RACEL MAY P. BERDIN (2nd case digest)General ConceptsSTAY OR SUSPENSION

RCBC vs. IAC G.R. No. 74851, December 9, 1999 Facts: On September 28, 1984, BF Homes filed a Petition for Rehabilitation and for Declaration of Suspension of Payments with the SEC.RCBC, one of the creditors listed in BF Homes inventory of creditors and liabilities, on October 26, 1984, requested the Provincial Sheriff of Rizal to extra-judicially foreclose its real estate mortgage on some properties of BF Homes. BF Homes opposed the auction sale and the SEC ordered the issuance of a writ of preliminary injunction upon petitioners filing of a bond. Presumably unaware of the filing of the bond on the very day of the auction sale, the sheriff proceeded with the public auction sale in which RCBC was the highest bidder for the properties auctioned. But because of the proceedings in the SEC, the sheriff withheld the delivery to RCBC of the certificate of sale covering the auctioned properties.On March 13, 1985, despite the SEC case, RCBC filed with RTC an action for mandamus against the provincial sheriff of Rizal to compel him to execute in its favor a certificate of sale of the auctioned properties.On March 18, 1985, the SEC appointed a Management Committee for BF Homes.Consequently, the trial court granted RCBCs motion for judgment on the pleading ordering respondents to execute and deliver to petitioner the Certificate of Auction Sale.On appeal, the SC affirmed CAs decision (setting aside RTCs decision dismissing the mandamus case and suspending issuance to RCBC of new land titles until the resolution of the SEC case) ruling that whenever a distressed corporation asks the SEC for rehabilitation and suspension of payments, preferred creditors may no longer assert such preference but stand on equal footing with other creditors. Hence, this Motion for Reconsideration.

Issue: When should the suspension of actions for claims against BF Homes take effect?

Held: The issue of whether or not preferred creditors of distressed corporations stand on equal footing with all other creditors gains relevance and materiality only upon the appointment of a management committee, rehabilitation receiver, board or body.Upon cursory reading of Section 6, par (c) of PD 902-A, it is adequately clear that suspension of claims against a corporation under rehabilitation is counted or figured up only upon the appointment of a management committee or a rehabilitation takes effect as soon as the application or a petition for rehabilitation is filed with the SEC may to some, be more logical and wise but unfortunately, such is incongruent with the clear language of the law. To insist on such ruling, no matter how practical and noble would be to encroach upon legislative prerogative to define the wisdom of the law --- plainly judicial legislation.Once a management committee, rehabilitation receiver, board or body is appointed pursuant to PD 902-A, all actions for claims against a distressed corporation pending before any court, tribunal, board or body shall be suspended accordingly; Suspension shall not prejudice or render ineffective the status of a secured creditor as compared to a totally unsecured creditor. What it merely provides is that all actions for claims against the corporation, partnership or association shall be suspended. This should give the receiver a chance to rehabilitate the corporation if there should still be a possibility for doing so. In the event that rehabilitation is no longer feasible and claims against the distressed corporation would eventually have to be settled, the secured creditors shall enjoy preference over the unsecured creditors subject only to the provisions of the Civil Code on Concurrence and Preferences of Credit.

METROPOLITAN BANK & TRUST CO. vs. ASB HOLDINGS INC. Gr. No. 1661917 February 27, 2007

Facts: Metropolitan Bank and Trust company is a creditor bank of respondents corporation collectively known as the ASB Group of Companies. ASB group of companies is owner and developer of condominium and real estate projects which contracted loans to the petitioner which were secured by real estate mortgages.Later, ASB group of companies filed with the Securities and Exchange Commission a petition for rehabilitation with prayer for suspension of actions and proceedings against petitioners. However, despite the objection of Metropolitan bank and trust company for the rehabilitation plan, SEC granted the same.Meanwhile, the contention of the petitioner in their objection was that, the approval on the rehabilitation plan will impair the contract entered into by the ASB group of companies with the petitioner.

Issue: Whether or not the approval of rehabilitation plan impairs contract entered into and prejudiced creditors.

