimburse. Payment of the
 entire obligation naturally redounds to the benefit of the other solidary debtors who must then reimburse the paying
co-debtors to the extent of his corresponding share.
In the case at bar, Republic Glass and Gervel made partial payments only, and so they did not extinguish the entire
obligation. But Republic Glass and Gervel nevertheless obtained quitclaims in their favor and so they ceased to be
solidarily liable with plaintiff for the balance of the debt (Exhs. D, E, and I). Plaintiff thus became solely liable for the
unpaid portion of the debt even as he is being held liable for reimbursement on the said portion.

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

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

xxx

In the final reckoning, this Court finds that the foreclosure and sale of the shares pledged by plaintiff was totally
unjustified and without basis because the obligation secured by the underlying pledge had been extinguished by
novation. xxx[21]

The Court of Appeals further held that there was an implied novation or substantial incompatibility in the suretys mode or manner of
payment from one for the entire obligation to one merely of proportionate share. The appellate court ruled that RGC and Gervels
payment to the creditors only amounted to their proportionate shares of the obligation, considering the following evidence:
The letter of the Republic to the appellant, Exhibit G, dated June 25, 1987, which mentioned the letter from PDCP
confirming its willingness to release the joint and solidary obligation of the Republic and Gervel subject to some
terms and conditions, one of which is the appellants acceptable repayment plan of his pro-rata share; and the letter
of PDCP to the Republic, Exhibit H, mentioning full payment of the pro rata share of the Republic and Gervel, and
the need of the appellant to submit an acceptable repayment plan covering his pro-rata share, the release from
solidary liability by PDCP, Exhibit J, mentioning full payment by the Republic and Gervel of their pro rata share in the
loan, as solidary obligors, subject however to the terms and conditions of the hold out agreement; and the non-
payment in full of the loan, subject of the May 10, 1984 Promissory Note, except the 7 million payment by both
Republic and Gervel, as mentioned in the Decision (Case No. 8364, Metrobank vs. Ladtek, et al).Precisely, Ladtek and
the appellant, in said Decision were directed to pay Metrobank the balance of P9,560,798, supposedly due and
unpaid.

Thus, the payment did not extinguish the entire obligation and did not benefit Qua. Accordingly, RGC and Gervel cannot demand
reimbursement. The Court of Appeals also held that Qua even became solely answerable for the unpaid balance of the obligations by
virtue of the quitclaims executed by Metrobank and PDCP in favor of RGC and Gervel. RGC and Gervel ceased to be solidarily liable for
Ladteks loan obligations.[22]

The Issues

RGC and Gervel raise the following issues for resolution:

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

II.
 WHETHER PAYMENT OF THE ENTIRE OBLIGATION IS A CONDITION SINE QUA NON FOR RGC AND GERVEL TO
DEMAND REIMBURSEMENT FROM QUA UNDER THE INDEMNITY AGREEMENTS EXECUTED BY THEM AFTER RGC AND
GERVEL PAID METROBANK UNDER THE SURETY AGREEMENT.

III.
ASSUMING ARGUENDO THAT THERE WAS NOVATION OF THE SURETY AGREEMENTS SIGNED BY THE PARTIES AND
THE CREDITORS, WHETHER THE NOVATION IS MATERIAL IN THIS CASE.[23]

The Courts Ruling

We deny the petition.

Whether Qua was in estoppel

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

The essential elements of estoppel in pais are considered in relation to the party to be estopped, and to the party invoking
the estoppel in his favor. On the party to be estopped, such party (1) commits conduct amounting to false representation or
concealment of material facts or at least calculated to convey the impression that the facts are inconsistent with those which the party
subsequently attempts to assert; (2) has the intent, or at least expectation that his conduct shall at least influence the other party;
and (3) has knowledge, actual or constructive, of the real facts. On the party claiming the estoppel, such party (1) has lack of
knowledge and of the means of knowledge of the truth on the facts in question; (2) has relied, in good faith, on the conduct or
statements of the party to be estopped; (3) has acted or refrained from acting based on such conduct or statements as to change the
position or status of the party claiming the estoppel, to his injury, detriment or prejudice.[24]

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

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

Nothing in the records shows that RGC and Gervel relied on Quas statements in Collection Case No. 8364 such that they
changed their position or status, to their injury, detriment or prejudice. RGC and Gervel repeatedly point out that it was the presiding
judge[25] in Collection Case No. 8364 who relied on Quas statements in Collection Case No. 8364. RGC and Gervel claim that Qua
deliberately led the Presiding Judge to believe that their payment to Metrobank was for the entire obligation. As a result, the presiding
judge ordered the dismissal of Collection Case No. 8364 against Qua. [26]

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

Sec. 4. Judicial admissions. An admission, verbal or written, made by a party in the course of the proceedings in
the same case, does not require proof. The admission may be contradicted only by showing that it was made through
palpable mistake or that no such admission was made.

A party may make judicial admissions in (a) the pleadings filed by the parties, (b) during the trial either by verbal or written
manifestations or stipulations, or (c) in other stages of the judicial proceeding. [27]
 The elements of judicial admissions are absent in this case. Qua made conflicting statements in Collection Case No. 8364
and in Foreclosure Case No. 88-2643, and not in the same case as required in Section 4 of Rule 129.To constitute judicial admission,
the admission must be made in the same case in which it is offered. If made in another case or in another court, the fact of such
admission must be proved as in the case of any other fact, although if made in a judicial proceeding it is entitled to greater weight.[28]

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

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

Whether payment of the entire obligation is an

essential condition for reimbursement

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

RGC and Gervels contention is partly meritorious.

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

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

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

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

Therefore, whether the solidary debtor has paid the creditor, the other solidary debtors should indemnify the former once his liability
becomes absolute. However, in this case, the liability of RGC, Gervel and Qua became absolute simultaneously when Ladtek defaulted
in its loan payment. As a result, RGC, Gervel and Qua all became directly liable at the same time to Metrobank and PDCP. Thus, RGC
and Gervel cannot automatically claim for indemnity from Qua because Qua himself is liable directly to Metrobank and PDCP.
 If we allow RGC and Gervel to collect from Qua his proportionate share, then Qua would pay much more than his stipulated
liability under the Agreements. In addition to the P3,860,646 claimed by RGC and Gervel, Qua would have to pay his liability of P6.2
million to Metrobank and more than P1 million to PDCP. Since Qua would surely exceed his proportionate share, he would then
recover from RGC and Gervel the excess payment. This situation is absurd and circuitous.

Contrary to RGC and Gervels claim, payment of any amount will not automatically result in reimbursement. If a solidary
debtor pays the obligation in part, he can recover reimbursement from the co-debtors only in so far as his payment exceeded his share
in the obligation.[33] This is precisely because if a solidary debtor pays an amount equal to his proportionate share in the obligation,
then he in effect pays only what is due from him. If the debtor pays less than his share in the obligation, he cannot demand
reimbursement because his payment is less than his actual debt.

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

RGC and Gervel assail the Court of Appeals consideration of the decision in Collection Case No. 8364 [34] because Qua did not
offer the decision in evidence during the trial in Foreclosure Case No. 88-2643 subject of this petition. RTC-Branch 62[35] rendered the
decision in Collection Case No. 8364 on 21 November 1996 while Qua filed his Notice of Appeal of the 3 May 1996 Order on 19 June
1996. Qua could not have possibly offered in evidence the decision in Collection Case No. 8364 because RTC-Branch 62 rendered the
decision only after Qua elevated the present case to the Court of Appeals. Hence, Qua submitted the decision in Collection Case No.
8364 during the pendency of the appeal of Foreclosure Case No. 88-2643 in the Court of Appeals.

As found by RTC-Branch 62, RGC, Gervel and Quas total obligation was P14,200,854.37 as of 31 October 1987.[36] During the
pendency of Collection Case No. 8364, RGC and Gervel paid Metrobank P7 million. Because of the payment, Metrobank executed a
quitclaim[37] in favor of RGC and Gervel. By virtue of Metrobanks quitclaim, RTC-Branch 62 dismissed Collection Case No. 8364 against
RGC and Gervel, leaving Ladtek and Qua as defendants. Considering that RGC and Gervel paid only P7 million out of the total obligation
of P14,200,854.37, which payment was less than RGC and Gervels combined shares in the obligation, [38] it was clearly partial payment.
Moreover, if it were full payment, then the obligation would have been extinguished. Metrobank would have also released Qua from
his obligation.

RGC and Gervel also made partial payment to PDCP. Proof of this is the Release from Solidary Liability that PDCP executed in
RGC and Gervels favor which stated that their payment of P1,730,543.55 served as full payment of their corresponding proportionate
share in Ladteks foreign currency loan.[39] Moreover, PDCP filed a collection case against Qua alone, docketed as Civil Case No. 2259,
in the Regional Trial Court of Makati, Branch 150.[40]

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

Whether there was novation of the Agreements

RGC and Gervel contend that there was no novation of the Agreements. RGC and Gervel further contend that any novation of the
Agreements is immaterial to this case. RGC and Gervel disagreed with the Court of Appeals on the effect of the implied novation
which supposedly transpired in this case. The Court of Appeals found that there was an implied novation or substantial
incompatibility in the mode or manner of payment by the surety from the entire obligation, to one merely of proportionate share.
RGC and Gervel claim that if it is true that an implied novation occurred, then the effect would be to release respondent (Qua) as
the entire obligation is considered extinguished by operation of law. Thus, Qua should now reimburse RGC and Gervel his
proportionate share under the surety agreements.

Novation extinguishes an obligation by (1) changing its object or principal conditions; (2) substituting the person of the debtor;
and (3) subrogating a third person in the rights of the creditor. Article 1292 of the Civil Code clearly provides that in order that an
obligation may be extinguished by another which substitutes the same, it should be declared in unequivocal terms, or that the old and
new obligations be on every point incompatible with each other. [41] Novation may either be extinctive or modificatory. Novation is
extinctive when an old obligation is terminated by the creation of a new obligation that takes the place of the former. Novation is
merely modificatory when the old obligation subsists to the extent it remains compatible with the amendatory agreement. [42]
 We find that there was no novation of the Agreements. The parties did not constitute a new obligation to substitute the
Agreements. The terms and conditions of the Agreements remain the same. There was also no showing of complete incompatibility
in the manner of payment of the parties obligations. Contrary to the Court of Appeals ruling, the mode or manner of payment by the
parties did not change from one for the entire obligation to one merely of proportionate share. The creditors, namely Metrobank and
PDCP, merely proceeded against RGC and Gervel for their proportionate shares only. [43] This preference is within the creditors
discretion which did not necessarily affect the nature of the obligations as well as the terms and conditions of the Agreements. A
creditor may choose to proceed only against some and not all of the solidary debtors. The creditor may also choose to collect part of
the debt from some of the solidary debtors, and the remaining debt from the other solidary debtors.

In sum, RGC and Gervel have no legal basis to seek reimbursement from Qua. Consequently, RGC and Gervel cannot validly
foreclose the pledge of Quas GMC shares of stock which secured his obligation to reimburse.[44] Therefore, the foreclosure of the
pledged shares of stock has no leg to stand on.

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

10. Ongkeko v. BPI Express Card

Assailed in the present petition for review on certiorari are the Decision dated January 25, 2001 and Resolution dated February 23,
2001, rendered by the Court of Appeals (CA) in CA-G.R. SP No. 61427.[1]

The facts that gave rise to the present case are undisputed. On September 13, 1990, Lina Lodovica (Lodovica) applied for a credit card
with respondent, with Vicente Ongkeko (petitioner) acting as surety. Her application was approved and she was originally given
a P3,000.00 credit limit. When Lodovicas card expired in 1991, it was renewed and her credit limit was increased to P10,000.00. As
of May 12, 1996, Lodovica had an outstanding balance of P22,476.61.

On May 28, 1996, respondent brought an action for sum of money against Lodovica and petitioner. Petitioner filed his Answer
admitting his undertaking, but he maintained that he can only be liable for the original credit limit of P3,000.00, and that the renewal
of the credit card without his consent extinguished his undertaking.

The Metropolitan Trial Court (MTC) of Makati, Branch 66, rendered judgment on January 31, 2000, finding petitioner liable. The
dispositive portion of the Decision reads:

WHEREFORE, judgment is rendered ordering defendant Ongkeko to pay plaintiff the following:

1. the amount of P22,476.61 as of May 12, 1996 plus the interest of 3% per month and 1% penalty charge per month
from date of the filing of the complaint on May 28, 1996 until the account is fully paid;

2. 25% of the amount due as attorneys fees or P10,000.00 whichever is lesser;

3. cost of suit.

SO ORDERED.[2]

The Regional Trial Court (RTC) of Makati, Branch 135, in its Decision dated July 10, 2000[3] and Order dated October 2, 2000,[4] affirmed
the MTC Decision.

The CA also affirmed the lower courts decisions when it dismissed the petition for review filed before it. The CA, however, deleted the
award of attorneys fees inasmuch as the MTC Decision does not contain any justification for its award.[5] The CA denied petitioners
motion for reconsideration.[6]

Petitioner merely reiterated in the present petition the arguments he previously raised before the lower courts and the appellate
court. Petitioner submits the following contentions:

1. Petitioner is not liable for the purchases made by Lodovica after the expiration of the original term of the credit
card because he was not notified of the renewal of the credit and the increase of the credit limit;
 2. The surety undertaking, being a contract of adhesion, should have been taken against Respondent;

3. Petitioner is not liable for the purchases made by Lodovica after the expiration of the original term of the credit
card because the circumstances at the time he agreed to act as surety for Lodovica were no longer existing at the
time of the renewal.[7]

Petitioners case is not a novel one. In the analogous case of Molino v. Security Diners International Corporation,[8] the Court already
had the occasion to rule that suretyship under these circumstances is a continuing one and the surety is bound by the liabilities of the
principal until it has been fully paid.

In the Molino case, Jeanette Molino, the petitioner, acted as a surety for her brother-in-law, Danilo Alto, in his application for a local
credit card with the Security Diners International Corporation (SDIC). The card was subsequently upgraded and the credit limit
increased. When Alto failed to pay his liability under the credit card, SDIC filed an action for collection against Alto and Molino. The
Court summed up the issues as: whether Molino is liable as surety, and whether the upgrading of the card constituted a novation that
will extinguish her obligation and undertaking, which was resolved in this wise, viz.:

There is no doubt that the upgrading was a novation of the original agreement covering the first credit card
issued to Danilo Alto, basically since it was committed with the intent of cancelling and replacing the said
card. However, the novation did not serve to release petitioner from her surety obligations because in the Surety
Undertaking she expressly waived discharge in case of change or novation in the agreement governing the use of
the first credit card.

The nature and extent of petitioners obligations are set out in clear and unmistakable terms in the Surety
Undertaking. Thus:

1. She bound herself jointly and severally with Danilo Alto to pay SDIC all obligations and charges
in the use of the Diners Club Card, including fees, interest, attorneys fees, and costs;

2. She declared that any change or novation in the Agreement or any extension of time granted
by SECURITY DINERS to pay such obligation, charges, and fees, shall not release (her) from this
Surety Undertaking;

3. (S)aid undertaking is a continuous one and shall subsist and bind (her) until all such
obligations, charges, and fees have been fully paid and satisfied; and

4. The indication of a credit limit to the cardholder shall not relieve (her) of liability for charges
and all other amounts voluntarily incurred by the cardholder in excess of said credit limit.

We cannot give any additional meaning to the plain language of the subject undertaking. The extent of a
suretys liability is determined by the language of the suretyship contract or bond itself. Article 1370 of the Civil Code
provides: If the terms of a contract are clear and leave no doubt upon the intention of the contracting parties, the
literal meaning of its stipulations shall control.

This case is no different from Pacific Banking Corporation vs. IAC, supra, correctly applied by the Court of
Appeals, which involved a Guarantors Undertaking (although thus denominated, it was in substance a contract of
surety) signed by the husband for the credit card application of his wife. Like herein petitioner, the husband also
argued that his liability should be limited to the credit limit allowed under his wifes card but the Court declared him
liable to the full extent of his wifes indebtedness.x x x

x x x Private respondent Roberto Regala, Jr., as surety of his wife, expressly bound himself
up to the extent of the debtors (Celias) indebtedness likewise expressly waiving any discharge in
case of any change or novation of the terms and conditions in connection with the issuance of the
Pacificard credit card. Roberto, in fact, made his commitment as a surety a continuing one,
binding upon himself until all the liabilities of Celia Regala have been fully paid.All these were
clear under the Guarantors Undertaking Roberto signed, thus: x x x[9] (Emphasis supplied)

Petitioners undertaking in this case is similar to that of the petitioner in the Molino case and the Pacific Banking Corporation
case[10] cited therein. It reads, in part:
 SURETY UNDERTAKING

I/We, the undersigned, bind myself/ourselves, jointly and severally with ____________ and/or his/her extension
card user, to pay the BPI EXPRESS CARD CORP. all the obligations, charges, and liabilities incurred under and with
the use of the BPI EXPRESS CREDIT CARD or the renewals and extensions thereof, issued to said credit cardholder
and/or extension user by the BPI EXPRESS CREDIT CARD in accordance with the terms, conditions, covenance and
stipulations governing the issuance and use of the BPI EXPRESS CREDIT CARD set forth herewith. Notwithstanding
any change or novation in the terms and conditions governing the issuance and use of the BPI EXPRESS CREDIT CARD,
or any extension of time given the cardholder and/or extension user of the card to pay such obligations, charges and
liabilities this undertaking shall continue to be binding upon me/us until all such obligations, charges and liabilities
shall have been fully paid and satisfied.[11] (Underscoring supplied)

Petitioners undertaking is clear and concise. He solidarily obliged himself to pay respondent all the liabilities incurred under the credit
card account, whether under the principal, renewal, or extension card issued, regardless of the changes or novation in the terms and
conditions in the issuance and use of the credit card. Petitioners liability shall be extinguished only when the obligations are fully paid
and satisfied.

Petitioner cannot seek sanctuary in his arguments considering that the terms and conditions of his undertaking are
unambiguous and well defined; there is no room for any interpretation ─ only application. Given that Lodovica reneged on her
obligations covered by the credit card account, petitioner is, therefore, liable.

Indeed, petitioners surety undertaking partakes the nature of a contract of adhesion, in that the stipulations were unilaterally prepared
and imposed by respondent on a take-it-or-leave-it basis; however, the Court has also ruled that such a contract is as binding as
ordinary contracts, the reason being that the party who adheres to the contract is free to reject it entirely. [12]

Petitioner is the employer of Lodovica. It is safe to assume that he takes great care of his affairs and he very well knows the
potential consequences of his acts. He took on the responsibility freely and intelligently, and whatever liability he may have incurred
in this case is one within bounds of the law.

Finally, in the Molino case, the Court took time to exhort prospective sureties to exercise caution in signing surety
undertakings prepared by credit card companies, and to read carefully the terms and conditions of the agreement. The Court finds
the present case another opportune time to reiterate said exhortation, to wit:

x x x Prospective sureties to credit card applicants would be well-advised to study carefully the terms of the
agreements prepared by the credit card companies before giving their consent, and pay heed to stipulations that
could lead to onerous effects x x x.[13]

WHEREFORE, the petition is DENIED for lack of merit.

