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PCIC v Phil. Petroleum Distributors

Before the Court is a petition for review underRule 45 of the Rules of Court seeking the reversalof the July 31, 200 !e"ision#1$ and the!e"e%&er 2', 200 Resolution#2$ of the Court of(ppeals )C(* in C(+-R- C. /o- '241, whi"har%ed with %odi"ation the January 12, 2004!e"ision of the Regional rial Court, Bran"h 111,asay City )RC*-

he a"ts

6n January 2, 1777, respondent etroleu%!istri&utors and 8ervi"es Corporation )!8C*,through its president, Conrado - 9i%"a"o,entered into a &uilding "ontra"t#3$ with /-C-ran"ia Constru"tion Corporation )CC*,represented &y its president and "hief e:e"utiveo"er, ;%%anuel - ran"ia, for the "onstru"tionof a four+story "o%%er"ial and parking "o%ple:lo"ated at <=( Road "orner !o%esti" Road, asayCity, known as ark / ly Building )ark / ly*-

>nder the "ontra"t, CC agreed to undertake the"onstru"tion of ark / ly for the pri"e of?45,522,17-2-

he parties agreed that the "onstru"tion workwould &egin on e&ruary 1, 1777- >nder thero@e"t ;valuation and Review e"hniAue Criti"alath <ethod );R+C<*, the pro@e"t was dividedinto two stages hase 1#4$ of the "onstru"tionwork would &e nished on <ay 1, 1777 andhase 2#5$ would &egin on <ay 1', 1777 andnish on 6"to&er 20, 1777- he pro@e"t should &eturned over &y 6"to&er 21, 1777-#$ =t was

further stipulated that in the event CC failed tonish the pro@e"t within the period spe"ied,liAuidated da%ages eAuivalent to 110 of 1D ofthe "ontra"t pri"e for every day of delay shalla""rue in favor of !8C-#$

o ensure "o%plian"e with its o&ligation, CCsindividual o"ers, na%ely, /atividad ran"ia,;%%anuel C- ran"ia, Jr-, (nna 8heila C- ran"ia,8an !iego elipe - Ber%udeE, ;%%anuel -ran"ia, Charle%agne C- ran"ia, and Ru&en -Caperia, signed the >ndertaking of 8urety#'$holding the%selves personally lia&le for thea""ounta&ilities of CC-

(lso, CC pro"ured erfor%an"e Bond /o- 31715a%ounting to ?,'2',327-00 fro% petitionerhilippine Charter =nsuran"e Corporation )C=C* tose"ure full and faithful perfor%an"e of itso&ligation under the Building Contra"t-#7$

he "onstru"tion of the ark / ly started one&ruary 1, 1777-

ursuant to the Building Contra"t, !8C sour"edout "onstru"tion %aterials and su&"ontra"ted

various phases of the work to help o&tain thelowest "ost of the "onstru"tion and speed up thework of the pro@e"t- hese resulted in theredu"tion of the "ontra"t pri"e-#10$

!uring the hase 1 of the pro@e"t, !8C noti"edthat CC was si:teen )1* days &ehind s"hedule-=n a 9etter#11$ dated <ar"h 25, 1777, it re%indedCC to "at"h up with the s"hedule of thepro@e"ted work path, or it would i%pose thepenalty of 110 of the 1D of the "ontra"t pri"e-

he pro&le%, however, was not addressed, as thedelay in"reased to 30 days#12$ and &allooned to0 days-#13$

ConseAuently, on 8epte%&er 10, 1777, CCe:e"uted a deed of assign%ent,#14$ assigning aportion of its re"eiva&les fro% Calte: hilippines,=n"- )Calte:*, and a "hattel %ortgage,#15$"onveying so%e of its "onstru"tion eAuip%ent to!8C as additional se"urity for the faithful"o%plian"e with its o&ligation-

6n even date, !8C and CC likewise e:e"uted a%e%orandu% of agree%ent )<6(*,#1$ whereinthe parties agreed to revise the work s"hedule ofthe pro@e"t- (s a "onseAuen"e, erfor%an"e Bond/o- 31715 was e:tended up to <ar"h 2, 2000-#1$

or failure of CC to a""o%plish the pro@e"t withinthe agreed "o%pletion period, !8C, in aletter#1'$ dated !e"e%&er 3, 1777, infor%ed CCthat it was ter%inating their "ontra"t &ased on(rti"le 12, aragraph 12-1 of the BuildingContra"t- 8u&seAuently, !8C sent de%and

letters#17$ to CC and its o"ers for the pay%entof liAuidated da%ages a%ounting to?7,147,72-02 for the delay- =n the sa%e %anner,!8C wrote C=C asking for re%unerationpursuant to erfor%an"e Bond /o- 31715-#20$