Held: The Supreme Court were not convinced that the approval of the rehabilitation plan impair petitioner bank's lien over the mortgaged properties. Section 6 (c) of P.D. no. 902-A provides that "upon appointment of a management committee, rehabilitation receiver, board or body, pursuant to this Decree, all actions for claims against corporations, partnership or associations under management or receivership pending before any curt, tribunal, board or body shall be suspended." By that statutory provision, it is clear that the approval of the rehabilitation plan and the appointment of a rehabilitation receiver merely suspend the action for claims against respondent corporations. Petitioners banks preferred status over the unsecured creditors relative to the mortgage liens is retained, but the enforcement of such preference is suspended. The loan agreement between the parties have not been set aside and petitioner bank may still enforce its preference when the assets of ASB Group of companies will be liquidated. Considering that the provisions of the loan agreements and merely suspends, there is no impairment of contracts, specifically its lien on the mortgaged properties.The court also emphasized that the purpose of rehabilitating proceedings is to enable the company to gain new lease on life thereby allows creditors to be paid their claims from its earnings. Rehabilitation contemplates a continuance of corporate life and activities in an effort to restore ad reinstate the financially distressed corporation to its former position of successful operation and solvency. This is in consonance with the state's equitable distribution of wealth to protect investments and the public. The approval of the rehabilitation plan by the SEC hearing panel, affirmed by both the SEC en banc and the court of appeals, is precisely in furtherance if the rationale behind P.D. No. 902-A, as amended which is "to effect a feasible and viable rehabilitation" of ailing corporations which affect the public welfare.

Town and Country Enterprises, Inc. vs. Hon. Norberto J. Quisumbing, and Town and Country Enterprises, Inc. vs. Metropolitan Bank and Trust Co.Gr. No. 73610 October 1, 2012

This case defines the procedure in corporate rehabilitation initiated by the debtor vis-a-vis a motion for writ of possession in a mortgage foreclosure filed by the creditor.

Facts: Town and Country Enterprises, Inc. (TCEI) borrowed P12 million fromMetrobank, and said loan was secured by a mortgage over 20 parcels of land. Unable to pay upon demand, TCEI lost the properties to Metrobank due to foreclosure and auction. When TCEI held on to the properties, Metrobank asked the Regional Trial Court (RTC) to issue a writ of possession in the bank's favor. Meanwhile, in a separate corporate rehabilitation proceeding, TCEI successfully asked the Securities and Exchange Commission (SEC) for a stay order on the payment of its obligations. Based on that stay order, TCEI asked the RTC which is hearing the writ of possession case to suspend the said proceedings, which the RTC granted. On review by the Court of Appeals, the latter reversed the decision and ordered the RTC to continue with the writ of possession case. The RTC later granted Metrobank's petition and issued a writ of possession. On appeal, the Court of Appeals affirmed the RTC's decision, after which TCEI's land titles were then cancelled in exchange for new titles in the name of Metrobank. TCEI sought remedy before the SEC, the rehabilitation court which had earlier issued the stay order, to annul the said cancellation and transfer of titles, but the SEC denied TCEI's petition. On review, the Court of Appeals agreed with the SEC.

Issues:1.) Is the granting of the Writ of Possession by the RTC in favor of Metrobank valid, in view of the stay order issued by the SEC in the rehabilitation proceeding?2.) Can the register of deeds transfer the titles to Metrobank in view of the said stay order?Held:1.) Yes, the granting of the Writ of Possession is valid because the subject properties are no longer within the scope of the corporate rehabilitation proceeding.The purpose of corporate rehabilitation is to enable an insolvent company to gain a new lease on life and eventually pay its loans. To allow this to happen, a stay order is issued to defer all present claims against the company until the time of its projected recovery. In this case, however, Metrobank had already acquired ownership over the mortgaged parcels of land when TCEI started its petition for corporate rehabilitation. No doubt Metrobank acquired ownership over the properties when TCEI failed to redeem these within the three-month period prescribed by Section 47 of Republic Act 8791.It does not matter, then, if Metrobank only had the certificate of sale registered before the Deed of Registry a couple of months later, and had consolidated its ownership over a year later. "The mortgagor loses all interest over the foreclosed property after the expiration of the redemption period and the purchaser becomes the absolute owner thereof when no redemption is made."Thus, having acquired ownership of the said properties, Metrobank can simply file an ex-parte motion for issuance of the writ of possession - "the issuance of which has been held to be a ministerial function which cannot be hindered by an injunction or an action for the annulment of the mortgage or the foreclosure itself." There is an exception to this rule, however, and that is where the property is held by a third party claiming a right adverse to that of the judgment debtor. But, on the other hand, the rehabilitation receiver's claim is far from adverse. He is an officer of the court who is appointed to protect the interests of TCEI's investors and creditors, not the interests of TCEI per se or its officers and directors.

2.) It follows then that the register of deeds can transfer the titles to Metrobank. "Upon failure to redeem foreclosed realty, consolidation of title becomes a matter of right on the part of the auction buyer, and the issuance of a certificate of title in favor of the purchaser becomes ministerial upon the Register of Deeds."