11. PH Credit Corporation v. CA

The Facts
The facts of the case are summarized by the Court of Appeals in this wise:
These two cases have been consolidated because they involve the same parties and/or related questions of [f]act and/or law.
xxxxxxxxx
I. CA-G.R. SP NO. 23324
PH Credit Corp., filed a case against Pacific Lloyd Corp., Carlos Farrales, Thomas H. Van Sebille and Federico C. Lim, for [a] sum of
money. The case was docketed as Civil Case No. 83-17751 before the Regional Trial Court, Branch 51, Manila. After service of
summons upon the defendants, they failed to file their answer within the reglementary period, hence they were declared in
default. PH Credit Corp., was then allowed to present its evidence ex-parte.
On January 31, 1984, a decision was rendered, the dispositive portion of which reads as follows:
WHEREFORE, judgment is hereby rendered in favor of plaintiff PH Credit Corporation and against defendants Pacific Lloyd
Corporation, Thomas H. Van Sebille, Carlos M. Farrales, and Federico C. Lim, ordering the latter to pay the former, the following:
A) The sum of P118, 814.49 with interest of 18% per annum, starting December 20, 1982 until fully paid;
B) Surcharge of 16% per annum from December 20, 1982;
C) Penalty Charge of 2% per month from December 20, 1982, computed on interest and principal compounded;
D) Attorneys fees in an amount equivalent to 25% of the total sum due; and
E) Costs of suit.
SO ORDERED.
After the aforesaid decision has become final and executory, a Writ of Execution was issued and consequently implemented by the
assigned Deputy Sheriff. Personal and real properties of defendant Carlos M. Farrales were levied and sold at public auction wherein
PH Credit Corp. was the highest bidder. The personal properties were sold on August 2, 1984 at P18,900.00 while the real properties
were sold on June 21, 1989 for P1,294,726.00.
On July 27, 1990, a motion for the issuance of a writ of possession was filed and on October 12, 1990, the same was granted. The
writ of possession itself was issued on October 26, 1990. Said order and writ of possession are now the subject of this petition.
Petitioner claims that she, as a third-party claimant with the court below, filed an Urgent Motion for Reconsideration and/or to
Suspend the Order dated October 12, 1990, but without acting there[on], respondent Judge issued the writ of possession on
October 26, 1990.She claims that the actuations of respondent Judge was tainted with grave abuse of discretion.
We deem it unnecessary to pass upon the issue raised in view of the supervening event which had rendered the same moot and
academic.
It appears that on January 31, 1991, respondent Judge issued an order considering the assailed Order dated October 12, 1990 as well
as the writ of possession issued on October 26, 1990 as of no force and effect.
The purpose of the petition is precisely to have the aforesaid order and writ of possession declared null and void, but the same had
already been declared of no force and effect by the respondent Judge. It is a well-settled rule that courts will not determine a moot
question or abstract proposition nor express an opinion in a case in which no practical relief can be granted.
II. CA-G.R. SP NO. 25714
Petitioner claims that the respondent Judges Order dated January 31, 1991 was tainted with grave abuse of discretion based on the
following grounds:
1. Respondent Judge refused to consider as waived private respondents objection that his obligation in the January 31, 1984
decision was merely joint and not solidary with the defendants therein. According to petitioner, private respondent assailed the levy
on execution twice in 1984 and once in 1985 but not once did the latter even mention therein that his obligation was joint for failure
of the dispositive portion of the decision to indicate that it was solidary. Thus, private respondent must be deemed to have waived
that objection, petitioner concludes.
2. The redemption period after the auction sale of the properties had long lapsed so much [so] that the purchaser therein became
the absolute owner thereof. Thus, respondent Judge allegedly abused his discretion in setting aside the auction sale after the
redemption period had expired.
3. Respondent Judge erred in applying the presumption of a joint obligation in the face of the conclusion of fact and law contained in
the decision showing that the obligation is solidary.[5] (Citations omitted)
Ruling of the Court of Appeals
The Court of Appeals affirmed the trial courts ruling declaring null and void (a) the auction sale of Respondent Ferrales real
property and (b) the Writ of Possession issued in consequence thereof. It held that, pursuant to the January 31, 1984 Decision of the
trial court, the liability of Farrales was merely joint and not solidary. Consequently, there was no legal basis for levying and selling
Farrales real and personal properties in order to satisfy the whole obligation.
Hence, this Petition.[6]
The Issues
In its Memorandum,[7] petitioner submits the following issues for our consideration:
I
Whether or not the Court of Appeals disregarded the basic policy of avoiding multiplicity of motions.
II
Whether or not the Court of Appeals erred when it disregarded the body of the decision and concluded that the obligation was
merely a joint obligation due to the failure of the dispositive portion of the decision dated 31 January 1984 to state that the
obligation was joint and solidary.
III
Whether or not the Court of Appeals disregarded the policy of upholding executions.[8]
The Courts Ruling
The Petition is devoid of merit.
First Issue: Omnibus Motion Rule
Petitioner contends that because private respondent did not question the joint and solidary nature of his liability in his (a) Motion
to Quash Levy Execution[9] dated August 23, 1984, (b) Urgent Motion to Order Sheriff to Suspend Sale on Execution[10]dated December
3, 1984, and (c) Motion to Declare Certificate of Sale Null and Void [11]dated January 9, 1985, he cannot now raise it as an
objection. Petitioner argues that the Omnibus Motion Rule bars private respondents belated objection. We do not agree.
The Omnibus Motion Rule is found in Section 8 of Rule 15 of the Rules of Court, which we quote:
Subject to the provisions of section 1 of Rule 9, a motion attacking a pleading, order, judgment, or proceeding shall include all
objections then available, and all objections not so included shall be deemed waived. (8a)
 As an aid to the proper understanding of this case, we should at the outset point out that the objections of private respondent
contained in his Omnibus Motion[12]dated November 5, 1990 were directed at the proceedings and the orders issued after the auction
sale of his real property covered by TCT No. 82531. In his Omnibus Motion, he asked for the recall and quashal of the Writ of Possession
issued on October 26, 1990; the annulment of the June 21, 1989 auction sale of the said real property and the recomputation of his
liability to petitioner.
However, the three (3) Motions that petitioner referred to above were clearly directed against the execution of private
respondents personal properties. A perusal of these Motions will show that at the time, his objections were directed at the acts of
execution against his personal properties.
In his Motion to Quash Levy Execution,[13] private respondent pointed to the properties of herein moving defendant x x x located
at his residence at No. 17, Bunker Hill St., New Manila, Quezon City, per the Notice of Levy and Sale,[14] and asked for the quashal and
setting aside of such Notice. He was thus referring to the levy on his personal properties. By the same token, in his Urgent Motion to
Order Sheriff to Suspend Sale on Execution,[15] he referred to a copy of a sheriffs notice of sale dated November 22, 1984,[16] which in
turn alluded to the sale of his levied personal properties. Similarly, in his Motion to Declare Certificate of Sale Null and Void, [17] he
once again assailed the sale at public auction of his personal properties. It is thus clear that up to that point, he was questioning the
levy and sale of his personal properties. He could not have known at the time that he would be made to answer for the entire liability,
which he and his co-respondents were adjudged to pay petitioner by reason of the trial courts judgment of January 31, 1984.
After private respondent realized that he was being made to answer on the entire liability as a solidary debtor, he filed his
Omnibus Motion questioning the Writ of Possession and all incident orders and proceedings relevant thereto. This realization dawned
on him, because his real property was levied and sold despite the previous sale of his personal property. Only at this point was he in
a position to assert his objections to the auction sale of his real property and to put up the defense of joint liability among all the
respondents.
The Rules of Court requires that all available objections to a judgment or proceeding must be set up in an Omnibus Motion
assailing it; otherwise, they are deemed waived. In the case at bar, the objection of private respondent to his solidary liability
became availableto him, only after his real property was sold at public auction. At the time his personal properties were levied and
sold, it was not evident to him that he was being held solely liable for the monetary judgment rendered against him and his co-
respondents. That was why his objections then did not include those he asserted when his solidary liability became evident.
Prior to his Omnibus Motion, he was not yet being made to pay for the entire obligation. Thus, his objection to his being made
solidarily liable with the other respondents was not yet available to him at the time he filed the Motions referred to by petitioner. Not
being available, these objections could not have been deemed waived when he filed his three earlier Motions, which pertained to
matters different from those covered by his Omnibus Motion.
True, the Omnibus Motion Rule requires the movant to raise all available exceptions in a single opportunity to avoid multiple
piecemeal objections.[18] But to apply that statutory norm, the objections must have been available to the party at the time the Motion
was filed.
Second Issue: Basis of Private Respondents Liability
Petitioner argues that the CA erred in disregarding the text of the January 31, 1984 Decision of the trial court. In concluding that
the obligation was merely joint, the CA was allegedly mistaken in relying on the failure of the dispositive portion of the Decision to
state that the obligation was solidary.
We are not impressed. A solidary obligation is one in which each of the debtors is liable for the entire obligation, and each of the
creditors is entitled to demand the satisfaction of the whole obligation from any or all of the debtors. On the other hand,
a joint obligation is one in which each debtors is liable only for a proportionate part of the debt, and the creditor is entitled to demand
only a proportionate part of the credit from each debtor. [19] The well-entrenched rule is that solidary obligations cannot be inferred
lightly. They must be positively and clearly expressed.[20] A liability is solidary only when the obligation expressly so states, when the
law so provides or when the nature of the obligation so requires. [21] Article 1207 of the Civil Code explains the nature of solidary
obligations in this wise:
Art. 1207. The concurrence of two or more creditors or of two or more debtors in one and the same obligation does not imply that
each one of the former has a right to demand, or that each one of the latter is bound to render, entire compliance with the
prestations. There is a solidary liability only when the obligation expressly so states, or when the law or the nature of the obligation
requires solidarity.
In the dispositive portion of the January 31, 1984 Decision of the trial court, the word solidary neither appears nor can it be
inferred therefrom. The fallo merely stated that the following respondents were liable: Pacific Lloyd Corporation, Thomas H. Van
Sebille, Carlos M. Farrales and Federico C. Lim. Under the circumstances, the liability is joint, as provided by the Civil Code, which we
quote:
Art. 1208. If from the law, or the nature or the wording of the obligations to which the preceding article refers[,] the contrary does
not appear, the credit or debt shall be presumed to be divided into as many equal shares as there are creditors or debtors x x x.[22]
We should stress that respondents obligation is based on the judgment rendered by the trial court. The dispositive portion or
the fallo is its decisive resolution and is thus the subject of execution. The other parts of the decision may be resorted to in order to
determine the ratio decidendi for the disposition. Where there is a conflict between the dispositive part and the opinion of the court
contained in the text or body of the decision, the former must prevail over the latter on the theory that the dispositive portion is the
final order, while the opinion is merely a statement ordering nothing.[23] Hence the execution must conform with that which is ordained
or decreed in the dispositive portion of the decision.
Petitioner maintains that the Court of Appeals improperly and incorrectly disregarded the body of the trial courts Decision, which
clearly stated as follows:
To support the Promissory Note, a Continuing Suretyship Agreement was executed by the defendants, Federico C. Lim, Carlos M.
Farrales and Thomas H. Van Sebille, in favor of the plaintiff corporation, to the effect that if Pacific Lloyd Corporation cannot pay the
amount loaned by plaintiff to said corporation, then Federico C. Lim, Carlos M. Farrales and Thomas H. Van Sebille will hold
themselves jointly and severally together with defendant Pacific Lloyd Corporation to answer for the payment of said obligation.[24]
As early as 1934 in Oriental Commercial Co. v. Abeto and Mabanag, [25] this Court has already answered such argument in this
wise:
It is of no consequence that, under the written 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 brought for the enforcement of said
contract, declared the obligation to be merely joint, and the same cannot be executed otherwise. [26]
The same reasoning was recently adopted by this Court in Industrial Management International Development Corp. v.
NLRC,[27] promulgated on May 11, 2000.
Doctrinally, the basis of execution is the January 31, 1984 Decision rendered by the trial court, not the written contract of
suretyship executed by the parties. As correctly observed by the trial judge:
x x x [W]hat was stated in the body of the decision of January 31, 1984 [was] only part of the narration of facts made by the Judge[,]
and the dispositive portion is to prevail.[28]
The only exception when the body of a decision prevails over the fallo is when the inevitable conclusion from the former is that
there was a glaring error in the latter, in which case the body of the decision will prevail. [29] In this instance, there was no clear
declaration in the body of the January 31, 1984 Decision to warrant a conclusion that there was an error in the fallo. Nowhere in the
former can we find a definite declaration of the trial court that, indeed, respondents liability was solidary. If petitioner had doubted
this point, it should have filed a motion for reconsideration before the finality of the Decision of the trial court.
Third Issue: The Policy of Upholding Executions
Petitioner argues that the issue of whether or not the judgment debt should be construed as joint or solidary can only affect the
determination of the existence or absence of an excess in the proceeds of the sale. [30] He further maintains that private respondents
interests are protected anyway even if all his properties are sold, because any excess in the proceeds of the sale over the judgment
and accruing costs must be delivered to the judgment debtor. [31]
We cannot accept these arguments. What can be sold on execution is limited by the Rules of Court, as follows:
When there is more property of the judgment obligor than is sufficient to satisfy the judgment and lawful fees, he (sheriff) must sell
only so much of the personal or real property as is sufficient to satisfy the judgment and lawful fees. [32]
A writ of execution is void when issued for a sum greater than that which is warranted by the judgment or for the original amount
it states despite partial payment thereof. The exact amount due cannot be left to the determination of the sheriff.[33]
Petitioner finally insists that it is futile for private respondent to contest the sale in execution conducted in the case at bar because
of the general policy of the law to sustain execution sales.[34]
Simple logic dictates that a general policy to sustain execution sales does not guarantee that they will be upheld at every
instance. Petitioner itself quotes grounds for setting aside such sales: a resulting injury or prejudice, fraud, mistake or irregularity.[35]
Being made to pay for an obligation in its entirety when ones liability is merely for a portion is a sufficient ground to contest an
execution sale. It would be the height of inequity if we allow judgment obligors to shoulder entire monetary judgments when their
legal liabilities are limited only to their proportionate shares in the entire obligation.
WHEREFORE, the Petition is hereby DENIED and the assailed Decision AFFIRMED. No pronouncement as to costs.

12. Smith, Bell & Co v. CA

The Facts paragraph

The facts are undisputed by the parties , [6] and are narrated by respondent Court , quoting the trial court , as follows
: [7] paragraph
The undisputed facts of the case have been succintly ( sic ) summarized by the lower court ( , ) as follows : paragraph
x x x in July 1982 , the plaintiffs , doing business under the style of Tic Hin Chiong , Importer , bought and imported to the
Philippines from the firm Chin Gact Co . , Ltd . of Taipei , Taiwan , 50 metric tons of Dicalcium Phospate , Feed Grade F - 15%
valued at US$13 , 000 . 00 CIF Manila . These were contained in 1 , 250 bags and shipped from the Port of Kaohsiung , Taiwan on
Board S . S . GOLDEN WEALTH for the Port on ( sic ) Manila . On July 27 , 1982 , this shipment was insured by the defendant
First Insurance Co . for US$19 , 500 . 00 `against all risks at port of departure under Marine Policy No . 1000M82070033219 , with
the note `Claim , if any , payable in U . S . currency at Manila ( Exh . `1 , `D for the plaintiff ) and with defendant Smith , Bell
, and Co . stamped at the lower left side of the policy as `Claim Agent . paragraph
The cargo arrived at the Port of Manila on September 1 , 1982 aboard the above - mentioned carrying vessel and landed at port on
September 2 , 1982 . Thereafter , the entire cargo was discharged to the local arrastre contractor , Metroport Services Inc . with a
number of the cargo in apparent bad order condition . On September 27 , 1982 , the plaintiff secured the services of a cargo
surveyor to conduct a survey of the damaged cargo which were ( sic ) delivered by plaintiff s broker on said date to the plaintiff s
premises at 12th Avenue , Grace Park , Caloocan City . The surveyor s report ( Exh . `E ) showed that of the 1 , 250 bags of the
imported material , 600 were damaged by tearing at the sides of the container bags and the contents partly empty . Upon
weighing , the contents of the damaged bags were found to be 18 , 546 . 0 kg short . Accordingly , on October 16 following , the
plaintiff filed with Smith , Bell , and Co . , Inc . a formal statement of claim ( Exh . `G ) with proof of loss and a demand for
settlement of the corresponding value of the losses , in the sum of US$7 , 357 . 78 . 00 . ( sic ) After purportedly conveying the
claim to its principal , Smith , Bell , and Co . , Inc . informed the plaintiff by letter dated February 15 , 1983 ( Exh . `G - 2 ) that
its principal offered only 50% of the claim or US$3 , 616 . 17 as redress , on the alleged ground of discrepancy between the amounts
contained in the shipping agent s reply to the claimant of only US$90 . 48 with that of Metroport s . The offer not being acceptable
to the plaintiff , the latter wrote Smith , Bell , & Co . expressing his refusal to the `redress offer , contending that the discrepancy
was a result of loss from vessel to arrastre to consignees warehouse which losses were still within the `all risk insurance cover . No
settlement of the claim having been made , the plaintiff then caused the instant case to be filed . ( p . 2 , RTC Decision ; p . 142
, Record ) . paragraph
Denying any liability , defendant - appellant averred in its answer that it is merely a settling or claim agent of defendant insurance
company and as such agent , it is not personally liable under the policy in which it has not even taken part of . It then alleged that
plaintiff - appellee has no cause of action against it . paragraph
Defendant The First Insurance Co . Ltd . did not file an Answer , hence it was declared in default . paragraph
After due trial and proceeding , the lower court rendered a decision favorable to plaintiff - appellee . It ruled that plaintiff -
appellee has fully established the liability of the insurance firm on the subject insurance contract as the former presented concrete
evidence of the amount of losses resulting from the risks insured against which were supported by reliable report and assessment of
professional cargo surveyor . As regards defendant - appellant , the lower court held that since it is admittedly a claim agent of the
foreign insurance firm doing business in the Philippines justice is better served if said agent is made liable without prejudice to its
right of action against its principal , the insurance firm . x x x paragraph
The Issue paragraph
Whether or not a local settling or claim agent of a disclosed principal - - a foreign insurance company - - can be held jointly and
severally liable with said principal under the latter s marine cargo insurance policy , given that the agent is not a party to the
insurance contract [8] - - is the sole issue raised by petitioner . paragraph
Petitioner rejects liability under the said insurance contract , claiming that : ( 1 ) it is merely an agent and thus not personally liable
to the party with whom it contracts on behalf of its principal ; ( 2 ) it had no participation at all in the contract of insurance ; and (
3 ) the suit is not brought against the real party - in - interest . [9] paragraph
On the other hand , respondent Court in ruling against petitioner disposed of the main issue by citing a case it decided in 1987
, where petitioner was also a party - litigant . [10] In that case , respondent Court held that petitioner as resident agent of First
Insurance Co . Ltd . was authorized to settle claims against its principal . Its defense that its authority excluded personal liability
must be proven satisfactorily . There is a complete dearth of evidence supportive of appellant s non - responsibility as resident
agent . The ruling continued with the statement that the interest of justice is better served by holding the settling or claim agent
jointly and severally liable with its principal . [11] paragraph
Likewise , private respondent disputed the applicability of the cases of E . Macias & Co . vs . Warner , Barnes & Co
. [12] and Salonga vs . Warner , Barnes & Co . , Ltd . [13] invoked by petitioner in its appeal . According to private respondent , these
two cases impleaded only the insurance agent and did not include the principal . While both the foreign principal - - which was
declared in default by the trial court - - and petitioner , as claim agent , were found to be solidarily liable in this case , petitioner
still had recourse against its foreign principal . Also , being a contract of adhesion , an insurance agreement must be strictly
construed against the insurer . [14] paragraph
The Court s Ruling paragraph
There are three reasons why we find for petitioner . paragraph
First Reason : Existing Jurisprudence paragraph
Petitioner , undisputedly a settling agent acting within the scope of its authority , cannot be held personally and / or solidarily
liable for the obligations of its disclosed principal merely because there is allegedly a need for a speedy settlement of the claim of
private respondent . In the leading case of Salonga vs . Warner , Barnes & Co . , Ltd . this Court ruled in this wise : [15] paragraph
We agree with counsel for the appellee that the defendant is a settlement and adjustment agent of the foreign insurance company
and that as such agent it has the authority to settle all the losses and claims that may arise under the policies that may be issued by
or in behalf of said company in accordance with the instructions it may receive from time to time from its principal , but we disagree
with counsel in his contention that as such adjustment and settlement agent , the defendant has assumed personal liability under
said policies , and , therefore , it can be sued in its own right . An adjustment and settlement agent is no different from any other
agent from the point of view of his responsibilty ( sic ) , for he also acts in a representative capacity . Whenever he adjusts or
settles a claim , he does it in behalf of his principal , and his action is binding not upon himself but upon his principal . And here
again , the ordinary rule of agency applies . The following authorities bear this out : paragraph
An insurance adjuster is ordinarily a special agent for the person or company for whom he acts , and his authority is prima
facie coextensive with the business intrusted to him . * * * paragraph
An adjuster does not discharge functions of a quasi - judicial nature , but represents his employer , to whom he owes faithful
service , and for his acts , in the employer s interest , the employer is responsible so long as the acts are done while the agent is
acting within the scope of his employment . ( 45 C . J . S . , 1338 - 1340 . ) paragraph
It , therefore , clearly appears that the scope and extent of the functions of an adjustment and settlement agent do not include
personal liability . His functions are merely to settle and adjusts claims in behalf of his principal if those claims are proven and
undisputed , and if the claim is disputed or is disapproved by the principal , like in the instant case , the agent does not assume any
personal liability . The recourse of the insured is to press his claim against the principal . ( Underscoring supplied ) . paragraph
The foregoing doctrine may have been enunciated by this Court in 1951 , but the passage of time has not eroded its value or
merit . It still applies with equal force and vigor . paragraph
Private respondent s contention that Salonga does not apply simply because only the agent was sued therein while here both
agent and principal were impleaded and found solidarily liable is without merit . Such distinction is immaterial . The agent can not
be sued nor held liable whether singly or solidarily with its principal . paragraph
Every cause of action ex contractu must be founded upon a contract , oral or written , either express or implied . [16] The
only involvement of petitioner in the subject contract of insurance was having its name stamped at the bottom left portion of the
policy as Claim Agent . Without anything else to back it up , such stamp cannot even be deemed by the remotest interpretation to
mean that petitioner participated in the preparation of said contract . Hence , there is no privity of contract , and correspondingly
there can be no obligation or liability , and thus no cause of action against petitioner attaches . Under Article 1311[17] of the Civil
Code , contracts are binding only upon the parties ( and their assigns and heirs ) who execute them . The subject cargo insurance
was between the First Insurance Company , Ltd . and the Chin Gact Co . , Ltd . , both of Taiwan , and was signed in Taipei , Taiwan
by the president of the First Insurance Company , Ltd . and the president of the Chin Gact Co . , Ltd . [18] There is absolutely nothing
in the contract which mentions the personal liability of petitioner . paragraph
Second Reason : Absence of Solidary Liability paragraph
May then petitioner , in its capacity as resident agent ( as found in the case cited by the respondent Court ) [19] be held solidarily
liable with the foreign insurer ? Article 1207 of the Civil Code clearly provides that ( t ) here is a solidary liability only when the
obligation expressly so states , or when the law or the nature of the obligation requires solidarity . The well - entrenched rule is that
solidary obligation cannot lightly be inferred . It must be positively and clearly expressed . The contention that , in the end , it would
really be First Insurance Company , Ltd . which would be held liable is specious and cannot be accepted . Such a stance would inflict
injustice upon petitioner which would be made to advance the funds to settle the claim without any assurance that it can collect from
the principal which disapproved such claim , in the first place . More importantly , such position would have absolutely no legal basis
. paragraph
The Insurance Code is quite clear as to the purpose and role of a resident agent . Such agent , as a representative of the foreign
insurance company , is tasked only to receive legal processes on behalf of its principal and not to answer personally for any insurance
claims . We quote : paragraph
SEC . 190 . The Commissioner must require as a condition precedent to the transaction of insurance business in the Philippines by
any foreign insurance company , that such company file in his office a written power of attorney designating some person who shall
be a resident of the Philippines as its general agent , on whom any notice provided by law or by any insurance policy , proof of loss
, summons and other legal processes may be served in all actions or other legal proceedings against such company , and consenting
that service upon such general agent shall be admitted and held as valid as if served upon the foreign company at its home office
. Any such foreign company shall , as further condition precedent to the transaction of insurance business in the Philippines , make
and file with the Commissioner an agreement or stipulation , executed by the proper authorities of said company in form and
substance as follows : paragraph
The ( name of company ) does hereby stipulate and agree in consideration of the permission granted by the Insurance
Commissioner to transact business in the Philippines , that if at any time such company shall leave the Philippines , or cease to
transact business therein , or shall be without any agent in the Philippines on whom any notice , proof of loss , summons , or legal
process may be served , then in any action or proceeding arising out of any business or transaction which occurred in the Philippines
, service of any notice provided by law , or insurance policy , proof of loss , summons , or other legal process may be made upon
the Insurance Commissioner shall have the same force and effect as if made upon the company . paragraph
Whenever such service of notice , proof of loss , summons , or other legal process shall be made upon the Commissioner he
must , within ten days thereafter , transmit by mail , postage paid , a copy of such notice , proof of loss , summons , or other legal
process to the company at its home or principal office . The sending of such copy of the Commissioner shall be necessary part of the
service of the notice , proof of loss , or other legal process . ( Underscoring supplied ) . paragraph
Further , we note that in the case cited by respondent Court , petitioner was found to be a resident agent of First Insurance Co
. Ltd . In the instant case however , the trial court had to order the service of summons upon First Insurance Co . , Ltd . which would
not have been necessary if petitioner was its resident agent . Indeed , from our reading of the records of this case , we find no factual
and legal bases for the finding of respondent Court that petitioner is the resident agent of First Insurance Co . , Ltd . . paragraph
Third Reason : Not Real Party - In - Interest paragraph
Lastly , being a mere agent and representative , petitioner is also not the real party - in - interest in this case . An action is
brought for a practical purpose , that is , to obtain actual and positive relief . If the party sued is not the proper party , any decision
that may be rendered against him would be futile , for the decision cannot be enforced or executed . Section 2 , Rule 3 of the Rules
of Court identifies who the real parties - in - interest are , thus : paragraph
Section 2 . Parties in interest . - Every action must be prosecuted and defended in the name of the real party in interest . All
persons having an interest in the subject of the action and in obtaining the relief demanded shall be joined as plaintiffs . All persons
who claim an interest in the controversy or the subject thereof adverse to the plaintiff , or who are necessary to a complete
determination or settlement of the questions involved therein shall be joined as defendants . paragraph
The cause of action of private respondent is based on a contract of insurance which as already shown was not participated in by
petitioner . It is not a person who claim ( s ) an interest adverse to the plaintiff nor is said respondent necessary to a complete
determination or settlement of the questions involved in the controversy . Petitioner is improperly impleaded for not being a real -
party - interest . It will not benefit or suffer in case the action prospers . [20] paragraph
Resort to Equity Misplaced paragraph
Finally , respondent Court also contends that the interest of justice is better served by holding the settling agent jointly and
severally liable with its principal . As no law backs up such pronouncement , the appellate Court is thus resorting to equity
. However , equity which has been aptly described as justice outside legality , is availed of only in the absence of , and never
against , statutory law or judicial pronouncements . [21] Upon the other hand , the liability of agents is clearly provided for by our laws
and existing jurisprudence . paragraph
WHEREFORE , in view of the foregoing considerations , the Petition is GRANTED and the Decision appealed from
is REVERSED and SET ASIDE . paragraph