!espite noti"e, !8C did not re"eive any replyfro% either CC or C=C, "onstraining it to le a"o%plaint#21$ for da%ages, re"overy ofpossession of personal property andorfore"losure of %ortgage with prayer for theissuan"e of a writ of replevin and writ ofatta"h%ent, against CC and its o"ers &eforethe RC- !8C later led a supple%ental"o%plaint#22$ i%pleading C=C, "lai%ing"overage under erfor%an"e Bond /o- 31715 inthe a%ount of ?,'2',327--

=n its (%ended (nswer with ar%ative defenseand "ounter"lai%,#23$ CC ad%itted that itentered into a "ontra"t with !8C for the"onstru"tion of the ark / ly &uilding- =t,however, asserted that due to outsour"ing ofdiFerent %aterials and su&"ontra"ting of variousphases of works %ade &y !8C, the "ontra"tpri"e was invaria&ly redu"ed to ?17,'07,'22-12-



CC denied any lia&ility to !8C "lai%ing that anysu"h "lai% &y the latter had &een waived,a&andoned or otherwise e:tinguished &y thee:e"ution of the 8epte%&er 10, 1777 <6(- CC"lai%ed that in the said <6(, !8C assu%ed allthe o&ligations originally reposed upon it- CCfurther e:plained that the ;R+C< agreed upon&y the parties "overing the rst phase of the workpro@e"t was severely aFe"ted when !8C deletedseveral s"opes of work and undertook to perfor%the sa%e- =n fa"t, the ;R+C< was evaluatedand it was "on"luded that the delay wasattri&uta&le to &oth of the%- CC added that afterhase = of the pro@e"t, it sent a progress &illing inthe a%ount of ?737,15-00 &ut !8C approvedthe a%ount of ?37,15-00 only after dedu"tingthe "ost of the attri&uta&le delay with theagree%ent that fro% then on, !8C shouldshoulder all e:penses in the "onstru"tion of the&uilding until "o%pletionG that CC would providethe workers on the "ondition that they would &epaid &y !8CG and that it would allow !8C freeuse of the "onstru"tion eAuip%ents that were inthe pro@e"t site-

or its part, C=C averred that as a surety, it wasnot lia&le as a prin"ipal o&ligorG that its lia&ilityunder the &ond was "onditional and su&sidiaryand that it "ould &e %ade lia&le only upon CCsdefault of its o&ligation in the Building Contra"tup to the e:tent of the ter%s and "onditions ofthe &ond- C=C also alleged that its o&ligationunder the perfor%an"e &ond was ter%inatedwhen it e:pired on 6"to&er 15, 1777 and thee:tension of the perfor%an"e &ond until <ar"h 2,2000 was not &inding as it was %ade without its

knowledge and "onsent-

C=C added that !8Cs "lai% against it had &eenwaived, a&andoned or e:tinguished &y the8epte%&er 10, 1777 <6(- =t also argued that itso&ligation was indeed e:tinguished when !8Cter%inated the "ontra"t on !e"e%&er 3, 1777and took over the "onstru"tion and it failed to leits "lai% within ten )10* days fro% the e:piry dateor fro% the alleged default of CC-#24$

/onetheless, in the event that C=C would &e%ade lia&le, its lia&ility should &e in proportion to

the lia&ilities of the other sureties-

6n January 12, 2004, the RC rendered its!e"ision#25$ in favor of !8C- he RC found CCguilty of delay when it failed to nish and turnover the pro@e"t on 6"to&er 15, 1777- =tpronoun"ed CC and C=C @ointly and severallylia&le and ordered the% to pay !8C the a%ountof ?7,000,000-00 as da%ages and ?50,000-00 asattorneys fees plus interest-

CC and C=C led their respe"tive noti"e ofappeal#2$ with the RC- 6n e&ruary 12, 2004,

the RC issued its 6rder#2$ giving due "ourse tothe noti"e of appeal-

6n July 31, 200, the C( %odied the RCsde"ision-#2'$ he C( agreed that CC in"urreddelay in the "onstru"tion of the pro@e"t- =t,however, found that the "o%putation of theliAuidated da%ages should &e &ased on theredu"ed "ontra"t pri"e of ?17,'07,'22-12- hedispositive portion reads