Finally, proceedings in corporate rehabilitation cases are summary and non-adversarial, and do not impair the debtor's contracts or diminish the status of preferred creditors. Thus, the stay order, which only suspends the enforcement of all claims, cannot be held to extend to the period not within its scope. In this case, there was no more claim by Metrobank to speak of because the bank had already acquired ownership over the subject properties prior to the issuance of the stay order.

MWSS vs. DAWAY AND MAYNILADG.R. No. 160732 June 21, 2004

Facts: MWSS granted Maynilad under a Concession Agreement 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 which, among other things, consisted of payments of petitioners mostly foreign loans.To secure the concessionaires performance of its obligations, 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 for a three-year facility with a number of foreign banks, led by Citicorp Intl Ltd., for the issuance of an Irrevocable Standby Letter of Credit in favor of MWSS for the full and prompt performance of Maynilads obligations to MWSS as aforestated.Later, the parties agreed to resolve the issues between them [Maynilad is asking 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 and in filing to get what it desired, Maynilad unilaterally suspended the payment of the concession fees] through an amendment of the Concession Agreement which was based on the terms set down in MWSS Board of Trustees Resolution 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.However Maynilad served upon MWSS a Notice of Event of Termination, claiming that MWSS failed to comply with its obligations under the Concession Agreement and its Amendment regarding the adjustment mechanism that would cover Maynilads foreign exchange losses. Maynilad filed a Notice of Early Termination of the concession, which was challenged by MWSS. This matter was eventually brought before the Appeals Panel by MWSS. 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. MWSS, thereafter, submitted a written notice to Citicorp Intl Ltd, 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.

Prior to this, however, Maynilad had filed on a petition for rehabilitation before the RTC of Quezon City which resulted in the issuance of the Stay Order and the disputed Order of November 27, 2003.

Issue: WON 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

Held: The petition for certiorari is granted. The Order of November 27, 2003 of the RTC of Quezon City 90, is hereby declared null and void and set aside.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.Letters of credit were developed for the purpose of insuring to a seller payment of a definite amount upon the presentation of documents 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 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. 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. They are definite undertakings to pay at sight once the documents stipulated therein are presented.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. And being solidary, the claims against them can be pursued separately from and independently of the rehabilitation case.

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 in favor of the MWSS as a bond for the full and prompt performance of the obligations by the concessionaire under the Concession Agreement and herein MWSS 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 of the Letter of Credit.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.

PANLILIO VS. RTCGr No. 173846 February 2, 2011

Facts: OnOctober 15, 2004, Jose Marcel Panlilio, Erlinda Panlilio, Nicole Morris and Marlo Cristobal (petitioners), as corporate officers of Silahis International Hotel, Inc. (SIHI), filed with the Regional Trial Court (RTC) ofManila, Branch 24, a petition for Suspension of Payments and Rehabilitationin SEC Corp. Case No. 04-111180.OnOctober 18, 2004, the RTC of Manila, Branch 24, issued an Orderstaying all claims against SIHI upon finding the petition sufficient in form and substance. At the time, however, of the filing of the petition for rehabilitation, there were a number of criminal chargespending against petitioners in Branch 51 of the RTC of Manila.These criminal charges were initiated by respondent Social Security System (SSS) and involved charges of violations of Section 28 (h) of Republic Act 8282, or the Social Security Act of 1997 (SSSlaw), in relation to Article 315 (1) (b) of the Revised Penal Code, or Estafa.Consequently, petitioners filed with the RTC of Manila, Branch 51, a Manifestation and Motion to Suspend Proceedings.Petitioners argued that the stay order issued by Branch 24 should also apply to the criminal charges pending in Branch 51.Petitioners, thus, prayed that Branch 51 suspend its proceedings until the petition for rehabilitation was finally resolved.

Issue: Does the suspension of all claims as an incident to a corporate rehabilitation also contemplate the suspension of criminal charges filed against the corporate officers of the distressed corporation?Held: This Court rules in the negative.A principal feature of corporate rehabilitation is the suspension of claims against the distressed corporation. Section 6 (c) of Presidential Decree No. 902-A, as amended, provides for suspension of claims against corporations undergoing rehabilitation, to wit:Section 6 (c). x x xx x x Provided, finally, that upon appointment of a management committee, rehabilitation receiver, board or body, pursuant to this Decree,all actions for claimsagainst corporations, partnerships or associations under management or receivership pending before any court, tribunal, board or body,shall be suspendedaccordingly.