13. Hernandez v. Dolor

This is a petition for review under Rule 45 of the Rules of Court seeking the reversal of the decision [1] of the Court of Appeals,
dated April 29, 2003, in CA-G.R. CV No. 60357, which affirmed with modification the amount of damages awarded in the November
24, 1997 decision[2] of the Regional Trial Court of Batangas City, Branch IV.
The undisputed facts are as follows:
At about 3:00 p.m. of December 19, 1986, Lorenzo Menard Boyet Dolor, Jr. was driving an owner-type jeepney with plate no.
DEB 804 owned by her mother, Margarita, towards Anilao, Batangas. As he was traversing the road at Barangay Anilao East, Mabini,
Batangas, his vehicle collided with a passenger jeepney bearing plate no. DEG 648, driven by petitioner Juan Gonzales and owned by
his co-petitioner Francisco Hernandez, which was travelling towards Batangas City.
Boyet Dolor and his passenger, Oscar Valmocina, died as a result of the collision. Fred Panopio, Rene Castillo and Joseph Sandoval,
who were also on board the owner-type jeep, which was totally wrecked, suffered physical injuries.The collision also damaged the
passenger jeepney of Francisco Hernandez and caused physical injuries to its passengers, namely, Virgie Cadavida, Fiscal Artemio Reyes
and Francisca Corona.[3]
Consequently, respondents commenced an action [4] for damages against petitioners before the Regional Trial Court of Batangas
City, alleging that driver Juan Gonzales was guilty of negligence and lack of care and that the Hernandez spouses were guilty of
negligence in the selection and supervision of their employees.[5]
Petitioners countered that the proximate cause of the death and injuries sustained by the passengers of both vehicles was the
recklessness of Boyet Dolor, the driver of the owner-type jeepney, who was driving in a zigzagging manner under the influence of
alcohol. Petitioners also alleged that Gonzales was not the driver-employee of the Hernandez spouses as the former only leased the
passenger jeepney on a daily basis. The Hernandez spouses further claimed that even if an employer-employee relationship is found
to exist between them, they cannot be held liable because as employers they exercised due care in the selection and supervision of
their employee.
During the trial of the case, it was established that the drivers of the two vehicles were duly licensed to drive and that the road
where the collision occurred was asphalted and in fairly good condition. [6] The owner-type jeep was travelling uphill while the
passenger jeepney was going downhill. It was further established that the owner-type jeep was moderately moving and had just
passed a road bend when its passengers, private respondents Joseph Sandoval and Rene Castillo, saw the passenger jeepney at a
distance of three meters away. The passenger jeepney was traveling fast when it bumped the owner type jeep. [7] Moreover, the
evidence presented by respondents before the trial court showed that petitioner Juan Gonzales obtained his professional drivers
license only on September 24, 1986, or three months before the accident. Prior to this, he was holder of a student drivers permit
issued on April 10, 1986.[8]
On November 24, 1997, the trial court rendered a decision in favor of respondents, the dispositive portion of which states:
Premises duly considered and the plaintiffs having satisfactorily convincingly and credibly presented evidence clearly satisfying the
requirements of preponderance of evidence to sustain the complaint, this Court hereby declares judgment in favor of the plaintiffs
and against the defendants. Defendants-spouses Francisco Hernandez and Aniceta Abel Hernandez and Juan Gonzales are therefore
directed to pay jointly and severally, the following:
1) To spouses Lorenzo Dolor and Margarita Dolor:
a) P50,000.00 for the death of their son, Lorenzo Menard Boyet Dolor, Jr.;
b) P142,000.00 as actual and necessary funeral expenses;
c) P50,000.00 reasonable value of the totally wrecked owner-type jeep with plate no. DEB 804 Phil 85;
d) P20,000.00 as moral damages;
e) P20,000.00 as reasonable litigation expenses and attorneys fees.
2) To spouses Francisco Valmocina and Virginia Valmocina:
a) P50,000.00 for the death of their son, Oscar Balmocina (sic);
b) P20,000.00 as moral damages;
c) P18,400.00 for funeral expenses;
d) P10,000.00 for litigation expenses and attorneys fees.
3) To spouses Victor Panopio and Martina Panopio:
a) P10,450.00 for the cost of the artificial leg and crutches being used by their son Fred Panopio;
b) P25,000.00 for hospitalization and medical expenses they incurred for the treatment of their son, Fred Panopio.
4) To Fred Panopio:
a) P25,000.00 for the loss of his right leg;
b) P10,000.00 as moral damages.
5) To Joseph Sandoval:
a) P4,000.00 for medical treatment.
The defendants are further directed to pay the costs of this proceedings.
SO ORDERED.[9]
Petitioners appealed[10] the decision to the Court of Appeals, which affirmed the same with modifications as to the amount of
damages, actual expenses and attorneys fees awarded to the private respondents. The decretal portion of the decision of the Court
of Appeals reads:
WHEREFORE, the foregoing premises considered, the appealed decision is AFFIRMED. However, the award for damages, actual
expenses and attorneys fees shall be MODIFIED as follows:
1) To spouses Lorenzo Dolor and Margarita Dolor:
a) P50,000.00 civil indemnity for their son Lorenzo Menard Dolor, Jr.;
b) P58,703.00 as actual and necessary funeral expenses;
c) P25,000,00 as temperate damages;
d) P100,000.00 as moral damages;
e) P20,000.00 as reasonable litigation expenses and attorneys fees.
2) To Spouses Francisco Valmocina and Virginia Valmocina:
a) P50,000.00 civil indemnity for the death of their son, Oscar Valmocina;
b) P100,000.00 as moral damages;
c) P10,000.00 as temperate damages;
d) P10,000.00 as reasonable litigation expenses and attorneys fees.
3) To Spouses Victor Panopio and Martina Panopio:
a) P10,352.59 as actual hospitalization and medical expenses;
b) P5,000.00 as temperate damages.
4) To Fred Panopio:
a) P50,000.00 as moral damages.
5) To Joseph Sandoval:
a) P3,000.00 as temperate damages.
SO ORDERED.[11]
Hence the present petition raising the following issues:
1. Whether the Court of Appeals was correct when it pronounced the Hernandez spouses as solidarily liable with Juan Gonzales,
although it is of record that they were not in the passenger jeepney driven by latter when the accident occurred;
2. Whether the Court of Appeals was correct in awarding temperate damages to private respondents namely the Spouses Dolor,
Spouses Valmocina and Spouses Panopio and to Joseph Sandoval, although the grant of temperate damages is not provided for in
decision of the court a quo;
3. Whether the Court of Appeals was correct in increasing the award of moral damages to respondents, Spouses Dolor, Spouses
Valmocina and Fred Panopio;
4. Whether the Court of Appeals was correct in affirming the grant of attorneys fees to Spouses Dolor and to Spouses Valmocina
although the lower court did not specify the fact and the law on which it is based.
Petitioners contend that the absence of the Hernandez spouses inside the passenger jeepney at the time of the collision militates
against holding them solidarily liable with their co-petitioner, Juan Gonzales, invoking Article 2184 of the Civil Code, which provides:
ARTICLE 2184. In motor vehicle mishaps, the owner is solidarily liable with his driver, if the former, who was in the vehicle, could
have, by the use of the due diligence, prevented the misfortune. It is disputably presumed that a driver was negligent, if he had been
found guilty of reckless driving or violating traffic regulations at least twice within the next preceding two months.
If the owner was not in the motor vehicle, the provisions of article 2180 are applicable.
The Hernandez spouses argues that since they were not inside the jeepney at the time of the collision, the provisions of Article
2180 of the Civil Code, which does not provide for solidary liability between employers and employees, should be applied.
We are not persuaded.
Article 2180 provides:
ARTICLE 2180. The obligation imposed by article 2176 is demandable not only for one's own acts or omissions, but also for those of
persons for whom one is responsible.
The father and, in case of his death or incapacity, the mother, are responsible for the damages caused by the minor children who
live in their company.
Guardians are liable for damages caused by the minors or incapacitated persons who are under their authority and live in their
company.
The owners and managers of an establishment or enterprise are likewise responsible for damages caused by their employees in the
service of the branches in which the latter are employed or on the occasion of their functions.
Employers shall be liable for the damages caused by their employees and household helpers acting within the scope of their
assigned tasks, even though the former are not engaged in any business or industry.
The State is responsible in like manner when it acts through a special agent; but not when the damage has been caused by the
official to whom the task done properly pertains, in which case what is provided in article 2176 shall be applicable.
Lastly, teachers or heads of establishments of arts and trades shall be liable for damages caused by their pupils and students or
apprentices, so long as they remain in their custody.
The responsibility treated of in this article shall cease when the persons herein mentioned prove that they observed all the diligence
of a good father of a family to prevent damage. (Underscoring supplied)
On the other hand, Article 2176 provides
Whoever by act or omission causes damage to another, there being fault or negligence, is obliged to pay for the damage done. Such
fault or negligence, if there is no pre-existing contractual relation between the parties, is called a quasi-delict and is governed by the
provisions of this Chapter.
While the above provisions of law do not expressly provide for solidary liability, the same can be inferred from the wordings of
the first paragraph of Article 2180 which states that the obligation imposed by article 2176 is demandable not only for one's own acts
or omissions, but also for those of persons for whom one is responsible.
Moreover, Article 2180 should be read with Article 2194 of the same Code, which categorically states that the responsibility of
two or more persons who are liable for quasi-delict is solidary. In other words, the liability of joint tortfeasors is solidary. [12] Verily,
under Article 2180 of the Civil Code, an employer may be held solidarily liable for the negligent act of his employee. [13]
The solidary liability of employers with their employees for quasi-delicts having been established, the next question is whether
Julian Gonzales is an employee of the Hernandez spouses. An affirmative answer will put to rest any issue on the solidary liability of
the Hernandez spouses for the acts of Julian Gonzales. The Hernandez spouses maintained that Julian Gonzales is not their employee
since their relationship relative to the use of the jeepney is that of a lessor and a lessee. They argue that Julian Gonzales pays them a
daily rental of P150.00 for the use of the jeepney. [14] In essence, petitioners are practicing the boundary system of jeepney operation
albeit disguised as a lease agreement between them for the use of the jeepney.
We hold that an employer-employee relationship exists between the Hernandez spouses and Julian Gonzales.
Indeed to exempt from liability the owner of a public vehicle who operates it under the boundary system on the ground that he
is a mere lessor would be not only to abet flagrant violations of the Public Service Law, but also to place the riding public at the mercy
of reckless and irresponsible drivers reckless because the measure of their earnings depends largely upon the number of trips they
make and, hence, the speed at which they drive; and irresponsible because most if not all of them are in no position to pay the damages
they might cause.[15]
Anent the award of temperate damages to the private respondents, we hold that the appellate court committed no reversible
error in awarding the same to the respondents.
Temperate or moderate damages are damages which are more than nominal but less than compensatory which may be
recovered when the court finds that some pecuniary loss has been suffered but its amount cannot, from the nature of the case, be
proved with certainty.[16] Temperate damages are awarded for those cases where, from the nature of the case, definite proof of
pecuniary loss cannot be offered, although the court is convinced that there has been such loss. A judge should be empowered to
calculate moderate damages in such cases, rather than the plaintiff should suffer, without redress, from the defendants wrongful
act.[17] The assessment of temperate damages is left to the sound discretion of the court provided that such an award is reasonable
under the circumstances.[18]
We have gone through the records of this case and we find that, indeed, respondents suffered losses which cannot be quantified
in monetary terms. These losses came in the form of the damage sustained by the owner type jeep of the Dolor spouses; the
internment and burial of Oscar Valmocina; the hospitalization of Joseph Sandoval on account of the injuries he sustained from the
collision and the artificial leg and crutches that respondent Fred Panopio had to use because of the amputation of his right leg. Further,
we find that the amount of temperate damages awarded to the respondents were reasonable under the circumstances.
As to the amount of moral damages which was awarded to respondents, a review of the records of this case shows that there
exists no cogent reason to overturn the action of the appellate court on this aspect.
Under Article 2206, the spouse, legitimate and illegitimate descendants and ascendants of the deceased may demand moral
damages for mental anguish for the death of the deceased. The reason for the grant of moral damages has been explained, thus:
. . . the award of moral damages is aimed at a restoration, within the limits possible, of the spiritual status quo ante; and therefore, it
must be proportionate to the suffering inflicted. The intensity of the pain experienced by the relatives of the victim is proportionate
to the intensity of affection for him and bears no relation whatsoever with the wealth or means of the offender. [19]
Moral damages are emphatically not intended to enrich a plaintiff at the expense of the defendant. They are awarded to allow
the former to obtain means, diversion or amusements that will serve to alleviate the moral suffering he has undergone due to the
defendants culpable action and must, perforce, be proportional to the suffering inflicted. [20]
Truly, the pain of the sudden loss of ones offspring, especially of a son who was in the prime of his youth, and who holds so much
promise waiting to be fulfilled is indeed a wellspring of intense pain which no parent should be made to suffer. While it is true that
there can be no exact or uniform rule for measuring the value of a human life and the measure of damages cannot be arrived at by a
precise mathematical calculation,[21] we hold that the Court of Appeals award of moral damages of P100,000.00 each to the Spouses
Dolor and Spouses Valmocina for the death of their respective sons, Boyet Dolor and Oscar Valmocina, is in full accord with prevailing
jurisprudence.[22]
With respect to the award of attorneys fees to respondents, no sufficient basis was established for the grant thereof.
It is well settled that attorneys fees should not be awarded in the absence of stipulation except under the instances enumerated
in Article 2208 of the Civil Code. As we have held in Rizal Surety and Insurance Company v. Court of Appeals:[23]
Article 2208 of the Civil Code allows attorneys fees to be awarded by a court when its claimant is compelled to litigate with third
persons or to incur expenses to protect his interest by reason of an unjustified act or omission of the party from whom it is
sought. While judicial discretion is here extant, an award thereof demands, nevertheless, a factual, legal or equitable
justification. The matter cannot and should not be left to speculation and conjecture (Mirasol vs. De la Cruz, 84 SCRA 337;
Stronghold Insurance Company, Inc. vs. Court of Appeals, 173 SCRA 619).
In the case at bench, the records do not show enough basis for sustaining the award for attorneys fees and to adjudge its payment
by petitioner. x x x.
Likewise, this Court held in Stronghold Insurance Company, Inc. vs. Court of Appeals that:
In Abrogar v. Intermediate Appellate Court [G.R. No. 67970, January 15, 1988, 157 SCRA 57], the Court had occasion to state that
[t]he reason for the award of attorneys fees must be stated in the text of the courts decision, otherwise, if it is stated only in the
dispositive portion of the decision, the same must be disallowed on appeal. x x x. [24]
WHEREFORE, the petition is DENIED. The assailed decision of the Court of Appeals is AFFIRMED with the MODIFICATION that the
grant of attorneys fees is DELETED for lack of basis.

14. Stronghold Insurance v. CA

The Facts

The facts of the case are narrated by the CA in this wise:

"On May 24, 1989, [respondent] Republic-Asahi Glass Corporation (Republic-Asahi) entered into a contract with x x x Jose D. Santos,
Jr., the proprietor of JDS Construction (JDS), for the construction of roadways and a drainage system in Republic-Asahi’s compound
in Barrio Pinagbuhatan, Pasig City, where [respondent] was to pay x x x JDS five million three hundred thousand pesos
(P5,300,000.00) inclusive of value added tax for said construction, which was supposed to be completed within a period of two
hundred forty (240) days beginning May 8, 1989. In order ‘to guarantee the faithful and satisfactory performance of its undertakings’
x x x JDS, shall post a performance bond of seven hundred ninety five thousand pesos (P795,000.00). x x x JDS executed, jointly and
severally with [petitioner] Stronghold Insurance Co., Inc. (SICI) Performance Bond No. SICI-25849/g(13)9769.

"On May 23, 1989, [respondent] paid to x x x JDS seven hundred ninety five thousand pesos (P795,000.00) by way of downpayment.

"Two progress billings dated August 14, 1989 and September 15, 1989, for the total amount of two hundred seventy four thousand
six hundred twenty one pesos and one centavo (P274,621.01) were submitted by x x x JDS to [respondent], which the latter paid.
According to [respondent], these two progress billings accounted for only 7.301% of the work supposed to be undertaken by x x x
JDS under the terms of the contract.

"Several times prior to November of 1989, [respondent’s] engineers called the attention of x x x JDS to the alleged alarmingly slow
pace of the construction, which resulted in the fear that the construction will not be finished within the stipulated 240-day period.
However, said reminders went unheeded by x x x JDS.

"On November 24, 1989, dissatisfied with the progress of the work undertaken by x x x JDS, [respondent] Republic-Asahi
extrajudicially rescinded the contract pursuant to Article XIII of said contract, and wrote a letter to x x x JDS informing the latter of
such rescission. Such rescission, according to Article XV of the contract shall not be construed as a waiver of [respondent’s] right to
recover damages from x x x JDS and the latter’s sureties.

"[Respondent] alleged that, as a result of x x x JDS’s failure to comply with the provisions of the contract, which resulted in the said
contract’s rescission, it had to hire another contractor to finish the project, for which it incurred an additional expense of three
million two hundred fifty six thousand, eight hundred seventy four pesos (P3,256,874.00).

"On January 6, 1990, [respondent] sent a letter to [petitioner] SICI filing its claim under the bond for not less than P795,000.00. On
March 22, 1991, [respondent] again sent another letter reiterating its demand for payment under the aforementioned bond. Both
letters allegedly went unheeded.

"[Respondent] then filed [a] complaint against x x x JDS and SICI. It sought from x x x JDS payment of P3,256,874.00 representing the
additional expenses incurred by [respondent] for the completion of the project using another contractor, and from x x x JDS and SICI,
jointly and severally, payment of P750,000.00 as damages in accordance with the performance bond; exemplary damages in the
amount of P100,000.00 and attorney’s fees in the amount of at least P100,000.00.

"According to the Sheriff’s Return dated June 14, 1991, submitted to the lower court by Deputy Sheriff Rene R. Salvador, summons
were duly served on defendant-appellee SICI. However, x x x Jose D. Santos, Jr. died the previous year (1990), and x x x JDS
Construction was no longer at its address at 2nd Floor, Room 208-A, San Buena Bldg. Cor. Pioneer St., Pasig, Metro Manila, and its
whereabouts were unknown.

"On July 10, 1991, [petitioner] SICI filed its answer, alleging that the [respondent’s] money claims against [petitioner and JDS] have
been extinguished by the death of Jose D. Santos, Jr. Even if this were not the case, [petitioner] SICI had been released from its
liability under the performance bond because there was no liquidation, with the active participation and/or involvement, pursuant
to procedural due process, of herein surety and contractor Jose D. Santos, Jr., hence, there was no ascertainment of the
corresponding liabilities of Santos and SICI under the performance bond. At this point in time, said liquidation was impossible
because of the death of Santos, who as such can no longer participate in any liquidation. The unilateral liquidation on the party (sic)
of [respondent] of the work accomplishments did not bind SICI for being violative of procedural due process. The claim of
[respondent] for the forfeiture of the performance bond in the amount of P795,000.00 had no factual and legal basis, as payment of
said bond was conditioned on the payment of damages which [respondent] may sustain in the event x x x JDS failed to complete the
contracted works. [Respondent] can no longer prove its claim for damages in view of the death of Santos. SICI was not informed by
[respondent] of the death of Santos. SICI was not informed by [respondent] of the unilateral rescission of its contract with JDS, thus
SICI was deprived of its right to protect its interests as surety under the performance bond, and therefore it was released from all
liability. SICI was likewise denied due process when it was not notified of plaintiff-appellant’s process of determining and fixing the
amount to be spent in the completion of the unfinished project. The procedure contained in Article XV of the contract is against
public policy in that it denies SICI the right to procedural due process. Finally, SICI alleged that [respondent] deviated from the terms
and conditions of the contract without the written consent of SICI, thus the latter was released from all liability. SICI also prayed for
the award of P59,750.00 as attorney’s fees, and P5,000.00 as litigation expenses.

"On August 16, 1991, the lower court issued an order dismissing the complaint of [respondent] against x x x JDS and SICI, on the
ground that the claim against JDS did not survive the death of its sole proprietor, Jose D. Santos, Jr. The dispositive portion of the
[O]rder reads as follows:

‘ACCORDINGLY, the complaint against the defendants Jose D. Santos, Jr., doing business under trade and style, ‘JDS Construction’
and Stronghold Insurance Company, Inc. is ordered DISMISSED.

‘SO ORDERED.’
"On September 4, 1991, [respondent] filed a Motion for Reconsideration seeking reconsideration of the lower court’s August 16,
1991 order dismissing its complaint. [Petitioner] SICI field its ‘Comment and/or Opposition to the Motion for Reconsideration.’ On
October 15, 1991, the lower court issued an Order, the dispositive portion of which reads as follows:

‘WHEREFORE, premises considered, the Motion for Reconsideration is hereby given due course. The Order dated 16 August 1991 for
the dismissal of the case against Stronghold Insurance Company, Inc., is reconsidered and hereby reinstated (sic). However, the case
against defendant Jose D. Santos, Jr. (deceased) remains undisturbed.

‘Motion for Preliminary hearing and Manifestation with Motion filed by [Stronghold] Insurance Company Inc., are set for hearing on
November 7, 1991 at 2:00 o’clock in the afternoon.

‘SO ORDERED.’

"On June 4, 1992, [petitioner] SICI filed its ‘Memorandum for Bondsman/Defendant SICI (Re: Effect of Death of defendant Jose D.
Santos, Jr.)’ reiterating its prayer for the dismissal of [respondent’s] complaint.

"On January 28, 1993, the lower court issued the assailed Order reconsidering its Order dated October 15, 1991, and ordered the
case, insofar as SICI is concerned, dismissed. [Respondent] filed its motion for reconsideration which was opposed by [petitioner]
SICI. On April 16, 1993, the lower court denied [respondent’s] motion for reconsideration. x x x."4

Ruling of the Court of Appeals

The CA ruled that SICI’s obligation under the surety agreement was not extinguished by the death of Jose D. Santos, Jr.
Consequently, Republic-Asahi could still go after SICI for the bond.

The appellate court also found that the lower court had erred in pronouncing that the performance of the Contract in question had
become impossible by respondent’s act of rescission. The Contract was rescinded because of the dissatisfaction of respondent with
the slow pace of work and pursuant to Article XIII of its Contract with JDS.

The CA ruled that "[p]erformance of the [C]ontract was impossible, not because of [respondent’s] fault, but because of the fault of
JDS Construction and Jose D. Santos, Jr. for failure on their part to make satisfactory progress on the project, which amounted to
non-performance of the same. x x x [P]ursuant to the [S]urety [C]ontract, SICI is liable for the non-performance of said [C]ontract on
the part of JDS Construction."5

Hence, this Petition.6

Issue

Petitioner states the issue for the Court’s consideration in the following manner:

"Death is a defense of Santos’ heirs which Stronghold could also adopt as its defense against obligee’s claim." 7

More precisely, the issue is whether petitioner’s liability under the performance bond was automatically extinguished by the death
of Santos, the principal.

The Court’s Ruling

The Petition has no merit.

Sole Issue:

Effect of Death on the Surety’s Liability

Petitioner contends that the death of Santos, the bond principal, extinguished his liability under the surety bond. Consequently, it
says, it is automatically released from any liability under the bond.
As a general rule, the death of either the creditor or the debtor does not extinguish the obligation. 8 Obligations are transmissible to
the heirs, except when the transmission is prevented by the law, the stipulations of the parties, or the nature of the obligation.9 Only
obligations that are personal10 or are identified with the persons themselves are extinguished by death. 11

Section 5 of Rule 8612 of the Rules of Court expressly allows the prosecution of money claims arising from a contract against the
estate of a deceased debtor. Evidently, those claims are not actually extinguished. 13 What is extinguished is only the obligee’s action
or suit filed before the court, which is not then acting as a probate court. 14

In the present case, whatever monetary liabilities or obligations Santos had under his contracts with respondent were not
intransmissible by their nature, by stipulation, or by provision of law. Hence, his death did not result in the extinguishment of those
obligations or liabilities, which merely passed on to his estate.15 Death is not a defense that he or his estate can set up to wipe out
the obligations under the performance bond. Consequently, petitioner as surety cannot use his death to escape its monetary
obligation under its performance bond.

The liability of petitioner is contractual in nature, because it executed a performance bond worded as follows:

"KNOW ALL MEN BY THESE PRESENTS:

"That we, JDS CONSTRUCTION of 208-A San Buena Building, contractor, of Shaw Blvd., Pasig, MM Philippines, as principal and the
STRONGHOLD INSURANCE COMPANY, INC. a corporation duly organized and existing under and by virtue of the laws of the
Philippines with head office at Makati, as Surety, are held and firmly bound unto the REPUBLIC ASAHI GLASS CORPORATION and to
any individual, firm, partnership, corporation or association supplying the principal with labor or materials in the penal sum of SEVEN
HUNDRED NINETY FIVE THOUSAND (P795,000.00), Philippine Currency, for the payment of which sum, well and truly to be made, we
bind ourselves, our heirs, executors, administrators, successors and assigns, jointly and severally, firmly by these presents.

"The CONDITIONS OF THIS OBLIGATION are as follows;

"WHEREAS the above bounden principal on the ___ day of __________, 19__ entered into a contract with the REPUBLIC ASAHI
GLASS CORPORATION represented by _________________, to fully and faithfully. Comply with the site preparation works road and
drainage system of Philippine Float Plant at Pinagbuhatan, Pasig, Metro Manila.

"WHEREAS, the liability of the Surety Company under this bond shall in no case exceed the sum of PESOS SEVEN HUNDRED NINETY
FIVE THOUSAND (P795,000.00) Philippine Currency, inclusive of interest, attorney’s fee, and other damages, and shall not be liable
for any advances of the obligee to the principal.

"WHEREAS, said contract requires the said principal to give a good and sufficient bond in the above-stated sum to secure the full and
faithfull performance on its part of said contract, and the satisfaction of obligations for materials used and labor employed upon the
work;

"NOW THEREFORE, if the principal shall perform well and truly and fulfill all the undertakings, covenants, terms, conditions, and
agreements of said contract during the original term of said contract and any extension thereof that may be granted by the obligee,
with notice to the surety and during the life of any guaranty required under the contract, and shall also perform well and truly and
fulfill all the undertakings, covenants, terms, conditions, and agreements of any and all duly authorized modifications of said
contract that may hereinafter be made, without notice to the surety except when such modifications increase the contract price;
and such principal contractor or his or its sub-contractors shall promptly make payment to any individual, firm, partnership,
corporation or association supplying the principal of its sub-contractors with labor and materials in the prosecution of the work
provided for in the said contract, then, this obligation shall be null and void; otherwise it shall remain in full force and effect. Any
extension of the period of time which may be granted by the obligee to the contractor shall be considered as given, and any
modifications of said contract shall be considered as authorized, with the express consent of the Surety.

"The right of any individual, firm, partnership, corporation or association supplying the contractor with labor or materials for the
prosecution of the work hereinbefore stated, to institute action on the penal bond, pursuant to the provision of Act No. 3688, is
hereby acknowledge and confirmed."16

As a surety, petitioner is solidarily liable with Santos in accordance with the Civil Code, which provides as follows:
"Art. 2047. 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 Section 4, 17 Chapter 3, Title I of this Book shall be
observed. In such case the contract is called a suretyship."

xxxxxxxxx

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

Elucidating on these provisions, the Court in Garcia v. Court of Appeals 18 stated thus:

"x x x. The surety’s obligation is not an original and direct one for the performance of his own act, but merely accessory or collateral
to the obligation contracted by the principal. Nevertheless, although the contract of a surety is in essence secondary only to a valid
principal obligation, his liability to the creditor or promisee of the principal is said to be direct, primary and absolute; in other words,
he is directly and equally bound with the principal. x x x."19

Under the law and jurisprudence, respondent may sue, separately or together, the principal debtor and the petitioner herein, in
view of the solidary nature of their liability. The death of the principal debtor will not work to convert, decrease or nullify the
substantive right of the solidary creditor. Evidently, despite the death of the principal debtor, respondent may still sue petitioner
alone, in accordance with the solidary nature of the latter’s liability under the performance bond.

WHEREFORE, the Petition is DENIED and the Decision of the Court of Appeals AFFIRMED. Costs against petitioner .

15. Tiu v. Metrobank

The facts[2] of the case are as follows:

Sometime in October 1990, petitioners applied for a continuing credit facility for and in behalf of themselves and their corporation,
Sunta Rubberized Industrial Corporation (Sunta), and executed in their personal and official capacities a Continuing Surety Agreement.

In the said Agreement, petitioners jointly and severally obligated themselves to pay all loans and credit accommodations that they
and Sunta may incur, supposedly not exceeding three million pesos. It was further stipulated therein that, in case of default in the
payment thereof, notwithstanding Sunta's dissolution, failure in business, insolvency, and the filing of a petition for bankruptcy or
suspension of payments in the proceeding related thereto, the whole obligation shall become due and payable without benefit of
demand or notice of payment.

On July 9, 1990, petitioners opened an irrevocable Commercial Letter of Credit (LC) for the purchase of raw materials amounting
to P480,000 in favor of Sunta. These materials were delivered and custody thereof transferred to Sunta, after which a Trust Receipt
Agreement was jointly and severally executed by petitioners in their personal capacities.

On August 18, 1990, Sunta and petitioners also in their personal capacities obtained a loan of P350,000.

After maturity of the obligation, there was both failure of payment and compliance with the surety and trust receipt agreements, sight
draft, and promissory note.

The total unpaid obligation as of February 15, 1993 was P1,571,972.86. Prayed for by respondent in its complaint a quo were the
payments of P741,599.64, with interest and penalties on the promissory note, per Order dated June 9, 1993; P830,373.20, with
interest and penalties as stipulated in the Trust Receipt Agreement; and attorney's fees.
In their Answer, petitioners admitted execution of the Continuing Surety Agreement not in their personal capacities but as officers of
Sunta. It was also asserted therein that none of them personally benefited from the loan transaction, while two of them signed the LC
as mere officers of Sunta.

The failure of Sunta to pay its obligation was attributed to both force majeure when fire gutted down its factory buildings,
equipment, machinery, raw materials and finished products and the Order dated April 20, 1993 by the Securities and Exchange
Commission (SEC) in SEC Case No. 4240 suspending all actions for claims against Sunta that are pending before any court or tribunal.

It was contended that the real party-in-interest as far as the actionable documents herein were concerned was Sunta, not petitioners
who merely acted as its agents and as guarantors of its obligation. Therefore, petitioners shouldnot be compelled to
pay the obligations of Sunta, because Sunta is solvent and its assets have not yet been exhausted.

Petitioners further argued that, although Sunta had possession of the finished products later destroyed by fire, respondent still
retained its ownership over them. As mere agents carrying out the orders of their principal, petitioners claimed that they could not be
held responsible for the loss of property, unless there was negligence, deceit, fraud, or excess of authority. Hence, the said loss should
fall upon its owner.

In its Decision dated May 28, 1997, the Regional Trial Court (RTC) of Manila, Branch 51, ruled in favor of respondent in the following
manner:

IN VIEW OF THE FOREGOING, this Court believes and so [holds] that the [respondent] has established the
preponderant proof to support its position as against [petitioners'] claim that they are not jointly and severally liable
with SUNTA.

WHEREFORE, judgment is hereby rendered in favor of the [respondent] and against the [petitioners], ordering the
[petitioners] jointly and severally to pay [respondent]:

1. The sum of P741,599.64 as of February 15, 1993 with interest at 28.792% per annum and penalty charges of 18%
per annum until fully paid representing the amount due on the promissory note;

2. The sum of P830,373.20 as of February 15, 1993 with interest at the current rate [and] with penalty charges of
12% per annum until fully paid representing the value or proceeds of the amount held in trust as stipulated;

3. [A]ttorney's fees in the amount equivalent to 10% of the amount due from the [petitioners]; and

4. The costs of suit.

[Petitioners'] counterclaim is hereby dismissed for lack of merit.

SO ORDERED.[3]

Petitioners went on appeal asking for reversal of the RTC Decision. The Court of Appeals rendered its assailed Decision, the dispositive
portion of which reads:

THE FOREGOING CONSIDERED, the appealed Decision is hereby AFFIRMED.

SO ORDERED.[4]

As stated, reconsideration was denied.

Hence, this petition positing:

WHETHER PETITIONERS CAN BE HELD LIABLE FOR THE UNPAID LOAN DUE AND OWING RESPONDENT.

Petitioners should be held liable for their unpaid obligation of P1,571,972.86 as of February 15, 1993, with penalties, interest,
attorneys fees, and costs of suit, based on both the non-negotiable Promissory Note and Continuing Surety Agreement they executed.
Under the Promissory Note, petitioners Tiu Hiong Guan and Juanito Rellera promised to pay respondent jointly and severally the
single-payment loan of P350,000 at 28.92% interest per annum, binding themselves in both their personal and official capacities. In
case of default inter alia in the payment of any installment, interest, or charges, it is stipulated that the entire principal, as well as
the interest and charges, shall become due and payable at the option of and without notice by respondent. A penalty charge of 18%
per annum and attorney's fees of 10% were also agreed upon therein.

The Continuing Surety Agreement clearly states that the liability of all petitioners, as sureties, shall be solidary with Sunta, as their
principal, for all of the latter's loans, credits, overdrafts, advances, discounts and/or other credit accommodations not
exceeding P3,000,000. In case of default inter alia in the payment of any obligation upon maturity or any amortization thereof, it is
similarly stipulated that all instruments, indebtedness, or other obligations thereby secured shall become due and payable by the
sureties, at the option of and without demand or notice by respondent. In fact, their liability is expressly stated to be direct and
immediate, not contingent upon the pursuit by respondent of whatever remedies it may have against Sunta. All
parties therein have agreed that the sureties shall at any time pay respondent, with or without demand upon Sunta, any of the loans,
indebtedness, or other obligations secured, whether due or not. Any notice given by respondent to any of the sureties shall be
sufficient notice to all.

From these two documents, the liability of petitioners is joint and several in both their personal and official capacities. They are not
mere guarantors, but sureties. They do not insure the solvency of the debtor, but rather the debt itself. They obligate themselves to
pay the debt if the principal debtor will not pay, regardless of whether or not the latter is financially capable to fulfill his obligation.[5]

Time and again, x x x the liability of a surety is determined strictly on the basis of the terms and conditions set out in the surety
agreement.[6] Solidary liability is one of its primary characteristics.[7] The creditor may proceed against any one of the solidary debtors
or some or all of them simultaneously.[8] Thus, respondent may proceed against Sunta alone or some or all of petitioners herein.

Suretyship arises upon the solidary binding of a person deemed the surety with the principal debtor, for the purpose of fulfilling an
obligation.[9] [A] suretyship is merely an accessory x x x to a principal obligation. Although a surety contract is secondary to the principal
obligation, the liability of the surety is direct, primary and absolute; or equivalent to that of a regular party to the undertaking. A surety
becomes liable to the debt and duty of the principal obligor even without possessing a direct or personal interest in the obligations
constituted by the latter.[10] Petitioners are considered as being the same party as the debtor in relation to whatever is adjudged
touching the obligation of the latter, and their liabilities are interwoven as to be inseparable. [11]

It is irrelevant that none of petitioners personally benefited from the loan transaction between Sunta and respondent. The failure to
pay attributable to either force majeure or the SEC Order does not veer away from the fact of liability as sureties. Even though
ownership over the goods remains with respondent, the loss thereof has nothing to do with the loan that petitioners bound themselves
to be solidarily liable with respondent. The Trust Receipt Agreement between them is a mere collateral agreement independent of
the Continuing Surety Agreement, the purpose of which is to serve as additional security for the loan. [12] [P]arties are bound by the
terms of their contract, which is the law between them.[13]

WHEREFORE, the petition is DENIED. The Decision and Resolution of the Court of Appeals in CA-G.R. CV No. 57571, dated
May 23, 2000 and August 11, 2000, respectively, are hereby AFFIRMED.