Consequently, the filing of the case for violation of B.P. Blg. 22 is not a "claim" that can be enjoined within the purview of P.D. No. 902-A. True, although conviction of the accused for the alleged crime could result in the restitution, reparation or indemnification of the private offended party for the damage or injury he sustained by reason of the felonious act of the accused, nevertheless, prosecution for violation of B.P. Blg. 22 is a criminal action.A criminal action has a dual purpose, namely, the punishment of the offender and indemnity to the offended party. The dominant and primordial objective of the criminal action is the punishment of the offender. The civil action is merely incidental to and consequent to the conviction of the accused. The reason for this is that criminal actions are primarily intended to vindicate an outrage against the sovereignty of the state and to impose the appropriate penalty for the vindication of the disturbance to the social order caused by the offender. On the other hand, the action between the private complainant and the accused is intended solely to indemnify the former.

The rehabilitation of SIHI and the settlement of claims against the corporation is not a legal ground for the extinction of petitioners criminal liabilities. There is no reason why criminal proceedings should be suspended during corporate rehabilitation, more so, sincethe prime purpose of the criminal action is to punish the offender in order to deter him and others from committing the same or similar offense, to isolate him from society, reform and rehabilitate him or, in general, to maintain social order. As correctly observed inRosario, it would be absurd for one who has engaged in criminal conduct could escape punishment by the mere filing of a petition for rehabilitation by the corporation of which he is an officer.The prosecution of the officers of the corporation has no bearing on the pending rehabilitation of the corporation, especially since they are charged in their individual capacities. Such being the case, the purpose of the law for the issuance of the stay order is not compromised, since the appointed rehabilitation receiver can still fully discharge his functions as mandated by law. It bears to stress that the rehabilitation receiver is not charged to defend the officers of the corporation. If there is anything that the rehabilitation receiver might be remotely interested in is whether the court also rules that petitioners are civilly liable. Such a scenario, however, is not a reason to suspend the criminal proceedings, because as aptly discussed inRosario, should the court prosecuting the officers of the corporation find that an award or indemnification is warranted, such award would fall under the category of claims, the execution of which would be subject to the stay order issued by the rehabilitation court.The penal sanctions as a consequence of violation of the SSS law, in relation to the revised penal code can therefore be implemented if petitioners are found guilty after trial. However, any civil indemnity awarded as a result of their conviction would be subject to the stay order issued by the rehabilitation court. Only to this extent can the order of suspension be considered obligatory upon any court, tribunal, branch or body where there are pending actions for claims against the distressed corporation

General Concepts of SURETY

Security Bank and Trust Company Inc. vs. Rodolfo M. CuencaGr. No. 138544 October 3, 2000

Facts: 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 theP8M Credit Loan Facility shall be effective until 30 November 1981. 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.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 ofP8 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 exceedingP8 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.

Issue: 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;

Held: 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]InDino 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 exceedP8 million, and(2) that the accommodation should expire not later than November 30, 1981.Hence, itwas a continuing surety only in regard to loans obtained on or before the aforementioned expiry date and not exceeding the total ofP8 million.Accordingly, the surety of Cuenca secured only the first loan ofP6.1 million obtained on November 26, 1991.It did not secure the subsequent loans, purportedly under the 1980 credit accommodation, that were obtained in1986.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 theDinoruling in which the Court found the surety liable for the loan obtainedafterthe payment of the original one, which was covered by a continuing surety agreement.At the risk of being repetitious, we hold that inDino, the surety Agreement specifically provided that each suretyship is a continuing one which shall remain in full force and effectuntil 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.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 1980P8 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.

ESTRELLA PALMARES vs. COURT OF APPEALS and M.B. LENDING CORPORATIONGr no. 126490 March 31, 1998

Facts: Pursuant to a promissory note dated March 13, 1990, private respondent M.B. Lending Corporation extended a loan to the spouses Osmea and Merlyn Azarraga, together with petitioner Estrella Palmares, in the amount ofP30,000.00 payable on or before May 12, 1990, with compounded interest at the rate of 6% per annum to be computed every 30 days from the date thereof.On four occasions after the execution of the promissory note and even after the loan matured, petitioner and the Azarraga spouses were able to pay a total ofP16,300.00, thereby leaving a balance ofP13,700.00.No payments were made after the last payment on September 26, 1991. Consequently, on the basis of petitioners solidary liability under the promissory note, respondent corporation filed a complaintagainst petitioner Palmares as the lone party-defendant, to the exclusion of the principal debtors, allegedly by reason of the insolvency of the latter.In her Amended Answer with Counterclaim, petitioner alleged that sometime in August 1990, immediately after the loan matured, she offered to settle the obligation with respondent corporation but the latter informed her that they would try to collect from the spouses Azarraga and that she need not worry about it; that there has already been a partial payment in the amount ofP17,010.00; that the interest of 6% per month compounded at the same rate per month, as well as the penalty charges of 3% per month, are usurious and unconscionable; and that while she agrees to be liable on the note but only upon default of the principal debtor, respondent corporation acted in bad faith in suing her alone without including the Azarragas when they were the only ones who benefited from the proceeds of the loan.