16. MWSS v. Daway

ANTECEDENTS OF THE CASE

On February 21, 1997, MWSS granted Maynilad under a Concession Agreement a twenty-year period to manage, operate, repair,
decommission and refurbish the existing MWSS water delivery and sewerage services in the West Zone Service Area, for which
Maynilad undertook to pay the corresponding concession fees on the dates agreed upon in said agreement [5] which, among other
things, consisted of payments of petitioners mostly foreign loans.
To secure the concessionaires performance of its obligations under the Concession Agreement, Maynilad was required under
Section 6.9 of said contract to put up a bond, bank guarantee or other security acceptable to MWSS.
In compliance with this requirement, Maynilad arranged on July 14, 2000 for a three-year facility with a number of foreign banks,
led by Citicorp International Limited, for the issuance of an Irrevocable Standby Letter of Credit [6] in the amount of US$120,000,000 in
favor of MWSS for the full and prompt performance of Maynilads obligations to MWSS as aforestated.
Sometime in September 2000, respondent Maynilad requested MWSS for a mechanism by which it hoped to recover the losses
it had allegedly incurred and would be incurring as a result of the depreciation of the Philippine Peso against the US Dollar. Failing to
get what it desired, Maynilad issued a Force Majeure Notice on March 8, 2001 and unilaterally suspended the payment of the
concession fees. In an effort to salvage the Concession Agreement, the parties entered into a Memorandum of Agreement (MOA)[7] on
June 8, 2001 wherein Maynilad was allowed to recover foreign exchange losses under a formula agreed upon between them.
Sometime in August 2001 Maynilad again filed another Force Majeure Notice and, since MWSS could not agree with the terms of said
Notice, the matter was referred on August 30, 2001 to the Appeals Panel for arbitration. This resulted in the parties agreeing to resolve
the issues through an amendment of the Concession Agreement on October 5, 2001, known as Amendment No. 1, [8] which was based
on the terms set down in MWSS Board of Trustees Resolution No. 457-2001, as amended by MWSS Board of Trustees Resolution No.
487-2001,[9] which provided inter alia for a formula that would allow Maynilad to recover foreign exchange losses it had incurred or
would incur under the terms of the Concession Agreement.
As part of this agreement, Maynilad committed, among other things, to:
a) infuse the amount of UD$80.0 million as additional funding support from its stockholders;
b) resume payment of the concession fees; and
c) mutually seek the dismissal of the cases pending before the Court of Appeals and with Minor Dispute Appeals Panel.
However, on November 5, 2002, Maynilad served upon MWSS a Notice of Event of Termination, claiming that MWSS failed to
comply with its obligations under the Concession Agreement and Amendment No. 1 regarding the adjustment mechanism that would
cover Maynilads foreign exchange losses. On December 9, 2002, Maynilad filed a Notice of Early Termination of the concession, which
was challenged by MWSS. This matter was eventually brought before the Appeals Panel on January 7, 2003 by MWSS. [10] On November
7, 2003, the Appeals Panel ruled that there was no Event of Termination as defined under Art. 10.2 (ii) or 10.3 (iii) of the Concession
Agreement and that, therefore, Maynilad should pay the concession fees that had fallen due.
The award of the Appeals Panel became final on November 22, 2003. MWSS, thereafter, submitted a written notice[11] on
November 24, 2003, to Citicorp International Limited, as agent for the participating banks, that by virtue of Maynilads failure to
perform its obligations under the Concession Agreement, it was drawing on the Irrevocable Standby Letter of Credit and thereby
demanded payment in the amount of US$98,923,640.15.
Prior to this, however, Maynilad had filed on November 13, 2003, a petition for rehabilitation before the court a quo which
resulted in the issuance of the Stay Order of November 17, 2003 and the disputed Order of November 27, 2003.[12]
PETITIONERS CASE
Petitioner hereby raises the following issues:
1. DID THE HONORABLE PRESIDING JUDGE GRAVELY ERR AND/OR ACT PATENTLY WITHOUT JURISDICTION OR IN EXCESS OF
JURISDICTION OR WITH GRAVE ABUSE OF DISCRETION AMOUNTING TO LACK OR EXCESS OF JURISDICTION IN
CONSIDERING THE PERFORMANCE BOND OR ASSETS OF THE ISSUING BANKS AS PART OR PROPERTY OF THE ESTATE OF
THE PRIVATE RESPONDENT MAYNILAD SUBJECT TO REHABILITATION.
2. DID THE HONORABLE PRESIDING JUDGE ACT WITH LACK OR EXCESS OF JURISDICTION OR COMMIT A GRAVE ERROR OF
LAW IN HOLDING THAT THE PERFORMANCE BOND OBLIGATIONS OF THE BANKS WERE NOT SOLIDARY IN NATURE.
3. DID THE HONORABLE PRESIDING JUDGE GRAVELY ERR IN ALLOWING MAYNILAD TO IN EFFECT SEEK A REVIEW OR APPEAL
OF THE FINAL AND BINDING DECISION OF THE APPEALS PANEL.
In support of the first issue, petitioner maintains that as a matter of law, the US$120 Million Standby Letter of Credit and
Performance Bond are not property of the estate of the debtor Maynilad and, therefore, not subject to the in
remrehabilitation jurisdiction of the trial court.
Petitioner argues that a call made on the Standby Letter of Credit does not involve any asset of Maynilad but only assets of the
banks. Furthermore, a call on the Standby Letter of Credit cannot also be considered a claim falling under the purview of the stay order
as alleged by respondent as it is not directed against the assets of respondent Maynilad.
Petitioner concludes that the public respondent erred in declaring and holding that the commencement of the process for the
payment of US$98 million is a violation of the order issued on November 17, 2003.
RESPONDENT MAYNILADS CASE
Respondent Maynilad seeks to refute this argument by alleging that:
a) the order objected to was strictly and precisely worded and issued after carefully considering/evaluating the import of the
arguments and documents referred to by Maynilad, MWSS and/or creditors Chinatrust Commercial Bank and Suez in relation to
admissions, pleadings and/or pertinent records[13] and that public respondent had the authority to issue the same;
b) public respondent never considered nor held that the Performance bond or assets of the issuing banks are part or property of the
estate of respondent Maynilad subject to rehabilitation and which respondent Maynilad has not and has never claimed to be; [14]
c) what is relevant is not whether the performance bond or assets of the issuing banks are part of the estate of respondent Maynilad
but whether the act of petitioner in commencing the process for the payment by the banks of US$98 million out of the US$120
million performance bond is covered and/or prohibited under sub-paragraphs 2.) and 4.) of the stay order dated November 17,
2003;
d) the jurisdiction of public respondent extends not only to the assets of respondent Maynilad but also over persons and assets of all
those affected by the proceedings x x x upon publication of the notice of commencement;[15] and
e) the obligations under the Standby Letter of Credit are not solidary and are not exempt from the coverage of the stay order.
OUR RULING
We will discuss the first two issues raised by petitioner as these are interrelated and make up the main issue of the petition
before us which is, did the rehabilitation court sitting as such, act in excess of its authority or jurisdiction when it enjoined herein
petitioner from seeking the payment of the concession fees from the banks that issued the Irrevocable Standby Letter of Credit in its
favor and for the account of respondent Maynilad?
The public respondent relied on Sec. 1, Rule 3 of the Interim Rules on Corporate Rehabilitation to support its jurisdiction over
the Irrevocable Standby Letter of Credit and the banks that issued it. The section reads in part that jurisdiction over those affected by
the proceedings is considered acquired upon the publication of the notice of commencement of proceedings in a newspaper of general
circulation and goes further to define rehabilitation as an in rem proceeding. This provision is a logical consequence of the in
rem nature of the proceedings, where jurisdiction is acquired by publication and where it is necessary that the assets of the debtor
come within the courts jurisdiction to secure the same for the benefit of creditors. The reference to all those affected by the
proceedings covers creditors or such other persons or entities holding assets belonging to the debtor under rehabilitation which should
be reflected in its audited financial statements. The banks do not hold any assets of respondent Maynilad that would be material to
the rehabilitation proceedings nor is Maynilad liable to the banks at this point.
Respondent Maynilads Financial Statement as of December 31, 2001 and 2002 do not show the Irrevocable Standby Letter of
Credit as part of its assets or liabilities, and by respondent Maynilads own admission it is not. In issuing the clarificatory order of
November 27, 2003, enjoining petitioner from claiming from an asset that did not belong to the debtor and over which it did not
acquire jurisdiction, the rehabilitation court acted in excess of its jurisdiction.
Respondent Maynilad insists, however, that it is Sec. 6 (b), Rule 4 of the Interim Rules that supports its claim that the
commencement of the process to draw on the Standby Letter of Credit is an enforcement of claim prohibited by and under the Interim
Rules and the order of public respondent.
Respondent Maynilad would persuade us that the above provision justifies a leap to the conclusion that such an enforcement is
prohibited by said section because it is a claim against the debtor, its guarantors and sureties not solidarily liable with the debtor and
that there is nothing in the Standby Letter of Credit nor in law nor in the nature of the obligation that would show or require the
obligation of the banks to be solidary with the respondent Maynilad.
We disagree.
First, the claim is not one against the debtor but against an entity that respondent Maynilad has procured to answer for its non-
performance of certain terms and conditions of the Concession Agreement, particularly the payment of concession fees.
Secondly, Sec. 6 (b) of Rule 4 of the Interim Rules does not enjoin the enforcement of all claims against guarantors and
sureties, but only those claims against guarantors and sureties who are not solidarily liable with the debtor.Respondent Maynilads
claim that the banks are not solidarily liable with the debtor does not find support in jurisprudence.
We held in Feati Bank & Trust Company v. Court of Appeals[16] that the concept of guarantee vis--vis the concept of an irrevocable
letter of credit are inconsistent with each other. The guarantee theory destroys the independence of the banks responsibility from the
contract upon which it was opened and the nature of both contracts is mutually in conflict with each other. In contracts of guarantee,
the guarantors obligation is merely collateral and it arises only upon the default of the person primarily liable. On the other hand, in
an irrevocable letter of credit, the bank undertakes a primary obligation. We have also defined a letter of credit as an engagement by
a bank or other person made at the request of a customer that the issuer shall honor drafts or other demands of payment upon
compliance with the conditions specified in the credit.[17]
Letters of credit were developed for the purpose of insuring to a seller payment of a definite amount upon the presentation of
documents[18] and is thus a commitment by the issuer that the party in whose favor it is issued and who can collect upon it will have
his credit against the applicant of the letter, duly paid in the amount specified in the letter.[19] They are in effect absolute undertakings
to pay the money advanced or the amount for which credit is given on the faith of the instrument. They are primary obligations and
not accessory contracts and while they are security arrangements, they are not converted thereby into contracts of guaranty. [20] What
distinguishes letters of credit from other accessory contracts, is the engagement of the issuing bank to pay the seller once the draft
and other required shipping documents are presented to it. [21] They are definite undertakings to pay at sight once the documents
stipulated therein are presented.
Letters of Credits have long been and are still governed by the provisions of the Uniform Customs and Practice for Documentary
Credits of the International Chamber of Commerce. In the 1993 Revision it provides in Art. 2 that the expressions Documentary
Credit(s) and Standby Letter(s) of Credit mean any arrangement, however made or described, whereby a bank acting at the request
and on instructions of a customer or on its own behalf is to make payment against stipulated document(s) and Art. 9 thereof defines
the liability of the issuing banks on an irrevocable letter of credit as a definite undertaking of the issuing bank, provided that the
stipulated documents are presented to the nominated bank or the issuing bank and the terms and conditions of the Credit are
complied with, to pay at sight if the Credit provides for sight payment. [22]
We have accepted, in Feati Bank and Trust Company v. Court of Appeals[23] and Bank of America NT & SA v. Court of Appeals,[24] to
the extent that they are pertinent, the application in our jurisdiction of the international credit regulatory set of rules known as the
Uniform Customs and Practice for Documentary Credits (U.C.P) issued by the International Chamber of Commerce, which we said
in Bank of the Philippine Islands v. Nery[25] was justified under Art. 2 of the Code of Commerce, which states:
Acts of commerce, whether those who execute them be merchants or not, and whether specified in this Code or not should be
governed by the provisions contained in it; in their absence, by the usages of commerce generally observed in each place; and in the
absence of both rules, by those of the civil law.
 The prohibition under Sec 6 (b) of Rule 4 of the Interim Rules does not apply to herein petitioner as the prohibition is on the
enforcement of claims against guarantors or sureties of the debtors whose obligations are not solidary with the debtor. The
participating banks obligation are solidary with respondent Maynilad in that it is a primary, direct, definite and an absolute undertaking
to pay and is not conditioned on the prior exhaustion of the debtors assets. These are the same characteristics of a surety or solidary
obligor.
Being solidary, the claims against them can be pursued separately from and independently of the rehabilitation case, as held
in Traders Royal Bank v. Court of Appeals[26] and reiterated in Philippine Blooming Mills, Inc. v. Court of Appeals,[27] where we said that
property of the surety cannot be taken into custody by the rehabilitation receiver (SEC) and said surety can be sued separately to
enforce his liability as surety for the debts or obligations of the debtor. The debts or obligations for which a surety may be liable include
future debts, an amount which may not be known at the time the surety is given.
The terms of the Irrevocable Standby Letter of Credit do not show that the obligations of the banks are not solidary with those
of respondent Maynilad. On the contrary, it is issued at the request of and for the account of Maynilad Water Services, Inc., in favor
of the Metropolitan Waterworks and Sewerage System, as a bond for the full and prompt performance of the obligations by the
concessionaire under the Concession Agreement[28] and herein petitioner is authorized by the banks to draw on it by the simple act of
delivering to the agent a written certification substantially in the form Annex B of the Letter of Credit. It provides further in Sec. 6, that
for as long as the Standby Letter of Credit is valid and subsisting, the Banks shall honor any written Certification made by MWSS in
accordance with Sec. 2, of the Standby Letter of Credit regardless of the date on which the event giving rise to such Written
Certification arose.[29]
Taking into consideration our own rulings on the nature of letters of credit and the customs and usage developed over the years
in the banking and commercial practice of letters of credit, we hold that except when a letter of credit specifically stipulates otherwise,
the obligation of the banks issuing letters of credit are solidary with that of the person or entity requesting for its issuance, the same
being a direct, primary, absolute and definite undertaking to pay the beneficiary upon the presentation of the set of documents
required therein.
The public respondent, therefore, exceeded his jurisdiction, in holding that he was competent to act on the obligation of the
banks under the Letter of Credit under the argument that this was not a solidary obligation with that of the debtor. Being a solidary
obligation, the letter of credit is excluded from the jurisdiction of the rehabilitation court and therefore in enjoining petitioner from
proceeding against the Standby Letters of Credit to which it had a clear right under the law and the terms of said Standby Letter of
Credit, public respondent acted in excess of his jurisdiction.
ADDITIONAL ISSUES
We proceed to consider the other issues raised in the oral arguments and included in the parties memoranda:
1. Respondent Maynilad argues that petitioner had a plain, speedy and adequate remedy under the Interim Rules itself which
provides in Sec. 12, Rule 4 that the court may on motion or motu proprio, terminate, modify or set conditions for the continuance of
the stay order or relieve a claim from coverage thereof. We find, however, that the public respondent had already accomplished this
during the hearing set for the two Urgent Ex Parte motions filed by respondent Maynilad on November 21 and 24, 2003, [30] where the
parties including the creditors, Suez and Chinatrust Commercial presented their respective arguments.[31] The public respondent then
ruled, after carefully considering/evaluating the import of the arguments and documents referred to by Maynilad, MWSS and/or the
creditors Chinatrust Commercial Bank and Suez in relation to the admissions, the pleadings, and/or pertinent portions of the records,
this court is of the considered and humble view that the issue must perforce be resolved in favor of Maynilad.[32] Hence to pursue their
opposition before the same court would result in the presentation of the same arguments and issues passed upon by public
respondent.
Furthermore, Sec. 5, Rule 3 of the Interim Rules would preclude any other effective remedy questioning the orders of the
rehabilitation court since they are immediately executory and a petition for review or an appeal therefrom shall not stay the execution
of the order unless restrained or enjoined by the appellate court. In this situation, it had no other remedy but to seek recourse to us
through this petition for certiorari.
In Silvestre v. Torres and Oben,[33] we said that it is not enough that a remedy is available to prevent a party from making use of
the extraordinary remedy of certiorari but that such remedy be an adequate remedy which is equally beneficial, speedy and sufficient,
not only a remedy which at some time in the future may offer relief but a remedy which will promptly relieve the petitioner from the
injurious acts of the lower tribunal. It is the inadequacy -- not the mere absence -- of all other legal remedies and the danger of failure
of justice without the writ, that must usually determine the propriety of certiorari.[34]
2. Respondent Maynilad argues that by commencing the process for payment under the Standby Letter of Credit, petitioner
violated an immediately executory order of the court and, therefore, comes to Court with unclean hands and should therefore be
denied any relief.
It is true that the stay order is immediately executory. It is also true, however, that the Standby Letter of Credit and the banks
that issued it were not within the jurisdiction of the rehabilitation court. The call on the Standby Letter of Credit, therefore, could not
be considered a violation of the Stay Order.
3. Respondents claim that the filing of the petition pre-empts the original jurisdiction of the lower court is without merit. The
purpose of the initial hearing is to determine whether the petition for rehabilitation has merit or not. The propriety of the stay order
as well as the clarificatory order had already been passed upon in the hearing previously had for that purpose. The determination of
whether the public respondent was correct in enjoining the petitioner from drawing on the Standby Letter of Credit will have no
bearing on the determination to be made by public respondent whether the petition for rehabilitation has merit or not. Our decision
on the instant petition does not pre-empt the original jurisdiction of the rehabilitation court.
WHEREFORE, the petition for certiorari is GRANTED. The Order of November 27, 2003 of the Regional Trial Court of Quezon City,
Branch 90, is hereby declared NULL AND VOID and SET ASIDE. The status quo Order herein previously issued is hereby LIFTED. In view
of the urgency attending this case, this decision is immediately executory.
No costs.