Issue: (2) whether the liability of the defendant (herein petitioner) is primary or subsidiary; and (3) whether the defendant Estrella Palmares is only a guarantor with a subsidiary liability and not a co-maker with primary liability.Held: Having entered into the contract with full knowledge of its terms and conditions, petitioner is estopped to assert that she did so under a misapprehension or in ignorance of their legal effect, or as to the legal effect of the undertaking.The rule that ignorance of the contents of an instrument does not ordinarily affect the liability of one who signs it also applies to contracts of suretyship.And the mistake of a surety as to the legal effect of her obligation is ordinarily no reason for relieving her of liabilityAsurety is an insurer of the debt, whereas a guarantor is an insurer of the solvency of the debtor.A suretyship is an undertaking that the debt shall be paid; a guaranty, an undertaking that the debtor shall pay.Stated differently, a surety promises to pay the principals debt if the principal will not pay, while a guarantor agrees that the creditor, after proceeding against the principal, may proceed against the guarantor if the principal is unable to pay.A surety binds himself to perform if the principal does not, without regard to his ability to do so.A guarantor, on the other hand, does not contract that the principal will pay, but simply that he is able to do so.In other words, a surety undertakes directly for the payment and is so responsible at once if the principal debtor makes default, while a guarantor contracts to pay if, by the use of due diligence, the debt cannot be made out of the principal debtor. Quintessentially, the undertaking to pay upon default of the principal debtor does not automatically remove it from the ambit of a contract of suretyship.The second and third paragraphs of the aforequoted portion of the promissory note do not contain any other condition for the enforcement of respondent corporations right against petitioner.It has not been shown, either in the contract or the pleadings, that respondent corporation agreed to proceed against herein petitioneronly if and whenthe defaulting principal has become insolvent.A contract of suretyship, to repeat, is that wherein one lends his credit by joining in the principal debtors obligation, so as to render himself directly and primarily responsible with him, and without reference to the solvency of the principal.Prescinding from these jurisprudential authorities, there can be no doubt that the stipulation contained in the third paragraph of the controverted suretyship contract merely elucidated on and made more specific the obligation of petitioner as generally defined in the second paragraph thereof.Resultantly, the theory advanced by petitioner, that she is merely a guarantor because her liability attaches only upon default of the principal debtor, must necessarily fail for being incongruent with the judicial pronouncements adverted to above.It is a well-entrenched rule that in order to judge the intention of the contracting parties, their contemporaneous and subsequent acts shall also be principally considered. Several attendant factors in that genre lend support to our finding that petitioner is a surety.For one, when petitioner was informed about the failure of the principal debtor to pay the loan, she immediately offered to settle the account with respondent corporation.Obviously, in her mind, she knew that she was directly and primarily liable upon default of her principal. For another, and this is most revealing, petitioner presented the receipts of the payments already made, from the time of initial payment up to the last, which were all issued in her name and of the Azarraga spouses.This can only be construed to mean that the payments made by the principal debtors were considered by respondent corporation as creditable directly upon the account and inuring to the benefit of petitioner.The concomitant and simultaneous compliance of petitioners obligation with that of her principals only goes to show that, from the very start, petitioner considered herself equally bound by the contract of the principal makers.In this regard, we need only to reiterate the rule that a surety is bound equally and absolutely with the principal, and as such is deemed an original promisor and debtor from the beginning. This is because in suretyship there is but one contract, and the surety is bound by the same agreement which binds the principal. In essence, the contract of a surety starts with the agreement,which is precisely the situation obtaining in this case before the Court.It will further be observed that petitioners undertaking as co-maker immediately follows the terms and conditions stipulated between respondent corporation, as creditor, and the principal obligors.A surety is usually bound with his principal by the same instrument, executed at the same time and upon the same consideration; he is an original debtor, and his liability is immediate and direct. Thus, it has been held that where a written agreement on the same sheet of paper with and immediately following the principal contract between the buyer and seller is executed simultaneously therewith, providing that the signers of the agreement agreed to the terms of the principal contract, the signers were sureties jointly liable with the buyer.A surety usually enters into the same obligation as that of his principal, and the signatures of both usually appear upon the same instrument, and the same consideration usually supports the obligation for both the principal and the surety

E. ZOBEL, INC.,vs.THE COURT OF APPEALS, CONSOLIDATED BANK AND TRUST CORPORATION, and SPOUSES RAUL and ELEA R. CLAVERIA,Gr No. 113931 May 6, 1998

Facts: Respondent spouses Raul and Elea Claveria, doing business under the name "Agro Brokers," applied for a loan with respondent Consolidated Bank and Trust Corporation (now SOLIDBANK) in the amount of Two Million Eight Hundred Seventy Five Thousand Pesos (P2, 875,000.00) to finance the purchase of two (2) maritime barges and one tugboat which would be used in their molasses business. The loan was granted subject to the condition that respondent spouses execute a chattel mortgage over the three (3) vessels to be acquired and that a continuing guarantee be executed by Ayala International Philippines, Inc., now herein petitioner E. Zobel, Inc. in favor of SOLIDBANK. The respondent spouses agreed to the arrangement. Consequently, a chattel mortgage and a Continuing Guarantywere executed.Respondent spouses defaulted in the payment of the entire obligation upon maturity. Hence, on January 31,1991, SOLIDBANK filed a complaint for sum of money with a prayer for a writ of preliminary attachment, against respondents spouses and petitioner. The case was docketed as Civil Case No. 91-55909 in the Regional Trial Court of Manila.Petitioner moved to dismiss the complaint on the ground that its liability as guarantor of the loan was extinguished pursuant to Article 2080 of the Civil Code of the Philippines. It argued that it has lost its right to be subrogated to the first chattel mortgage in view of SOLIDBANK's failure to register the chattel mortgage with the appropriate government agency.SOLIDBANK opposed the motion contending that Article 2080 is not applicable because petitioner is not a guarantor but a surety.

Issue: whether or not petitioner under the "Continuing Guaranty" obligated itself to SOLIDBANK as a guarantor or a surety.

Held: A contract of surety is anaccessory promise by which a person binds himself for another already bound, and agrees with the creditor to satisfy the obligation if the debtor does not. A contract of guaranty, on the other hand, is a collateral undertaking to pay the debt of another in case the latter does not pay the debt. Strictly speaking, guaranty and surety are nearlyrelated, and many of the principles are common to both. However, under our civil law,theymay be distinguished thus: A surety is usually bound with his principal by the same instrument, executed at the same time, and on the same consideration. He is an original promissor and debtor from the beginning, and is held, ordinarily, to know every default of his principal. Usually, he will not be discharged, either by the mere indulgence of the creditor to the principal, or by want of notice of the default of the principal, no matter how much he may be injured thereby. On the other hand, the contract of guaranty is the guarantor's own separate undertaking, in which the principal does not join. It is usually entered into before or after that of the principal, and is often supported on a separate consideration from that supporting the contract of the principal. The original contract of his principal is not his contract, and he is not bound to take notice of its non-performance. He is often discharged by the mere indulgence of the creditor to the principal, and is usually not liable unless notified of the default of the principal.[9]Simply put, a surety is distinguished from a guaranty in that a guarantor is the insurer of the solvency of the debtor and thus binds himself to pay if the principal isunable to paywhile a surety is the insurer of the debt, and he obligates himself to pay if the principaldoes not pay. Based on the aforementioned definitions, it appears that the contract executed by petitioner in favor of SOLIDBANK,albeit denominated as a "Continuing Guaranty," is a contract of surety. The terms of the contract categorically obligates petitioner as "surety" to induce SOLIDBANK to extend credit to respondent spouses. This can be seen in the following stipulations.The use of the term "guarantee" does notipso factomean that the contract is one of guaranty. Authorities recognize that the word "guarantee"is frequently employed in business transactions to describe not the security of the debt but an intention to be bound by a primary or independent obligation.As aptly observed by the trial court, the interpretation of a contract is not limited to the title alone but to the contents and intention of the parties.