17. Great Asian Sales Center v. CA

The Facts
Great Asian is engaged in the business of buying and selling general merchandise, in particular household appliances. On March
17, 1981, the board of directors of Great Asian approved a resolution authorizing its Treasurer and General Manager, Arsenio Lim Piat,
Jr. (Arsenio for brevity) to secure a loan from Bancasia in an amount not to exceed P1.0 million. The board resolution also authorized
Arsenio to sign all papers, documents or promissory notes necessary to secure the loan. On February 10, 1982, the board of directors
of Great Asian approved a second resolution authorizing Great Asian to secure a discounting line with Bancasia in an amount not
exceeding P2.0 million. The second board resolution also designated Arsenio as the authorized signatory to sign all instruments,
documents and checks necessary to secure the discounting line.
On March 4, 1981, Tan Chong Lin signed a Surety Agreement in favor of Bancasia to guarantee, solidarily, the debts of Great
Asian to Bancasia. On January 29, 1982, Tan Chong Lin signed a Comprehensive and Continuing Surety Agreement in favor of Bancasia
to guarantee, solidarily, the debts of Great Asian to Bancasia. Thus, Tan Chong Lin signed two surety agreements (Surety Agreements
for brevity) in favor of Bancasia.
Great Asian, through its Treasurer and General Manager Arsenio, signed four (4) Deeds of Assignment of Receivables (Deeds of
Assignment for brevity), assigning to Bancasia fifteen (15) postdated checks. Nine of the checks were payable to Great Asian, three
were payable to New Asian Emp., and the last three were payable to cash. Various customers of Great Asian issued these postdated
checks in payment for appliances and other merchandise.
Great Asian and Bancasia signed the first Deed of Assignment on January 12, 1982 covering four postdated checks with a total
face value of P244,225.82, with maturity dates not later than March 17, 1982. Of these four postdated checks, two were
dishonored.Great Asian and Bancasia signed the second Deed of Assignment also on January 12, 1982 covering four postdated checks
with a total face value of P312,819.00, with maturity dates not later than April 1, 1982. All these four checks were dishonored. Great
Asian and Bancasia signed the third Deed of Assignment on February 11, 1982 covering eight postdated checks with a total face value
of P344,475.00, with maturity dates not later than April 30, 1982. All these eight checks were dishonored. Great Asian and Bancasia
signed the fourth Deed of Assignment on March 5, 1982 covering one postdated check with a face value of P200,000.00, with maturity
date on March 18, 1982. This last check was also dishonored. Great Asian assigned the postdated checks to Bancasia at a discount rate
of less than 24% of the face value of the checks.
Arsenio endorsed all the fifteen dishonored checks by signing his name at the back of the checks. Eight of the dishonored checks
bore the endorsement of Arsenio below the stamped name of Great Asian Sales Center, while the rest of the dishonored checks just
bore the signature of Arsenio. The drawee banks dishonored the fifteen checks on maturity when deposited for collection by Bancasia,
with any of the following as reason for the dishonor: account closed, payment stopped, account under garnishment, and insufficiency
of funds. The total amount of the fifteen dishonored checks is P1,042,005.00. Below is a table of the fifteen dishonored checks:
Drawee Bank Check No. Amount Maturity Date
1st Deed
Solid Bank C-A097480 P137,500.00 March 16, 1982
Pacific Banking Corp. 23950 P47,211.00 March 17, 1982
2nd Deed
Metrobank 030925 P68,722.00 March 19, 1982
030926 P45,230.00 March 19, 1982
Solidbank C-A097478 P140,000.00 March 23, 1982
Pacific Banking Corp. CC 769910 P58,867.00 April 1, 1982
3rd Deed
Phil. Trust Company 060835 P21,228.00 April 21, 1982
060836 P22,187.00 April 28, 1982
Allied Banking Corp. 11251624 P41,773.00 April 22, 1982
11251625 P38,592.00 April 29, 1982
Pacific Banking Corp. 237984 P37,886.00 April 23, 1982
237988 P47,385.00 April 28, 1982
237985 P46,748.00 April 30, 1982
 Security Bank & Trust Co. 22061 P88,676.00 April 30, 1982
4th Deed
Pacific Banking Corp. 860178 P200,000.00 March 18, 1982
After the drawee bank dishonored Check No. 097480 dated March 16, 1982, Bancasia referred the matter to its lawyer, Atty.
Eladia Reyes, who sent by registered mail to Tan Chong Lin a letter dated March 18, 1982, notifying him of the dishonor and demanding
payment from him. Subsequently, Bancasia sent by personal delivery a letter dated June 16, 1982 to Tan Chong Lin, notifying him of
the dishonor of the fifteen checks and demanding payment from him. Neither Great Asian nor Tan Chong Lin paid Bancasia the
dishonored checks.
On May 21, 1982, Great Asian filed with the then Court of First Instance of Manila a petition for insolvency, verified under oath
by its Corporate Secretary, Mario Tan. Attached to the verified petition was a Schedule and Inventory of Liabilities and Creditors of
Great Asian Sales Center Corporation, listing Bancasia as one of the creditors of Great Asian in the amount of P1,243,632.00.
On June 23, 1982, Bancasia filed a complaint for collection of a sum of money against Great Asian and Tan Chong Lin. Bancasia
impleaded Tan Chong Lin because of the Surety Agreements he signed in favor of Bancasia. In its answer, Great Asian denied the
material allegations of the complaint claiming it was unfounded, malicious, baseless, and unlawfully instituted since there was already
a pending insolvency proceedings, although Great Asian subsequently withdrew its petition for voluntary insolvency. Great Asian
further raised the alleged lack of authority of Arsenio to sign the Deeds of Assignment as well as the absence of consideration and
consent of all the parties to the Surety Agreements signed by Tan Chong Lin.
Ruling of the Trial Court
The trial court rendered its decision on January 26, 1988 with the following findings and conclusions:
From the foregoing facts and circumstances, the Court finds that the plaintiff has established its causes of action against the
defendants. The Board Resolution (Exh. T), dated March 17, 1981, authorizing Arsenio Lim Piat, Jr., general manager and treasurer of
the defendant Great Asian to apply and negotiate for a loan accommodation or credit line with the plaintiff Bancasia in an amount
not exceeding One Million Pesos (P1,000,000.00), and the other Board Resolution approved on February 10, 1982, authorizing
Arsenio Lim Piat, Jr., to obtain for defendant Asian Center a discounting line with Bancasia at prevailing discounting rates in an
amount not to exceed Two Million Pesos (P2,000,000.00), both of which were intended to secure money from the plaintiff financing
firm to finance the business operations of defendant Great Asian, and pursuant to which Arsenio Lim Piat, Jr. was able to have the
aforementioned fifteen (15) checks totaling P1,042,005.00 discounted with the plaintiff, which transactions were obviously known
by the beneficiary thereof, defendant Great Asian, as in fact, in its aforementioned Schedule and Inventory of Liabilities and
Creditors (Exh. DD, DD-1) attached to its Verified Petition for Insolvency, dated May 12, 1982 (pp. 50-56), the defendant Great Asian
admitted an existing liability to the plaintiff, in the amount of P1,243,632.00, secured by it, by way of financing accommodation,
from the said financing institution Bancasia Finance and Investment Corporation, plaintiff herein, sufficiently establish the liability of
the defendant Great Asian to the plaintiff for the amount of P1,042,005.00 sought to be recovered by the latter in this case. [5]
xxx
WHEREFORE, judgment is hereby rendered in favor of the plaintiff and against the two (2) defendants ordering the latter, jointly and
severally, to pay the former:
(a) The amount of P1,042,005.00, plus interest thereon at the legal rate from the filing of the complaint until the same is
fully paid;
(b) Attorneys fees equivalent to twenty per cent (20%) of the total amount due; and
(c) The costs of suit.
SO ORDERED.[6]
Ruling of the Court of Appeals
On appeal, the Court of Appeals sustained the decision of the lower court, deleting only the award of attorneys fees, as follows:
As against appellants bare denial of it, the Court is more inclined to accept the appellees version, to the effect that the subject deeds
of assignment are but individual transactions which -- being collectively evidentiary of the loan accommodation and/or credit line it
granted the appellant corporation -- should not be taken singly and distinct therefrom. In addition to its plausibility, the proposition
is, more importantly, adequately backed by the documentary evidence on record. Aside from the aforesaid Deeds of Assignment
(Exhs. A, D, I, and R) and the Board Resolutions of the appellant corporations Board of Directors (Exhs. T, U and V), the appellee --
consistent with its theory -- interposed the Surety Agreements the appellant Tan Chong Lin executed (Exhs. W and X), as well as the
demand letters it served upon the latter as surety (Exhs. Y and Z). It bears emphasis that the second Resolution of the appellant
corporations Board of Directors (Exh. V) even closely coincides with the execution of the February 11, 1982 and March 5, 1982
Deeds of Assignment (Exhs. I and R). Were the appellants posturings true, it seems rather strange that the appellant Tan Chong Lin
did not even protest or, at least, make known to the appellee what he -- together with the appellant corporation -- represented to
be a corporate larceny to which all of them supposedly fell prey. In the petition for voluntary insolvency it filed, the appellant
corporation, instead, indirectly acknowledged its indebtedness in terms of financing accommodations to the appellee, in an amount
which, while not exactly matching the sum herein sought to be collected, approximates the same (Exhs. CC, DD and DD-1).[7]
xxx
The appellants contend that the foregoing warranties enlarged or increased the suretys risk, such that appellant Tan Chong Lin
should be released from his liabilities (pp. 37-44, Appellants Brief). Without saying more, the appellants position is, however,
soundly debunked by the undertaking expressed in the Comprehensive and Continuing Surety Agreements (Exhs. W and X), to the
effect that the xxx surety/ies, jointly and severally among themselves and likewise with the principal, hereby agree/s and bind/s
himself to pay at maturity all the notes, drafts, bills of exchange, overdrafts and other obligations which the principal may now or
may hereafter owe the creditor xxx. With the possible exception of the fixed ceiling for the amount of loan obtainable, the surety
undertaking in the case at bar is so comprehensive as to contemplate each and every condition, term or warranty which the
principal parties may have or may be minded to agree on. Having affixed his signature thereto, the appellant Tan Chong Lin is
expected to have, at least, read and understood the same.
xxx
With the foregoing disquisition, the Court sees little or no reason to go into the appellants remaining assignments of error, save the
matter of attorneys fees. For want of a statement of the rationale therefore in the body of the challenged decision, the trial courts
award of attorneys fees should be deleted and disallowed (Abrogar vs. Intermediate Appellate Court, 157 SCRA 57).
WHEREFORE, the decision appealed from is MODIFIED, to delete the trial courts award of attorneys fees. The rest is
AFFIRMED in toto.
SO ORDERED.[8]
The Issues
The petition is anchored on the following assigned errors:
1. The respondent Court erred in not holding that the proper parties against whom this action for collection should be
brought are the drawers and indorser of the checks in question, being the real parties in interest, and not the herein
petitioners.
2. The respondent Court erred in not holding that the petitioner-corporation is discharged from liability for failure of the
private respondent to comply with the provisions of the Negotiable Instruments Law on the dishonor of the checks.
3. The respondent Court erred in its appreciation and interpretation of the effect and legal consequences of the signing of
the deeds of assignment and the subsequent indorsement of the checks by Arsenio Lim Piat, Jr. in his individual and
personal capacity and without stating or indicating the name of his supposed principal.
4. The respondent Court erred in holding that the assignment of the checks is a loan accommodation or credit line accorded
by the private respondent to petitioner-corporation, and not a purchase and sale thereof.
5. The respondent Court erred in not holding that there was a material alteration of the risk assumed by the petitioner-
surety under his surety agreement by the terms, conditions, warranties and obligations assumed by the assignor Arsenio
Lim Piat, Jr. under the deeds of assignment or receivables.
6. The respondent Court erred in holding that the petitioner-corporation impliedly admitted its liability to private
respondent when the former included the latter as one of its creditors in its petition for voluntary insolvency, although
no claim was filed and proved by the private respondent in the insolvency court.
7. The respondent Court erred in holding the petitioners liable to private respondent on the transactions in question. [9]
The issues to be resolved in this petition can be summarized into three:
1. WHETHER ARSENIO HAD AUTHORITY TO EXECUTE THE DEEDS OF ASSIGNMENT AND THUS BIND GREAT ASIAN;
2. WHETHER GREAT ASIAN IS LIABLE TO BANCASIA UNDER THE DEEDS OF ASSIGNMENT FOR BREACH OF CONTRACT
PURSUANT TO THE CIVIL CODE, INDEPENDENT OF THE NEGOTIABLE INSTRUMENTS LAW;
3. WHETHER TAN CHONG LIN IS LIABLE TO GREAT ASIAN UNDER THE SURETY AGREEMENTS.
The Courts Ruling
The petition is bereft of merit.
First Issue: Authority of Arsenio to Sign the Deeds of Assignment
Great Asian asserts that Arsenio signed the Deeds of Assignment and indorsed the checks in his personal capacity. The primordial
question that must be resolved is whether Great Asian authorized Arsenio to sign the Deeds of Assignment. If Great Asian so authorized
Arsenio, then Great Asian is bound by the Deeds of Assignment and must honor its terms.
The Corporation Code of the Philippines vests in the board of directors the exercise of the corporate powers of the corporation,
save in those instances where the Code requires stockholders approval for certain specific acts. Section 23 of the Code provides:
SEC. 23. The Board of Directors or Trustees. Unless otherwise provided in this Code, the corporate powers of all corporations
formed under this Code shall be exercised, all business conducted and all property of such corporations controlled and held by
the board of directors or trustees x x x.
In the ordinary course of business, a corporation can borrow funds or dispose of assets of the corporation only on authority of the
board of directors. The board of directors normally designates one or more corporate officers to sign loan documents or deeds of
assignment for the corporation.
To secure a credit accommodation from Bancasia, the board of directors of Great Asian adopted two board resolutions on
different dates, the first on March 17, 1981, and the second on February 10, 1982. These two board resolutions, as certified under
oath by Great Asians Corporate Secretary Mario K. Tan, state:
First Board Resolution
RESOLVED, that the Treasurer of the corporation, Mr. Arsenio Lim Piat, Jr., be authorized as he is authorized to apply for and
negotiate for a loan accommodation or credit line in the amount not to exceed ONE MILLION PESOS (P1,000,000.00), with
 Bancasia Finance and Investment Corporation, and likewise to sign any and all papers, documents, and/or promissory notes in
connection with said loan accommodation or credit line, including the power to mortgage such properties of the corporation
as may be needed to effectuate the same.[10] (Emphasis supplied)
Second Board Resolution
RESOLVED that Great Asian Sales Center Corp. obtain a discounting line with BANCASIA FINANCE & INVESTMENT
CORPORATION, at prevailing discounting rates, in an amount not to exceed** TWO MILLION PESOS ONLY (P2,000,000),**
Philippine Currency.
RESOLVED FURTHER, that the corporation secure such other forms of credit lines with BANCASIA FINANCE & INVESTMENT
CORPORATION in an amount not to exceed** TWO MILLION PESOS ONLY (P2,000,000.00),** PESOS, under such terms and
conditions as the signatories may deem fit and proper.
RESOLVED FURTHER, that the following persons be authorized individually, jointly or collectively to sign, execute and deliver
any and all instruments, documents, checks, sureties, etc. necessary or incidental to secure any of the foregoing obligation:
(signed)
Specimen Signature
1. ARSENIO LIM PIAT, JR._
2. _______________________
3. _______________________
4. _______________________
PROVIDED FINALLY that this authority shall be valid, binding and effective until revoked by the Board of Directors in the
manner prescribed by law, and that BANCASIA FINANCE & INVESTMENT CORPORATION shall not be bound by any such
revocation until such time as it is noticed in writing of such revocation. [11] (Emphasis supplied)
The first board resolution expressly authorizes Arsenio, as Treasurer of Great Asian, to apply for a loan accommodation or credit
line with Bancasia for not more than P1.0 million. Also, the first resolution explicitly authorizes Arsenio to sign any document, paper
or promissory note, including mortgage deeds over properties of Great Asian, to secure the loan or credit line from Bancasia.
The second board resolution expressly authorizes Great Asian to secure a discounting line from Bancasia for not more than P2.0
million. The second board resolution also expressly empowers Arsenio, as the authorized signatory of Great Asian, to sign, execute
and deliver any and all documents, checks x x x necessary or incidental to secure the discounting line. The second board resolution
specifically authorizes Arsenio to secure the discounting line under such terms and conditions as (he) x x x may deem fit and proper.
As plain as daylight, the two board resolutions clearly authorize Great Asian to secure a loan or discounting line from
Bancasia. The two board resolutions also categorically designate Arsenio as the authorized signatory to sign and deliver all the
implementing documents, including checks, for Great Asian. There is no iota of doubt whatsoever about the purpose of the two board
resolutions, and about the authority of Arsenio to act and sign for Great Asian. The second board resolution even gave Arsenio full
authority to agree with Bancasia on the terms and conditions of the discounting line. Great Asian adopted the correct and proper
board resolutions to secure a loan or discounting line from Bancasia, and Bancasia had a right to rely on the two board resolutions of
Great Asian. Significantly, the two board resolutions specifically refer to Bancasia as the financing institution from whom Great Asian
will secure the loan accommodation or discounting line.
Armed with the two board resolutions, Arsenio signed the Deeds of Assignment selling, and endorsing, the fifteen checks of Great
Asian to Bancasia. On the face of the Deeds of Assignment, the contracting parties are indisputably Great Asian and Bancasia as the
names of these entities are expressly mentioned therein as the assignor and assignee, respectively. Great Asian claims that Arsenio
signed the Deeds of Assignment in his personal capacity because Arsenio signed above his printed name, below which was the word
Assignor, thereby making Arsenio the assignor. Great Asian conveniently omits to state that the first paragraph of the Deeds expressly
contains the following words: the ASSIGNOR, Great Asian Sales Center, a domestic corporation x x x herein represented by its
Treasurer Arsenio Lim Piat, Jr. The assignor is undoubtedly Great Asian, represented by its Treasurer, Arsenio. The only issue to
determine is whether the Deeds of Assignment are indeed the transactions the board of directors of Great Asian authorized Arsenio
to sign under the two board resolutions.
Under the Deeds of Assignment, Great Asian sold fifteen postdated checks at a discount, over three months, to Bancasia. The
Deeds of Assignment uniformly state that Great Asian,
x x x for valuable consideration received, does hereby SELL, TRANSFER, CONVEY, and ASSIGN, unto the ASSIGNEE, BANCASIA
FINANCE & INVESTMENT CORP., a domestic corporation x x x, the following ACCOUNTS RECEIVABLES due and payable to it,
having an aggregate face value of x x x.
The Deeds of Assignment enabled Great Asian to generate instant cash from its fifteen checks, which were still not due and
demandable then. In short, instead of waiting for the maturity dates of the fifteen postdated checks, Great Asian sold the checks to
Bancasia at less than the total face value of the checks. In exchange for receiving an amount less than the face value of the checks,
Great Asian obtained immediately much needed cash. Over three months, Great Asian entered into four transactions of this nature
with Bancasia, showing that Great Asian availed of a discounting line with Bancasia.
In the financing industry, the term discounting line means a credit facility with a financing company or bank, which allows a
business entity to sell, on a continuing basis, its accounts receivable at a discount. [12] The term discount means the sale of a receivable
at less than its face value. The purpose of a discounting line is to enable a business entity to generate instant cash out of its receivables
which are still to mature at future dates. The financing company or bank which buys the receivables makes its profit out of the
difference between the face value of the receivable and the discounted price. Thus, Section 3 (a) of the Financing Company Act of
1998 provides:
Financing companies are corporations x x x primarily organized for the purpose of extending credit facilities to consumers and
to industrial, commercial or agricultural enterprises by discounting or factoring commercial papers or accounts
receivable, or by buying and selling contracts, leases, chattel mortgages, or other evidences of indebtedness, or by financial
leasing of movable as well as immovable property. (Emphasis supplied)
This definition of financing companies is substantially the same definition as in the old Financing Company Act (R.A. No. 5980).[13]
Moreover, Section 1 (h) of the New Rules and Regulations adopted by the Securities and Exchange Commission to implement
the Financing Company Act of 1998 states:
Discounting is a type of receivables financing whereby evidences of indebtedness of a third party, such as installment
contracts, promissory notes and similar instruments, are purchased by, or assigned to, a financing company in an amount or
for a consideration less than their face value. (Emphasis supplied)
Likewise, this definition of discounting is an exact reproduction of the definition of discounting in the implementing rules of the old
Finance Company Act.
Clearly, the discounting arrangements entered into by Arsenio under the Deeds of Assignment were the very transactions
envisioned in the two board resolutions of Great Asian to raise funds for its business. Arsenio acted completely within the limits of his
authority under the two board resolutions. Arsenio did exactly what the board of directors of Great Asian directed and authorized him
to do.
Arsenio had all the proper and necessary authority from the board of directors of Great Asian to sign the Deeds of Assignment
and to endorse the fifteen postdated checks. Arsenio signed the Deeds of Assignment as agent and authorized signatory of Great Asian
under an authority expressly granted by its board of directors. The signature of Arsenio on the Deeds of Assignment is effectively also
the signature of the board of directors of Great Asian, binding on the board of directors and on Great Asian itself. Evidently, Great
Asian shows its bad faith in disowning the Deeds of Assignment signed by its own Treasurer, after receiving valuable consideration for
the checks assigned under the Deeds.
Second Issue: Breach of Contract by Great Asian
Bancasias complaint against Great Asian is founded on the latters breach of contract under the Deeds of Assignment. The Deeds
of Assignment uniformly stipulate[14] as follows:
If for any reason the receivables or any part thereof cannot be paid by the obligor/s, the ASSIGNOR unconditionally and
irrevocably agrees to pay the same, assuming the liability to pay, by way of penalty three per cent (3%) of the total amount unpaid,
for the period of delay until the same is fully paid.
In case of any litigation which the ASSIGNEE may institute to enforce the terms of this agreement, the ASSIGNOR shall be liable for
all the costs, plus attorneys fees equivalent to twenty-five (25%) per cent of the total amount due. Further thereto, the ASSIGNOR
agrees that any and all actions which may be instituted relative hereto shall be filed before the proper courts of the City of Manila,
all other appropriate venues being hereby waived.
The last Deed of Assignment[15] contains the following added stipulation:
xxx Likewise, it is hereby understood that the warranties which the ASSIGNOR hereby made are deemed part of the consideration
for this transaction, such that any violation of any one, some, or all of said warranties shall be deemed as deliberate
misrepresentation on the part of the ASSIGNOR. In such event, the monetary obligation herein conveyed unto the ASSIGNEE shall be
conclusively deemed defaulted, giving rise to the immediate responsibility on the part of the ASSIGNOR to make good said
obligation, and making the ASSIGNOR liable to pay the penalty stipulated hereinabove as if the original obligor/s of the receivables
actually defaulted. xxx
Obviously, there is one vital suspensive condition in the Deeds of Assignment. That is, in case the drawers fail to pay the checks
on maturity, Great Asian obligated itself to pay Bancasia the full face value of the dishonored checks, including penalty and attorneys
fees. The failure of the drawers to pay the checks is a suspensive condition, [16] the happening of which gives rise to Bancasias right to
demand payment from Great Asian. This conditional obligation of Great Asian arises from its written contracts with Bancasia as
embodied in the Deeds of Assignment. Article 1157 of the Civil Code provides that -
Obligations arise from:
(1) Law;
(2) Contracts;
(3) Quasi-contracts;
(4) Acts or omissions punished by law; and
(5) Quasi-delicts.
By express provision in the Deeds of Assignment, Great Asian unconditionally obligated itself to pay Bancasia the full value of the
dishonored checks. In short, Great Asian sold the postdated checks on with recourse basis against itself. This is an obligation that Great
Asian is bound to faithfully comply because it has the force of law as between Great Asian and Bancasia. Article 1159 of the Civil Code
further provides that -
 Obligations arising from contracts have the force of law between the contracting parties and should be complied with in good
faith.
Great Asian and Bancasia agreed on this specific with recourse stipulation, despite the fact that the receivables were negotiable
instruments with the endorsement of Arsenio. The contracting parties had the right to adopt the with recourse stipulation which is
separate and distinct from the warranties of an endorser under the Negotiable Instruments Law. Article 1306 of the Civil Code provides
that
The contracting parties may establish such stipulations, clauses, terms and conditions as they may deem convenient, provided they
are not contrary to law, morals, good customs, public order, or public policy.
The explicit with recourse stipulation against Great Asian effectively enlarges, by agreement of the parties, the liability of Great Asian
beyond that of a mere endorser of a negotiable instrument. Thus, whether or not Bancasia gives notice of dishonor to Great Asian,
the latter remains liable to Bancasia because of the with recourse stipulation which is independent of the warranties of an endorser
under the Negotiable Instruments Law.
There is nothing in the Negotiable Instruments Law or in the Financing Company Act (old or new), that prohibits Great Asian and
Bancasia parties from adopting the with recourse stipulation uniformly found in the Deeds of Assignment. Instead of being negotiated,
a negotiable instrument may be assigned.[17] Assignment of a negotiable instrument is actually the principal mode of conveying
accounts receivable under the Financing Company Act. Since in discounting of receivables the assignee is subrogated as creditor of
the receivable, the endorsement of the negotiable instrument becomes necessary to enable the assignee to collect from the
drawer. This is particularly true with checks because collecting banks will not accept checks unless endorsed by the payee. The purpose
of the endorsement is merely to facilitate collection of the proceeds of the checks.
The purpose of the endorsement is not to make the assignee finance company a holder in due course because policy
considerations militate against according finance companies the rights of a holder in due course. [18] Otherwise, consumers who
purchase appliances on installment, giving their promissory notes or checks to the seller, will have no defense against the finance
company should the appliances later turn out to be defective. Thus, the endorsement does not operate to make the finance company
a holder in due course. For its own protection, therefore, the finance company usually requires the assignor, in a separate and distinct
contract, to pay the finance company in the event of dishonor of the notes or checks.
As endorsee of Great Asian, Bancasia had the option to proceed against Great Asian under the Negotiable Instruments Law. Had
it so proceeded, the Negotiable Instruments Law would have governed Bancasias cause of action. Bancasia, however, did not choose
this route. Instead, Bancasia decided to sue Great Asian for breach of contract under the Civil Code, a right that Bancasia had under
the express with recourse stipulation in the Deeds of Assignment.
The exercise by Bancasia of its option to sue for breach of contract under the Civil Code will not leave Great Asian holding an
empty bag. Great Asian, after paying Bancasia, is subrogated back as creditor of the receivables. Great Asian can then proceed against
the drawers who issued the checks. Even if Bancasia failed to give timely notice of dishonor, still there would be no prejudice whatever
to Great Asian. Under the Negotiable Instruments Law, notice of dishonor is not required if the drawer has no right to expect or require
the bank to honor the check, or if the drawer has countermanded payment. [19] In the instant case, all the checks were dishonored for
any of the following reasons: account closed, account under garnishment, insufficiency of funds, or payment stopped. In the first three
instances, the drawers had no right to expect or require the bank to honor the checks, and in the last instance, the drawers had
countermanded payment.
Moreover, under common law, delay in notice of dishonor, where such notice is required, discharges the drawer only to the
extent of the loss caused by the delay.[20] This rule finds application in this jurisdiction pursuant to Section 196 of the Negotiable
Instruments Law which states, Any case not provided for in this Act shall be governed by the provisions of existing legislation, or in
default thereof, by the rules of the Law Merchant. Under Section 186 of the Negotiable Instruments Law, delay in the presentment of
checks discharges the drawer. However, Section 186 refers only to delay in presentment of checks but is silent on delay in giving notice
of dishonor. Consequently, the common law or Law Merchant can supply this gap in accordance with Section 196 of the Negotiable
Instruments Law.
One other issue raised by Great Asian, that of lack of consideration for the Deeds of Assignment, is completely
unsubstantiated. The Deeds of Assignment uniformly provide that the fifteen postdated checks were assigned to Bancasia for valuable
consideration.Moreover, Article 1354 of the Civil Code states that, Although the cause is not stated in the contract, it is presumed that
it exists and is lawful, unless the debtor proves the contrary. The record is devoid of any showing on the part of Great Asian rebutting
this presumption. On the other hand, Bancasias Loan Section Manager, Cynthia Maclan, testified that Bancasia paid Great Asian a
consideration at the discount rate of less than 24% of the face value of the postdated checks. [21] Moreover, in its verified petition for
voluntary insolvency, Great Asian admitted its debt to Bancasia when it listed Bancasia as one of its creditors, an extra-judicial
admission that Bancasia proved when it formally offered in evidence the verified petition for insolvency. [22] The Insolvency Law
requires the petitioner to submit a schedule of debts that must contain a full and true statement of all his debts and liabilities.[23] The
Insolvency Law even requires the petitioner to state in his verification that the schedule of debts contains a full, correct and true
discovery of all my debts and liabilities x x x. [24] Great Asian cannot now claim that the listing of Bancasia as a creditor was not an
admission of its debt to Bancasia but merely an acknowledgment that Bancasia had sent a demand letter to Great Asian.
Great Asian, moreover, claims that the assignment of the checks is not a loan accommodation but a sale of the checks. With the
sale, ownership of the checks passed to Bancasia, which must now, according to Great Asian, sue the drawers and indorser of the
check who are the parties primarily liable on the checks. Great Asian forgets that under the Deeds of Assignment, Great Asian expressly
undertook to pay the full value of the checks in case of dishonor. Again, we reiterate that this obligation of Great Asian is separate and
distinct from its warranties as indorser under the Negotiable Instruments Law.
Great Asian is, however, correct in saying that the assignment of the checks is a sale, or more properly a discounting, of the
checks and not a loan accommodation. However, it is precisely because the transaction is a sale or a discounting of receivables,
embodied in separate Deeds of Assignment, that the relevant provisions of the Civil Code are applicable and not the Negotiable
Instruments Law.
At any rate, there is indeed a fine distinction between a discounting line and a loan accommodation. If the accounts receivable,
like postdated checks, are sold for a consideration less than their face value, the transaction is one of discounting, and is subject to
the provisions of the Financing Company Act. The assignee is immediately subrogated as creditor of the accounts receivable. However,
if the accounts receivable are merely used as collateral for the loan, the transaction is only a simple loan, and the lender is not
subrogated as creditor until there is a default and the collateral is foreclosed.
In summary, Great Asians four contracts assigning its fifteen postdated checks to Bancasia expressly stipulate the suspensive
condition that in the event the drawers of the checks fail to pay, Great Asian itself will pay Bancasia. Since the common condition in
the contracts had transpired, an obligation on the part of Great Asian arose from the four contracts, and that obligation is to pay
Bancasia the full value of the checks, including the stipulated penalty and attorneys fees.
Third Issue: The liability of surety Tan Chong Lin
Tan Chong Lin, the President of Great Asian, is being sued in his personal capacity based on the Surety Agreements he signed
wherein he solidarily held himself liable with Great Asian for the payment of its debts to Bancasia. The Surety Agreements contain the
following common condition:
Upon failure of the Principal to pay at maturity, with or without demand, any of the obligations above mentioned, or in case of the
Principals failure promptly to respond to any other lawful demand made by the Creditor, its successors, administrators or assigns,
both the Principal and the Surety/ies shall be considered in default and the Surety/ies agree/s to pay jointly and severally to the
Creditor all outstanding obligations of the Principal, whether due or not due, and whether held by the Creditor as Principal or agent,
and it is agreed that a certified statement by the Creditor as to the amount due from the Principal shall be accepted by the
Surety/ies as correct and final for all legal intents and purposes.
Indisputably, Tan Chong Lin explicitly and unconditionally bound himself to pay Bancasia, solidarily with Great Asian, if the drawers of
the checks fail to pay on due date. The condition on which Tan Chong Lins obligation hinged had happened. As surety, Tan Chong Lin
automatically became liable for the entire obligation to the same extent as Great Asian.
Tan Chong Lin, however, contends that the following warranties in the Deeds of Assignment enlarge or increase his risks under
the Surety Agreements:
The ASSIGNOR warrants:
1. the soundness of the receivables herein assigned;
2. that said receivables are duly noted in its books and are supported by appropriate documents;
3. that said receivables are genuine, valid and subsisting;
4. that said receivables represent bona fide sale of goods, merchandise, and/or services rendered in the ordinary course
of its business transactions;
5. that the obligors of the receivables herein assigned are solvent;
6. that it has valid and genuine title to and indefeasible right to dispose of said accounts;
7. that said receivables are free from all liens and encumbrances;
8. that the said receivables are freely and legally transferable, and that the obligor/s therein will not interpose any
objection to this assignment, and has in fact given his/their consent hereto.
Tan Chong Lin maintains that these warranties in the Deeds of Assignment materially altered his obligations under the Surety
Agreements, and therefore he is released from any liability to Bancasia. Under Article 1215 of the Civil Code, what releases a solidary
debtor is a novation, compensation, confusion or remission of the debt made by the creditor with any of the solidary debtors. These
warranties, however, are the usual warranties made by one who discounts receivables with a financing company or bank. The Surety
Agreements, written on the letter head of Bancasia Finance & Investment Corporation, uniformly state that Great Asian Sales Center
x x x has obtained and/or desires to obtain loans, overdrafts, discounts and/or other forms of credits from Bancasia. Tan Chong Lin
was clearly on notice that he was holding himself as surety of Great Asian which was discounting postdated checks issued by its buyers
of goods and merchandise. Moreover, Tan Chong Lin, as President of Great Asian, cannot feign ignorance of Great Asians business
activities or discounting transactions with Bancasia. Thus, the warranties do not increase or enlarge the risks of Tan Chong Lin under
the Surety Agreements. There is, moreover, no novation of the debt of Great Asian that would warrant release of the surety.
In any event, the provisions of the Surety Agreements are broad enough to include the obligations of Great Asian to Bancasia
under the warranties. The first Surety Agreement states that:
x x x herein Surety/ies, jointly and severally among themselves and likewise with principal, hereby agree/s and bind/s
himself/themselves to pay at maturity all the notes, drafts, bills of exchange, overdraft and other obligations of every kind which
the Principal may now or may hereafter owe the Creditor, including extensions or renewals thereof in the sum *** ONE MILLION
ONLY*** PESOS (P1,000,000.00), Philippine Currency, plus stipulated interest thereon at the rate of sixteen percent (16%) per
annum, or at such increased rate of interest which the Creditor may charge on the Principals obligations or renewals or the reduced
amount thereof, plus all the costs and expenses which the Creditor may incur in connection therewith.
xxx
Upon failure of the Principal to pay at maturity, with or without demand, any of the obligations above mentioned, or in case of
the Principals failure promptly to respond to any other lawful demand made by the Creditor, its successors, administrators or
assigns, both the Principal and the Surety/ies shall be considered in default and the Surety/ies agree/s to pay jointly and severally
to the Creditor all outstanding obligations of the Principal, whether due or not due, and whether held by the Creditor as Principal
or agent, and it is agreed that a certified statement by the Creditor as to the amount due from the Principal shall be accepted by the
Surety/ies as correct and final for all legal intents and purposes. (Emphasis supplied)
The second Surety Agreement contains the following provisions:
x x x herein Surety/ies, jointly and severally among themselves and likewise with PRINCIPAL, hereby agree and bind themselves to
pay at maturity all the notes, drafts, bills of exchange, overdraft and other obligations of every kind which the PRINCIPAL may
now or may hereafter owe the Creditor, including extensions and/or renewals thereof in the principal sum not to exceed
TWO MILLION (P2,000,000.00) PESOS, Philippine Currency, plus stipulated interest thereon, or such increased or decreased rate of
interest which the Creditor may charge on the principal sum outstanding pursuant to the rules and regulations which the Monetary
Board may from time to time promulgate, together with all the cost and expenses which the CREDITOR may incur in connection
therewith.
If for any reason whatsoever, the PRINCIPAL should fail to pay at maturity any of the obligations or amounts due to the CREDITOR, or
if for any reason whatsoever the PRINCIPAL fails to promptly respond to and comply with any other lawful demand made by the
CREDITOR, or if for any reason whatsoever any obligation of the PRINCIPAL in favor of any person or entity should be considered as
defaulted, then both the PRINCIPAL and the SURETY/IES shall be considered in default under the terms of this Agreement.Pursuant
thereto, the SURETY/IES agree/s to pay jointly and severally with the PRINCIPAL, all outstanding obligations of the CREDITOR,
whether due or not due, and whether owing to the PRINCIPAL in its personal capacity or as agent of any person, endorsee, assignee
or transferee. x x x. (Emphasis supplied)
Article 1207 of the Civil Code provides, xxx There is a solidary liability only when the obligation expressly so states, or when the
law or nature of the obligation requires solidarity. The stipulations in the Surety Agreements undeniably mandate the solidary liability
of Tan Chong Lin with Great Asian. Moreover, the stipulations in the Surety Agreements are sufficiently broad, expressly
encompassing all the notes, drafts, bills of exchange, overdraft and other obligations of every kind which the PRINCIPAL may now
or may hereafter owe the Creditor. Consequently, Tan Chong Lin must be held solidarily liable with Great Asian for the nonpayment
of the fifteen dishonored checks, including penalty and attorneys fees in accordance with the Deeds of Assignment.
The Deeds of Assignment stipulate that in case of suit Great Asian shall pay attorneys fees equivalent to 25% of the outstanding
debt. The award of attorneys fees in the instant case is justified,[25] not only because of such stipulation, but also because Great Asian
and Tan Chong Lin acted in gross and evident bad faith in refusing to pay Bancasias plainly valid, just and demandable claim. We deem
it just and equitable that the stipulated attorneys fee should be awarded to Bancasia.
The Deeds of Assignment also provide for a 3% penalty on the total amount due in case of failure to pay, but the Deeds are silent
on whether this penalty is a running monthly or annual penalty. Thus, the 3% penalty can only be considered as a one-time
penalty.Moreover, the Deeds of Assignment do not provide for interest if Great Asian fails to pay. We can only award Bancasia legal
interest at 12% interest per annum, and only from the time it filed the complaint because the records do not show that Bancasia made
a written demand on Great Asian prior to filing the complaint.[26] Bancasia made an extrajudicial demand on Tan Chong Lin, the surety,
but not on the principal debtor, Great Asian.
WHEREFORE, the assailed Decision of the Court of Appeals in CA-G.R. CV No. 20167 is AFFIRMED with MODIFICATION. Petitioners
are ordered to pay, solidarily, private respondent the following amounts: (a) P1,042,005.00 plus 3% penalty thereon, (b) interest on
the total outstanding amount in item (a) at the legal rate of 12% per annum from the filing of the complaint until the same is fully paid,
(c) attorneys fees equivalent to 25% of the total amount in item (a), including interest at 12% per annum on the outstanding amount
of the attorneys fees from the finality of this judgment until the same is fully paid, and (c) costs of suit.
SO ORDERED.