INTERNATIONAL FINANCE vs. IMPERIALGr No. 160324 November 15, 2005

Facts: On December 17, 1974, [Petitioner] International Finance Corporation (IFC) and [Respondent] Philippine Polyamide Industrial Corporation (PPIC) entered into a loan agreement wherein IFC extended to PPIC a loan of US$7,000,000.00, payable in sixteen (16) semi-annual installments of US$437,500.00 each, beginning June 1, 1977 to December 1, 1984, with interest at the rate of 10% per annum on the principal amount of the loan advanced and outstanding from time to time. The interest shall be paid in US dollars semi-annually on June 1 and December 1 in each year and interest for any period less than a year shall accrue and be pro-rated on the basis of a 360-day year of twelve 30-day months.On December 17, 1974, a Guarantee Agreement was executed with x x x Imperial Textile Mills, Inc. (ITM), Grand Textile Manufacturing Corporation (Grandtex) and IFC as parties thereto. ITM and Grandtex agreed to guarantee PPICs obligations under the loan agreement.PPIC paid the installments due on June 1, 1977, December 1, 1977 and June 1, 1978. The payments due on December 1, 1978, June 1, 1979 and December 1, 1979 were rescheduled as requested by PPIC. Despite the rescheduling of the installment payments, however, PPIC defaulted. Hence, on April 1, 1985, IFC served a written notice of default to PPIC demanding the latter to pay the outstanding principal loan and all its accrued interests. Despite such notice, PPIC failed to pay the loan and its interests.By virtue of PPICs failure to pay, IFC, together with DBP, applied for the extrajudicial foreclosure of mortgages on the real estate, buildings, machinery, equipment plant and all improvements owned by PPIC, located at Calamba, Laguna, with the regional sheriff of Calamba, Laguna. On July 30, 1985, the deputy sheriff of Calamba, Laguna issued a notice of extrajudicial sale. IFC and DBP were the only bidders during the auction sale. IFCs bid was forP99,269,100.00 which was equivalent to US$5,250,000.00 (at the prevailing exchange rate ofP18.9084 = US$1.00). The outstanding loan, however, amounted to US$8,083,967.00 thus leaving a balance of US$2,833,967.00. PPIC failed to pay the remaining balance.Consequently, IFC demanded ITM and Grandtex, as guarantors of PPIC, to pay the outstanding balance. However, despite the demand made by IFC, the outstanding balance remained unpaid.Issue: Whether or not ITM and Grandtex[11]are sureties and therefore, jointly and severally liable with PPIC, for the payment of the loan.Held: While referring to ITM as a guarantor, the Agreement specifically stated that the corporation was jointly and severally liable. To put emphasis on the nature of that liability, the Contract further stated that ITM was a primary obligor, not ameresurety. Those stipulations meant only one thing: thatat bottom, and to all legal intents and purposes, it was a surety.Indubitably therefore, ITM bound itself to be solidarily liable with PPIC for the latters obligations under the Loan Agreement with IFC. ITM thereby brought itself to the level of PPIC and could not be deemed merely secondarily liable.

Initially, ITM was a stranger to the Loan Agreement between PPIC and IFC. ITMs liability commenced only when it guaranteed PPICs obligation. It became a surety when it bound itself solidarily with the principal obligor. Thus, the applicable law is as follows:Article 2047. By guaranty, a person, called the guarantor binds himself to the creditor to fulfill the obligation of the principal in case the latter should fail to do so.If a person binds himself solidarily with the principal debtor, the provisions of Section 4, Chapter 3, Title I of this Book shall be observed. In such case the contract shall be called suretyship.[22]The aforementioned provisions refer to Articles 1207 to 1222 of the Civil Code on Joint and Solidary Obligations. Relevant to this case is Article 1216, which states: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.Pursuant to this provision, petitioner (as creditor) was justified in taking action directly against respondent.

PHILIPPINE BLOOMING MILLS, INC., and ALFREDO CHING, vs. COURT OF APPEALS and TRADERS ROYAL BANKGr No. 142381 October 15, 2003

Facts:Philippine Blooming Employees Organization (PBMEO) decided to stage a massdemonstrationin frontof Malacaang to express their grievances against the alleged abuses of the Pasig Police.

After learning about the planned massdemonstration, Philippine Blooming Mills Inc., called for a meeting with the leaders of the PBMEO. During the meeting, the planneddemonstrationwas confirmed by the union. But it was stressed out that thedemonstrationwas not a strike against the company but was in fact an exercise of the laborers inalienableconstitutionalright to freedom of expression, freedom of speech and freedom for petition for redress of grievances.

The company asked them to cancel thedemonstrationfor it would interrupt the normal course of their business which may result in the loss of revenue. This was backed up withthe threatof the possibility that the workers would lose their jobs if they pushed through with the rally.

A second meeting took place where the company reiterated their appeal that while the workers may be allowed to participate, those from the 1st andregularshifts should not absent themselves to participate , otherwise, they would be dismissed. Since it was too late to cancel the plan, the rally took place and the officers of the PBMEO were eventually dismissed for a violation of the No Strike and No Lockout clause of theirCollective Bargaining Agreement.

The lower court decided in favor of the company and the officers of the PBMEO were found guilty of bargaining in bad faith. Their motion for reconsideration was subsequently denied by the Court of IndustrialRelations for being filed two days late.

Issue:Whether or not the workers who joined the strike violated the CBA.

Held: No. While the Bill of Rights also protects property rights, the primacy of human rights over property rights is recognized. Because thesefreedomsare "delicate and vulnerable, as well as supremely precious in our society" and the "threat of sanctions may deter their exercise almost as potently as the actual application of sanctions," they "need breathing space to survive,"permittinggovernment regulation only "with narrow specificity." Property and property rights can be lost thru prescription; but human rights are imprescriptible. In the hierarchy of civil liberties, the rights of free expression and of assembly occupy a preferred position as they are essential to the preservation and vitality of our civil and political institutions; and such priority "gives these liberties the sanctity and the sanction not permittingdubious intrusions."

Thefreedomsof speech and of the press as well as of peaceful assembly and of petition for redress of grievances are absolute when directed against public officials or "when exercised in relation to our right to choose the men and women by whom we shall be governed.

ESCANO vs. ORTIGASGr No. 151953 June 29, 2007

Facts: On28 April 1980, Private Development Corporation of the Philippines (PDCP)entered into a loan agreement with Falcon Minerals, Inc. (Falcon) whereby PDCP agreed to make available and lend to Falcon the amount of US$320,000.00, for specific purposes and subject to certain terms and conditions. On the same day, three stockholders-officers of Falcon, namely: respondent Rafael Ortigas, Jr. (Ortigas), George A. Scholey and George T. Scholey executed an Assumption of Solidary Liability whereby they agreed to assume in [their] individual capacity, solidary liability with [Falcon] for the due and punctual payment of the loan contracted by Falcon with PDCP.In the meantime, two separate guaranties were executed to guarantee the payment of the same loan by other stockholders and officers of Falcon, acting in their personal and individual capacities. One Guaranty was executed by petitioner Salvador Escao (Escao), while the otherby petitioner Mario M. Silos (Silos), Ricardo C. Silverio (Silverio), Carlos L. Inductivo (Inductivo) and Joaquin J. Rodriguez (Rodriguez).Two years later, an agreement developed to cede control of Falcon to Escao, Silos and Joseph M. Matti (Matti). Thus, contracts were executed whereby Ortigas, George A. Scholey, Inductivo and the heirs of then already deceased George T. Scholey assigned their shares of stock in Falcon to Escao, Silos and Matti. Part of the consideration that induced the sale of stock was a desire by Ortigas,et al., to relieve themselves of all liability arising from their previous joint and several undertakings with Falcon, including those related to the loan with PDCP. Thus, an Undertaking dated11 June 1982was executed by the concerned parties,namely:with Escao, Silos and Matti identified in the document as SURETIES, on one hand, and Ortigas, Inductivo and the Scholeys as OBLIGORS, on the other.Falcon eventually availed of the sum of US$178,655.59 from the credit line extended by PDCP.It would also execute a Deed of Chattel Mortgage over its personal properties to further secure the loan. However, Falcon subsequently defaulted in its payments. After PDCP foreclosed on the chattel mortgage, there remained a subsisting deficiency ofP5,031,004.07, which Falcon did not satisfy despite demand.

Issue: whether this obligation to repay is solidary, as contended by respondent and the lower courts, or merely joint as argued by petitioners.Held: In case, there is a concurrence of two or more creditors or of two or more debtors in one and the same obligation, Article 1207 of the Civil Code states that among them, [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. Article 1210 supplies further caution against the broad interpretation of solidarity by providing: The indivisibility of an obligation does not necessarily give rise to solidarity. Nor does solidarity of itself imply indivisibility.These Civil Code provisions establish that in case of concurrence of two or more creditors or of two or more debtors in one and the same obligation, and in the absence of express and indubitable terms characterizing the obligation as solidary, the presumption is that the obligation is only joint. It thus becomes incumbent upon the party alleging that the obligation is indeed solidary in character to prove such fact with a preponderance of evidence.The Undertaking does not contain any express stipulation that the petitioners agreed to bind themselves jointly and severally in their obligations to the Ortigas group, or any such terms to that effect. Hence, such obligation established in the Undertaking is presumed only to be joint. Ortigas, as the party alleging that the obligation is in fact solidary, bears the burden to overcome the presumption of jointness of obligations. We rule and so hold that he failed to discharge such burden.