18. PNB v. Independent Planters

Appeal by the Philippine National Bank (PNB) from the Order of the defunct Court of First Instance of Manila (Branch XX) in its Civil
Case No. 46741 dismissing PNB's complaint against several solidary debtors for the collection of a sum of money on the ground that
one of the defendants (Ceferino Valencia) died during the pendency of the case (i.e., after the plaintiff had presented its evidence)
and therefore the complaint, being a money claim based on contract, should be prosecuted in the testate or intestate proceeding for
the settlement of the estate of the deceased defendant pursuant to Section 6 of Rule 86 of the Rules of Court which reads:
SEC. 6. Solidary obligation of decedent.— the obligation of the decedent is solidary with another debtor, the claim
shall be filed against the decedent as if he were the only debtor, without prejudice to the right of the estate to
recover contribution from the other debtor. In a joint obligation of the decedent, the claim shall be confined to the
portion belonging to him.
The appellant assails the order of dismissal, invoking its right of recourse against one, some or all of its solidary debtors under Article
1216 of the Civil Code —
ART. 1216. The creditor may proceed against any one of the solidary debtors or some or all of them
simultaneously. The demand made against one of them shall not be an obstacle to those which may subsequently
be directed against the others, so long as the debt has not been fully collected.
The sole issue thus raised is whether in an action for collection of a sum of money based on contract against all the solidary debtors,
the death of one defendant deprives the court of jurisdiction to proceed with the case against the surviving defendants.
It is now settled that the quoted Article 1216 grants the creditor the substantive right to seek satisfaction of his credit from one,
some or all of his solidary debtors, as he deems fit or convenient for the protection of his interests; and if, after instituting a
collection suit based on contract against some or all of them and, during its pendency, one of the defendants dies, the court retains
jurisdiction to continue the proceedings and decide the case in respect of the surviving defendants. Thus in Manila Surety & Fidelity
Co., Inc. vs. Villarama et al., 107 Phil. 891 at 897, this Court ruled:
Construing Section 698 of the Code of Civil Procedure from whence the aforequoted provision (Sec. 6, Rule 86) was
taken, this Court held that where two persons are bound in solidum for the same debt and one of them dies, the
whole indebtedness can be proved against the estate of the latter, the decedent's liability being absolute and
primary; and if the claim is not presented within the time provided by the rules, the same will be barred as against
the estate. It is evident from the foregoing that Section 6 of Rule 87 (now Rule 86) provides the procedure should
the creditor desire to go against the deceased debtor, but there is certainly nothing in the said provision making
compliance with such procedure a condition precedent before an ordinary action against the surviving solidary
debtors, should the creditor choose to demand payment from the latter, could be entertained to the extent that
failure to observe the same would deprive the court jurisdiction to take cognizance of the action against the
surviving debtors. Upon the other hand, the Civil Code expressly allows the creditor to proceed against any one of
the solidary debtors or some or all of them simultaneously. There is, therefore, nothing improper in the creditor's
filing of an action against the surviving solidary debtors alone, instead of instituting a proceeding for the
settlement of the estate of the deceased debtor wherein his claim could be filed.
Similarly, in PNB vs. Asuncion, 80 SCRA 321 at 323-324, this Court, speaking thru Mr. Justice Makasiar, reiterated the doctrine.
A cursory perusal of Section 6, Rule 86 of the Revised Rules of Court reveals that nothing therein
prevents a creditor from proceeding against the surviving solidary debtors. Said provision merely
sets up the procedure in enforcing collection in case a creditor chooses to pursue his
claim against the estate of the deceased solidary, debtor.
It is crystal clear that Article 1216 of the New Civil Code is the applicable provision in this matter.
Said provision gives the creditor the right to 'proceed against anyone of the solidary debtors or
some or all of them simultaneously.' The choice is undoubtedly left to the solidary, creditor to
determine against whom he will enforce collection. In case of the death of one of the solidary
debtors, he (the creditor) may, if he so chooses, proceed against the surviving solidary debtors
without necessity of filing a claim in the estate of the deceased debtors. It is not mandatory for
him to have the case dismissed against the surviving debtors and file its claim in the estate of the
deceased solidary debtor . . .
As correctly argued by petitioner, if Section 6, Rule 86 of the Revised Rules of Court were applied
literally, Article 1216 of the New Civil Code would, in effect, be repealed since under the Rules of
Court, petitioner has no choice but to proceed against the estate of Manuel Barredo only.
Obviously, this provision diminishes the Bank's right under the New Civil, Code to proceed
against any one, some or all of the solidary debtors. Such a construction is not sanctioned by the
principle, which is too well settled to require citation, that a substantive law cannot be amended
by a procedural rule. Otherwise stared, Section 6, Rule 86 of the Revised Rules of Court cannot
be made to prevail over Article 1216 of the New Civil Code, the former being merely procedural,
while the latter, substantive.
WHEREFORE the appealed order of dismissal of the court a quo in its Civil Case No. 46741 is hereby set aside in respect of the
surviving defendants; and the case is remanded to the corresponding Regional Trial Court for proceedings. proceedings. No costs.

19. Universal Motors v. CA

FACTS:
On December 15, 1962 private respondents Rafael Verendia, Teodoro Galicia and Marcelina Galicia purchased from petitioner
Universal Motors Corporation two (2) Mercedes Benz trucks at a cash price of P33,608.27 each payable within ninety (90) days.
Private respondents failed to pay the cash price within the 90-day period however they re-scheduled their account giving them 30
months to comply with payment.On June 3, 1963 private respondents executed a promissory note in favor of the petitioner covering
the re-scheduled account thereby promising to pay the same in monthly installments at the rates stipulated on the promissory note
with interest thereon at 12% per annum until said promissory note is fully paid.
But despite repeated demands, the private respondents failed to comply with their foregoing undertaking, so that on January 4,
1966 the petitioner commenced a complaint for the recovery of the unpaid balance among others with the Court of First Instance of
Manila.
The lower court ordered respondents to pay, jointly and severally to the Plaintiff, Universal Motors Corporation, the sum of
P47,732.35, with interest at the rate of 12% per annum on one-half of the principal balance of P69,672.66 from February 10, 1967,
until fully paid, plus the further sum equivalent to 25% of the amount due as attorney's fees and the costs of the suit.
Only respondent Verendia appealed and the decision was reversed and set aside and ordered restitution to the defendants by the
plaintiff of whatever amounts received in excess of the amount due under the promissory note, with interest at the legal rate from
the date with overpayment. Petitioner filed a motion for reconsideration.
ISSUES:
WON the result of the appeal of respondent Verendia will inure to the benefit of the other respondents who have not appealed the
decision.
HELD:
YES, the decision will inure to the benefit of the other respondents
RATIO:
Petitioner's claim that the result of the appeal interposed by private respondent Verendia, one of the solidary debtors will not inure
to the benefit of the other private respondents who did not appeal is devoid of merit.
In the recent case of Citytrust Banking Corporation v. The Court of Appeals and William Samara, G.R. No. 92591, April 30, 1991, 196
SCRA 553, 563, We already ruled that "the Court will not allow the absurd situation where a co-defendant who is adjudged to be
primarily liable for sums of money and for tort would be charged for an amount lesser than what its co-defendant is bound to pay to
the common creditor and allowed to collect from the first co-defendant. Such a situation runs counter to the principle of solidarity in
obligations as between co-defendants established by a judgment for recovery of sum of money and damages . . ."
The Court therein noted the modification made by the respondent court which ordered not only the appellant therein but both
"defendants jointly and severally" to pay the new amount. It explained that though, as a matter of procedure, the modification shall
be applied only to the appellant, substantial justice and equity also demand that the decision should be interpreted to refer to the
non-appealing defendant as well. There exists a strong and compelling reason to warrant an exception to the rule that a judgment
creditor is entitled to execution of a final and executory judgment against a party especially if that party failed to appeal. (Olacao v.
National Labor Relations Commission, 177 SCRA 38 [1989]; Quigui v. Boncaros, 151 SCRA 416 [1987]; Orata v. Intermediate Appellate
Court, 185 SCRA 148 [1990])
It is obvious that the respondent court committed no error in ruling that its decision inures to the benefit of all the private
respondents regardless of the fact that only one appealed. It is erroneous to rule that the decision of the trial court could be
reversed as to the appealing private respondent and continue in force against the other private respondents. The latter could not
remain bound after the former had been released; although the other private respondents had not joined in the appeal, the decision
rendered by the respondent court inured to their benefit. When the obligation of the other solidary debtors is so dependent on
that of their co-solidary debtor, the release of the one who appealed, provided it be not on grounds personal to such appealing
private respondent, operates as well as to the others who did not appeal. It is for this reason, that a decision or judgment in favor
of the private respondent who appealed can be invoked as res judicata by the other private respondents.
All premises considered, the Court is convinced that the respondent court committed no error in reversing the decision of the trial
court and in dismissing the complaint in favor of the private respondents.

20. SBTC v. Cuenca

The Facts
[5]
The facts are narrated by the Court of Appeals as follows:
The antecedent material and relevant facts are that defendant-appellant Sta. Ines Melale (Sta. Ines) is a corporation engaged in
logging operations. It was a holder of a Timber License Agreement issued by the Department of Environment and Natural Resources
(DENR).
On 10 November 1980, [Petitioner] Security Bank and Trust Co. granted appellant Sta. Ines Melale Corporation [SIMC] a credit line in
the amount of [e]ight [m]llion [p]esos (P8,000,000.00) to assist the latter in meeting the additional capitalization requirements of its
logging operations.
The Credit Approval Memorandum expressly stated that the P8M Credit Loan Facility shall be effective until 30 November 1981:
JOINT CONDITIONS:
1. Against Chattel Mortgage on logging trucks and/or inventories (except logs) valued at 200% of the lines plus JSS of Rodolfo M.
Cuenca.
2. Submission of an appropriate Board Resolution authorizing the borrowings, indicating therein the companys duly authorized
signatory/ies;
3. Reasonable/compensating deposit balances in current account shall be maintained at all times; in this connection, a Makati
account shall be opened prior to availment on lines;
4. Lines shall expire on November 30, 1981; and
5. The bank reserves the right to amend any of the aforementioned terms and conditions upon written notice to the
Borrower. (Emphasis supplied.)
To secure the payment of the amounts drawn by appellant SIMC from the above-mentioned credit line, SIMC executed a Chattel
Mortgage dated 23 December 1980 (Exhibit A) over some of its machinery and equipment in favor of [Petitioner] SBTC. As additional
security for the payment of the loan, [Respondent] Rodolfo M. Cuenca executed an Indemnity Agreement dated 17 December 1980
(Exhibit B) in favor of [Petitioner] SBTC whereby he solidarily bound himself with SIMC as follows:
xxxxxxxxx
Rodolfo M. Cuenca x x x hereby binds himself x x x jointly and severally with the client (SIMC) in favor of the bank for the payment,
upon demand and without the benefit of excussion of whatever amount x x x the client may be indebted to the bank x x x by virtue
of aforesaid credit accommodation(s) including the substitutions, renewals, extensions, increases, amendments, conversions and
revivals of the aforesaid credit accommodation(s) x x x . (Emphasis supplied).
On 26 November 1981, four (4) days prior to the expiration of the period of effectivity of the P8M-Credit Loan Facility, appellant
SIMC made a first drawdown from its credit line with [Petitioner] SBTC in the amount of [s]ix [m]illion [o]ne [h]undred [t]housand
[p]esos (P6,100,000.00). To cover said drawdown, SIMC duly executed promissory Note No. TD/TLS-3599-81 for said amount (Exhibit
C).
Sometime in 1985, [Respondent] Cuenca resigned as President and Chairman of the Board of Directors of defendant-appellant Sta.
Ines. Subsequently, the shareholdings of [Respondent] Cuenca in defendant-appellant Sta. Ines were sold at a public auction relative
to Civil Case No. 18021 entitled Adolfo A. Angala vs. Universal Holdings, Inc. and Rodolfo M. Cuenca. Said shares were bought by
Adolfo Angala who was the highest bidder during the public auction.
Subsequently, appellant SIMC repeatedly availed of its credit line and obtained six (6) other loan[s] from [Petitioner] SBTC in the
aggregate amount of [s]ix [m]illion [t]hree [h]undred [s]ixty-[n]ine [t]housand [n]ineteen and 50/100 [p]esos
(P6,369,019.50). Accordingly, SIMC executed Promissory Notes Nos. DLS/74/760/85, DLS/74773/85, DLS/74/78/85, DLS/74/760/85
DLS/74/12/86, and DLS/74/47/86 to cover the amounts of the abovementioned additional loans against the credit line.
Appellant SIMC, however, encountered difficulty[6] in making the amortization payments on its loans and requested [Petitioner]
SBTC for a complete restructuring of its indebtedness. SBTC accommodated appellant SIMCs request and signified its approval in a
letter dated 18 February 1988 (Exhibit G) wherein SBTC and defendant-appellant Sta. Ines, without notice to or the prior consent of
[Respondent] Cuenca, agreed to restructure the past due obligations of defendant-appellant Sta. Ines. [Petitioner] Security Bank
agreed to extend to defendant-appellant Sta. Ines the following loans:
a. Term loan in the amount of [e]ight [m]illion [e]ight [h]undred [t]housand [p]esos (P8,800,000.00), to be applied to liquidate
the principal portion of defendant-appellant Sta. Ines[] total outstanding indebtedness to [Petitioner] Security Bank (cf. P. 1 of
Exhibit G, Expediente, at Vol. II, p. 336; Exhibit 5-B-Cuenca, Expediente, et Vol I, pp. 33 to 34) and
b. Term loan in the amount of [t]hree [m]illion [f]our [h]undred [t]housand [p]esos (P3,400,000.00), to be applied to liquidate
the past due interest and penalty portion of the indebtedness of defendant-appellant Sta. Ines to [Petitioner] Security Bank (cf.
Exhibit G, Expediente, at Vol. II, p. 336; Exhibit 5-B-Cuenca, Expediente, at Vol. II, p. 33 to 34).
It should be pointed out that in restructuring defendant-appellant Sta. Ines obligations to [Petitioner] Security Bank, Promissory
Note No. TD-TLS-3599-81 in the amount of [s]ix [m]illion [o]ne [h]undred [t]housand [p]esos (P6,100,000.00), which was the only
loan incurred prior to the expiration of the P8M-Credit Loan Facility on 30 November 1981 and the only one covered by the
Indemnity Agreement dated 19 December 1980 (Exhibit 3-Cuenca, Expediente, at Vol. II, p. 331), was not segregated from, but was
instead lumped together with, the other loans, i.e., Promissory Notes Nos. DLS/74/12/86, DLS/74/28/86 and DLS/74/47/86 (Exhibits
D, E, and F, Expediente, at Vol. II, pp. 333 to 335) obtained by defendant-appellant Sta. Ines which were not secured by said
Indemnity Agreement.
Pursuant to the agreement to restructure its past due obligations to [Petitioner] Security Bank, defendant-appellant Sta. Ines thus
executed the following promissory notes, both dated 09 March 1988 in favor of [Petitioner] Security Bank:
PROMISSORY NOTE NO. AMOUNT
RL/74/596/88 P8,800,000.00
RL/74/597/88 P3,400,000.00
-------------------
TOTAL P12,200,000.00
(Exhibits H and I, Expediente, at Vol. II, pp. 338 to 343).
To formalize their agreement to restructure the loan obligations of defendant-appellant Sta. Ines, [Petitioner] Security Bank and
defendant-appellant Sta. Ines executed a Loan Agreement dated 31 October 1989 (Exhibit 5-Cuenca, Expediente, at Vol. I, pp. 33 to
41).Section 1.01 of the said Loan Agreement dated 31 October 1989 provides:
1.01 Amount - The Lender agrees to grant loan to the Borrower in the aggregate amount of TWELVE MILLION TWO HUNDRED
THOUSAND PESOS (P12,200,000.00), Philippines [c]urrency (the Loan). The loan shall be released in two (2) tranches
of P8,800,000.00 for the first tranche (the First Loan) and P3,400,000.00 for the second tranche (the Second Loan) to be applied in
the manner and for the purpose stipulated hereinbelow.
1.02. Purpose - The First Loan shall be applied to liquidate the principal portion of the Borrowers present total outstanding
indebtedness to the Lender (the indebtedness) while the Second Loan shall be applied to liquidate the past due interest and penalty
portion of the Indebtedness. (Underscoring supplied.) (cf. p. 1 of Exhibit 5-Cuenca, Expediente, at Vol. I, p. 33)
From 08 April 1988 to 02 December 1988, defendant-appellant Sta. Ines made further payments to [Petitioner] Security Bank in the
amount of [o]ne [m]illion [s]even [h]undred [f]ifty-[s]even [t]housand [p]esos (P1,757,000.00) (Exhibits 8, 9-P-SIMC up to 9-GG-SIMC,
Expediente, at Vol. II, pp. 38, 70 to 165)
Appellant SIMC defaulted in the payment of its restructured loan obligations to [Petitioner] SBTC despite demands made upon
appellant SIMC and CUENCA, the last of which were made through separate letters dated 5 June 1991 (Exhibit K) and 27 June 1991
(Exhibit L), respectively.
Appellants individually and collectively refused to pay the [Petitioner] SBTC. Thus, SBTC filed a complaint for collection of sum of
money on 14 June 1993, resulting after trial on the merits in a decision by the court a quo, x x x from which [Respondent] Cuenca
appealed.
Ruling of the Court of Appeals

In releasing Respondent Cuenca from liability, the CA ruled that the 1989 Loan Agreement had novated the 1980 credit
accommodation earlier granted by the bank to Sta. Ines. Accordingly, such novation extinguished the Indemnity Agreement, by which
Cuenca, who was then the Board chairman and president of Sta. Ines, had bound himself solidarily liable for the payment of the loans
secured by that credit accommodation. It noted that the 1989 Loan Agreement had been executed without notice to, much less
consent from, Cuenca who at the time was no longer a stockholder of the corporation.
The appellate court also noted that the Credit Approval Memorandum had specified that the credit accommodation was for a
total amount of P8 million, and that its expiry date was November 30, 1981. Hence, it ruled that Cuenca was liable only for loans
obtained prior to November 30, 1981, and only for an amount not exceeding P8 million.
It further held that the restructuring of Sta. Ines obligation under the 1989 Loan Agreement was tantamount to a grant of an
extension of time to the debtor without the consent of the surety. Under Article 2079 of the Civil Code, such extension extinguished
the surety.
The CA also opined that the surety was entitled to notice, in case the bank and Sta. Ines decided to materially alter or modify the
principal obligation after the expiry date of the credit accommodation.
Hence, this recourse to this Court.[7]
The Issues

In its Memorandum, petitioner submits the following for our consideration: [8]
A. Whether or not the Honorable Court of Appeals erred in releasing Respondent Cuenca from liability as surety under the
Indemnity Agreement for the payment of the principal amount of twelve million two hundred thousand pesos
(P12,200,000.00) under Promissory Note No. RL/74/596/88 dated 9 March 1988 and Promissory Note No. RL/74/597/88
dated 9 March 1988, plus stipulated interests, penalties and other charges due thereon;
i. Whether or not the Honorable Court of Appeals erred in ruling that Respondent Cuencas liability under the
Indemnity Agreement covered only availments on SIMCs credit line to the extent of eight million pesos
(P8,000,000.00) and made on or before 30 November 1981;
ii. Whether or not the Honorable Court of Appeals erred in ruling that the restructuring of SIMCs indebtedness
under the P8 million credit accommodation was tantamount to an extension granted to SIMC without
Respondent Cuencas consent, thus extinguishing his liability under the Indemnity Agreement pursuant to
Article 2079 of the Civil Code;
iii. Whether or not the Honorable Court of appeals erred in ruling that the restructuring of SIMCs indebtedness
under the P8 million credit accommodation constituted a novation of the principal obligation, thus
extinguishing Respondent Cuencas liability under the indemnity agreement;
B. Whether or not Respondent Cuencas liability under the Indemnity Agreement was extinguished by the payments made
by SIMC;
C. Whether or not petitioners Motion for Reconsideration was pro-forma;
D. Whether or not service of the Petition by registered mail sufficiently complied with Section 11, Rule 13 of the 1997 Rules
of Civil Procedure.
Distilling the foregoing, the Court will resolve the following issues: (a) whether the 1989 Loan Agreement novated the original
credit accommodation and Cuencas liability under the Indemnity Agreement; and (b) whether Cuenca waived his right to be notified
of and to give consent to any substitution, renewal, extension, increase, amendment, conversion or revival of the said credit
accommodation. As preliminary matters, the procedural questions raised by respondent will also be addressed.
The Courts Ruling

The Petition has no merit.

Preliminary Matters: Procedural Questions
Motion for Reconsideration Not Pro Forma
 Respondent contends that petitioners Motion for Reconsideration of the CA Decision, in merely rehashing the arguments already
passed upon by the appellate court, was pro forma; that as such, it did not toll the period for filing the present Petition for
Review.[9] Consequently, the Petition was filed out of time.[10]
We disagree. A motion for reconsideration is not pro forma just because it reiterated the arguments earlier passed upon and
rejected by the appellate court. The Court has explained that a movant may raise the same arguments, precisely to convince the court
that its ruling was erroneous.[11]
Moreover, there is no clear showing of intent on the part of petitioner to delay the proceedings. In Marikina Valley Development
Corporation v. Flojo,[12] the Court explained that a pro forma motion had no other purpose than to gain time and to delay or impede
the proceedings. Hence, where the circumstances of a case do not show an intent on the part of the movant merely to delay the
proceedings, our Court has refused to characterize the motion as simply pro forma. It held:
We note finally that because the doctrine relating to pro forma motions for reconsideration impacts upon the reality and substance
of the statutory right of appeal, that doctrine should be applied reasonably, rather than literally. The right to appeal, where it exists,
is an important and valuable right. Public policy would be better served by according the appellate court an effective opportunity to
review the decision of the trial court on the merits, rather than by aborting the right to appeal by a literal application of the
procedural rules relating to pro forma motions for reconsideration.
Service by Registered Mail Sufficiently Explained

Section 11, Rule 13 of the 1997 Rules of Court, provides as follows:

SEC. 11. Priorities in modes of service and filing. -- Whenever practicable, the service and filing of pleadings and other papers shall be
done personally. Except with respect to papers emanating from the court, a resort to other modes must be accompanied by a
written explanation why the service or filing was not done personally. A violation of this Rule may be cause to consider the paper as
not filed.
Respondent maintains that the present Petition for Review does not contain a sufficient written explanation why it was served
by registered mail.
We do not think so. The Court held in Solar Entertainment v. Ricafort[13] that the aforecited rule was mandatory, and that only
when personal service or filing is not practicable may resort to other modes be had, which must then be accompanied by a written
explanation as to why personal service or filing was not practicable to begin with.
In this case, the Petition does state that it was served on the respective counsels of Sta. Ines and Cuenca by registered mail in
lieu of personal service due to limitations in time and distance. [14] This explanation sufficiently shows that personal service was not
practicable. In any event, we find no adequate reason to reject the contention of petitioner and thereby deprive it of the opportunity
to fully argue its cause.
First Issue: Original Obligation Extinguished by Novation

An obligation may be extinguished by novation, pursuant to Article 1292 of the Civil Code, which reads as follows:
ART. 1292. In order that an obligation may be extinguished by another which substitute the same, it is imperative that it be so
declared in unequivocal terms, or that the old and the new obligations be on every point incompatible with each other.
Novation of a contract is never presumed. It has been held that [i]n the absence of an express agreement, novation takes place
only when the old and the new obligations are incompatible on every point. [15] Indeed, the following requisites must be established:
(1) there is a previous valid obligation; (2) the parties concerned agree to a new contract; (3) the old contract is extinguished; and (4)
there is a valid new contract.[16]
Petitioner contends that there was no absolute incompatibility between the old and the new obligations, and that the latter did
not extinguish the earlier one. It further argues that the 1989 Agreement did not change the original loan in respect to the parties
involved or the obligations incurred. It adds that the terms of the 1989 Contract were not more onerous. [17] Since the original credit
accomodation was not extinguished, it concludes that Cuenca is still liable under the Indemnity Agreement.
We reject these contentions. Clearly, the requisites of novation are present in this case. The 1989 Loan Agreement extinguished
the obligation[18] obtained under the 1980 credit accomodation. This is evident from its explicit provision to liquidate the principal and
the interest of the earlier indebtedness, as the following shows:
1.02. Purpose. The First Loan shall be applied to liquidate the principal portion of the Borrowers present total outstanding
Indebtedness to the Lender (the Indebtedness) while the Second Loan shall be applied to liquidate the past due interest and penalty
portion of the Indebtedness.[19] (Italics supplied.)
The testimony of an officer[20] of the bank that the proceeds of the 1989 Loan Agreement were used to pay-off the original
indebtedness serves to strengthen this ruling.[21]
Furthermore, several incompatibilities between the 1989 Agreement and the 1980 original obligation demonstrate that the two
cannot coexist. While the 1980 credit accommodation had stipulated that the amount of loan was not to exceed P8 million,[22] the
1989 Agreement provided that the loan was P12.2 million. The periods for payment were also different.
Likewise, the later contract contained conditions, positive covenants and negative covenants not found in the earlier
obligation. As an example of a positive covenant, Sta. Ines undertook from time to time and upon request by the Lender, [to] perform
such further acts and/or execute and deliver such additional documents and writings as may be necessary or proper to effectively
carry out the provisions and purposes of this Loan Agreement. [23] Likewise, SIMC agreed that it would not create any mortgage or
encumbrance on any asset owned or hereafter acquired, nor would it participate in any merger or consolidation. [24]
 Since the 1989 Loan Agreement had extinguished the original credit accommodation, the Indemnity Agreement, an accessory
obligation, was necessarily extinguished also, pursuant to Article 1296 of the Civil Code, which provides:
ART. 1296. When the principal obligation is extinguished in consequence of a novation, accessory obligations may subsist only
insofar as they may benefit third persons who did not give their consent.
Alleged Extension

Petitioner insists that the 1989 Loan Agreement was a mere renewal or extension of the P8 million original accommodation; it
was not a novation.[25]
This argument must be rejected. To begin with, the 1989 Loan Agreement expressly stipulated that its purpose was to liquidate,
not to renew or extend, the outstanding indebtedness. Moreover, respondent did not sign or consent to the 1989 Loan Agreement,
which had allegedly extended the original P8 million credit facility. Hence, his obligation as a surety should be deemed extinguished,
pursuant to Article 2079 of the Civil Code, which specifically states that [a]n extension granted to the debtor by the creditor without
the consent of the guarantor extinguishes the guaranty. x x x. In an earlier case,[26] the Court explained the rationale of this provision
in this wise:
The theory behind Article 2079 is that an extension of time given to the principal debtor by the creditor without the suretys consent
would deprive the surety of his right to pay the creditor and to be immediately subrogated to the creditors remedies against the
principal debtor upon the maturity date. The surety is said to be entitled to protect himself against the contingency of the principal
debtor or the indemnitors becoming insolvent during the extended period.
Binding Nature of the Credit Approval Memorandum

As noted earlier, the appellate court relied on the provisions of the Credit Approval Memorandum in holding that the credit
accommodation was only for P8 million, and that it was for a period of one year ending on November 30, 1981.Petitioner objects to
the appellate courts reliance on that document, contending that it was not a binding agreement because it was not signed by the
parties. It adds that it was merely for its internal use.
We disagree. It was petitioner itself which presented the said document to prove the accommodation. Attached to the Complaint
as Annex A was a copy thereof evidencing the accommodation.[27] Moreover, in its Petition before this Court, it alluded to the Credit
Approval Memorandum in this wise:
4.1 On 10 November 1980, Sta. Ines Melale Corporation (SIMC) was granted by the Bank a credit line in the aggregate amount of
Eight Million Pesos (P8,000,000.00) to assist SIMC in meeting the additional capitalization requirements for its logging
operations. For this purpose, the Bank issued a Credit Approval Memorandum dated 10 November 1980.
Clearly, respondent is estopped from denying the terms and conditions of the P8 million credit accommodation as contained in
the very document it presented to the courts. Indeed, it cannot take advantage of that document by agreeing to be bound only by
those portions that are favorable to it, while denying those that are disadvantageous.
Second Issue: Alleged Waiver of Consent

Pursuing another course, petitioner contends that Respondent Cuenca impliedly gave his consent to any modification of the
credit accommodation or otherwise waived his right to be notified of, or to give consent to, the same. [28]Respondents consent or
waiver thereof is allegedly found in the Indemnity Agreement, in which he held himself liable for the credit accommodation including
[its] substitutions, renewals, extensions, increases, amendments, conversions and revival. It explains that the novation of the original
credit accommodation by the 1989 Loan Agreement is merely its renewal, which connotes cessation of an old contract and birth of
another one x x x.[29]
At the outset, we should emphasize that an essential alteration in the terms of the Loan Agreement without the consent of the
surety extinguishes the latters obligation. As the Court held in National Bank v. Veraguth,[30] [i]t is fundamental in the law of suretyship
that any agreement between the creditor and the principal debtor which essentially varies the terms of the principal contract, without
the consent of the surety, will release the surety from liability.
In this case, petitioners assertion - that respondent consented to the alterations in the credit accommodation -- finds no support
in the text of the Indemnity Agreement, which is reproduced hereunder:
Rodolfo M. Cuenca of legal age, with postal address c/o Sta. Ines Malale Forest Products Corp., Alco Bldg., 391 Buendia Avenue Ext.,
Makati Metro Manila for and in consideration of the credit accommodation in the total amount of eight million pesos
(P8,000,000.00) granted by the SECURITY BANK AND TRUST COMPANY, a commercial bank duly organized and existing under and by
virtue of the laws of the Philippine, 6778 Ayala Avenue, Makati, Metro Manila hereinafter referred to as the BANK in favor of STA.
INES MELALE FOREST PRODUCTS CORP., x x x ---- hereinafter referred to as the CLIENT, with the stipulated interests and charges
thereon, evidenced by that/those certain PROMISSORY NOTE[(S)], made, executed and delivered by the CLIENT in favor of the BANK
hereby bind(s) himself/themselves jointly and severally with the CLIENT in favor of the BANK for the payment , upon demand and
without benefit of excussion of whatever amount or amounts the CLIENT may be indebted to the BANK under and by virtue of
aforesaid credit accommodation(s) including the substitutions, renewals, extensions, increases, amendment, conversions and revivals
of the aforesaid credit accommodation(s), as well as of the amount or amounts of such other obligations that the CLIENT may owe
the BANK, whether direct or indirect, principal or secondary, as appears in the accounts, books and records of the BANK, plus
interest and expenses arising from any agreement or agreements that may have heretofore been made, or may hereafter be
executed by and between the parties thereto, including the substitutions, renewals, extensions, increases, amendments,
conversions and revivals of the aforesaid credit accommodation(s), and further bind(s) himself/themselves with the CLIENT in favor
of the BANK for the faithful compliance of all the terms and conditions contained in the aforesaid credit accommodation(s), all of
which are incorporated herein and made part hereof by reference.
While respondent held himself liable for the credit accommodation or any modification thereof, such clause should be
understood in the context of the P8 million limit and the November 30, 1981 term. It did not give the bank or Sta. Ines any license to
modify the nature and scope of the original credit accommodation, without informing or getting the consent of respondent who was
solidarily liable. Taking the banks submission to the extreme, respondent (or his successors) would be liable for loans even amounting
to, say, P100 billion obtained 100 years after the expiration of the credit accommodation, on the ground that he consented to
all alterations and extensions thereof.
Indeed, it has been held that a contract of surety cannot extend to more than what is stipulated. It is strictly construed against
the creditor, every doubt being resolved against enlarging the liability of the surety. [31] Likewise, the Court has ruled that it is a well-
settled legal principle that if there is any doubt on the terms and conditions of the surety agreement, the doubt should be resolved in
favor of the surety x x x. Ambiguous contracts are construed against the party who caused the ambiguity. [32] In the absence of an
unequivocal provision that respondent waived his right to be notified of or to give consent to any alteration of the credit
accommodation, we cannot sustain petitioners view that there was such a waiver.
It should also be observed that the Credit Approval Memorandum clearly shows that the bank did not have absolute authority
to unilaterally change the terms of the loan accommodation. Indeed, it may do so only upon notice to the borrower, pursuant to this
condition:
5. The Bank reserves the right to amend any of the aforementioned terms and conditions upon written notice to the Borrower.[33]
We reject petitioners submission that only Sta. Ines as the borrower, not respondent, was entitled to be notified of any
modification in the original loan accommodation.[34] Following the banks reasoning, such modification would not be valid as to Sta.
Ines if no notice were given; but would still be valid as to respondent to whom no notice need be given. The latters liability would thus
be more burdensome than that of the former. Such untenable theory is contrary to the principle that a surety cannot assume an
obligation more onerous than that of the principal.[35]
The present controversy must be distinguished from Philamgen v. Mutuc,[36] in which the Court sustained a stipulation whereby
the surety consented to be bound not only for the specified period, but to any extension thereafter made, an extension x x x that could
be had without his having to be notified.
In that case, the surety agreement contained this unequivocal stipulation: It is hereby further agreed that in case of any extension
of renewal of the bond, we equally bind ourselves to the Company under the same terms and conditions as herein provided without
the necessity of executing another indemnity agreement for the purpose and that we hereby equally waive our right to be notified of
any renewal or extension of the bond which may be granted under this indemnity agreement.
In the present case, there is no such express stipulation. At most, the alleged basis of respondents waiver is vague and
uncertain. It confers no clear authorization on the bank or Sta. Ines to modify or extend the original obligation without the consent of
the surety or notice thereto.
Continuing Surety

Contending that the Indemnity Agreement was in the nature of a continuing surety, petitioner maintains that there was no need
for respondent to execute another surety contract to secure the 1989 Loan Agreement.
This argument is incorrect. That the Indemnity Agreement is a continuing surety does not authorize the bank to extend the scope
of the principal obligation inordinately.[37] In Dino v. CA,[38] the Court held that a continuing guaranty is one which covers all
transactions, including those arising in the future, which are within the description or contemplation of the contract of guaranty, until
the expiration or termination thereof.
To repeat, in the present case, the Indemnity Agreement was subject to the two limitations of the credit accommodation: (1)
that the obligation should not exceed P8 million, and (2) that the accommodation should expire not later than November 30,
1981. Hence, it was a continuing surety only in regard to loans obtained on or before the aforementioned expiry date and not
exceeding the total of P8 million.
Accordingly, the surety of Cuenca secured only the first loan of P6.1 million obtained on November 26, 1991. It did not secure
the subsequent loans, purportedly under the 1980 credit accommodation, that were obtained in 1986.Certainly, he could not have
guaranteed the 1989 Loan Agreement, which was executed after November 30, 1981 and which exceeded the stipulated P8 million
ceiling.
Petitioner, however, cites the Dino ruling in which the Court found the surety liable for the loan obtained after the payment of
the original one, which was covered by a continuing surety agreement. At the risk of being repetitious, we hold that in Dino, the surety
Agreement specifically provided that each suretyship is a continuing one which shall remain in full force and effect until this bank is
notified of its revocation. Since the bank had not been notified of such revocation, the surety was held liable even for the subsequent
obligations of the principal borrower.
No similar provision is found in the present case. On the contrary, respondents liability was confined to the 1980 credit
accommodation, the amount and the expiry date of which were set down in the Credit Approval Memorandum.
Special Nature of the JSS

It is a common banking practice to require the JSS (joint and solidary signature) of a major stockholder or corporate officer, as
an additional security for loans granted to corporations. There are at least two reasons for this. First, in case of default, the creditors
recourse, which is normally limited to the corporate properties under the veil of separate corporate personality, would extend to the
personal assets of the surety. Second, such surety would be compelled to ensure that the loan would be used for the purpose agreed
upon, and that it would be paid by the corporation.
Following this practice, it was therefore logical and reasonable for the bank to have required the JSS of respondent, who was the
chairman and president of Sta. Ines in 1980 when the credit accommodation was granted. There was no reason or logic, however, for
the bank or Sta. Ines to assume that he would still agree to act as surety in the 1989 Loan Agreement, because at that time, he was no
longer an officer or a stockholder of the debtor-corporation. Verily, he was not in a position then to ensure the payment of the
obligation. Neither did he have any reason to bind himself further to a bigger and more onerous obligation.
Indeed, the stipulation in the 1989 Loan Agreement providing for the surety of respondent, without even informing him, smacks
of negligence on the part of the bank and bad faith on that of the principal debtor. Since that Loan Agreement constituted a new
indebtedness, the old loan having been already liquidated, the spirit of fair play should have impelled Sta. Ines to ask somebody else
to act as a surety for the new loan.
In the same vein, a little prudence should have impelled the bank to insist on the JSS of one who was in a position to ensure the
payment of the loan. Even a perfunctory attempt at credit investigation would have revealed that respondent was no longer connected
with the corporation at the time. As it is, the bank is now relying on an unclear Indemnity Agreement in order to collect an obligation
that could have been secured by a fairly obtained surety. For its defeat in this litigation, the bank has only itself to blame.
In sum, we hold that the 1989 Loan Agreement extinguished by novation the obligation under the 1980 P8 million credit
accommodation. Hence, the Indemnity Agreement, which had been an accessory to the 1980 credit accommodation, was also
extinguished. Furthermore, we reject petitioners submission that respondent waived his right to be notified of, or to give consent to,
any modification or extension of the 1980 credit accommodation.
In this light, we find no more need to resolve the issue of whether the loan obtained before the expiry date of the credit
accommodation has been paid.
WHEREFORE, the Petition is DENIED and the assailed Decision AFFIRMED. Costs against petitioner.