HI;R;6R;, the !e"ision dated 12 January 2004of the Regional rial Court of asay City, Bran"h111 is (=R<;! with <6!==C(=6/ in thatappellants /-C- ran"ia Constru"tion Corporation,/atividad ran"ia, ;%%anuel ran"ia, Jr-, (nna8heila ran"ia 8an !iego, elipe Ber%udeE,;%%anuel ran"ia, Charle%agne ran"ia, Ru&enCaperia, and hilippine Charter =nsuran"eCorporation are here&y held solidarily lia&le topay appellee etroleu% !istri&utors 8ervi"esCorporation )1* liAuidated da%ages in the su% of?3,''2,25-13, whi"h shall earn legal interest at

the rate of D per annu% fro% 10 January 2000until nality of this @udg%entG )2* attorneys feesa%ounting to ?50,000-00G and )3* "ost of suit-ursuant to erfor%an"e Bond /o- 31715, thelia&ility of appellant hilippine Charter =nsuran"eCorporation should not e:"eed ?,'2',327--

(ppellants /-C ran"ia Constru"tion Corporation,;%%anuel ran"ia and /atividad ran"ia aread@udged lia&le to pay appellant hilippineCharter =nsuran"e Corporation for the a%ount thelatter %ay have paid under erfor%an"e Bond/o- 31715-

86 6R!;R;!-#27$

CC and C=C led their separate %otions forre"onsideration#30$ &ut the C( denied the% in its!e"e%&er 2', 200 Resolution-#31$

Ien"e, this petition-

=t is well to note that only C=C appealed the C(sde"ision- =t &e"a%e nal and e:e"utory withregard to CC and the other parties in the "ase-Ien"e, the Court shall li%it its dis"ussion to thelia&ility of C=C-

=n its <e%orandu%,#32$ C=C an"hored itspetition on the following issues

1- Hhether or not the Court of (ppeals, inad@udging etitioner lia&le for liAuidatedda%ages, e:panded lia&ility under erfor%an"eBond /o- 31715 whi"h on its fa"e answers onlyfor a"tual and "o%pensatory da%ages, notliAuidated da%ages-

(ssu%ing arguendo lia&ility for liAuidatedda%ages under the perfor%an"e &ond, whether



or not the Court of (ppeals erred in not de"laringthat the award of liAuidated da%ages isiniAuitous and un"ons"iona&le and in notapplying the provisions of (rti"le 222, CivilCode, and al%ares v- Court of (ppeals, 2''8CR( 422-

2- Hhether or not the <e%orandu% of(gree%ent dated 8ept- 10, 1777 entered into &yrespondent and ran"ia Constru"tion, "onr%edin a letter dated 8ept- 20, 1777, +++ withoutetitioners knowledge or "onsent+++, the eFe"tthat all "osts, e:penses, pay%ents ando&ligations shall &e dee%ed paid, perfor%ed andfully settled as of 8ept- 10, 1777, dis"hargedetitioner fro% lia&ility under the perfor%an"e&ond under (rti"le 207, Civil Code-

3- Hhether or not the Court of (ppeals, having%ade the nding of fa"t that the su%s ofhp2,73,000-00 and hp2,'3-50 should &ededu"ted fro% hp3,''2,25-13, erred in notdedu"ting the a%ounts in the dispositive portion

of the de"ision-#33$

=n su%, the issues &efore the Court are )1*whether or not C=C is lia&le for liAuidatedda%ages under the perfor%an"e &ondG )2*whether or not the 8epte%&er 10, 1777 <6(e:e"uted &y !8C and CC e:tinguished C=Cslia&ility under the perfor%an"e &ondG and )3*whether or not the a%ounts of ?2,73,000-00 and?2,'3-50 are dedu"ti&le fro% the liAuidatedda%ages awarded &y the C(-

C=C argues that in "ase of a &rea"h of "ontra"t,

the perfor%an"e &ond is answera&le only fora"tual or "o%pensatory, not for liAuidatedda%ages- he ter%s of the &ond are "lear thatthe lia&ility of the surety is deter%ined &y the"ontra"t of suretyship and "annot &e e:tended &yi%pli"ation &eyond the ter%s of the "ontra"t-/onetheless, even assu%ing that it is lia&le underthe perfor%an"e &ond, the lia&ility should &e&ased on eAuity- =t "lai%s that it is unlawful andiniAuitous to hold CC responsi&le for the delay of the su&"ontra"tor "o%%issioned &y !8C-

C=C adds that the a"t of !8C of su&"ontra"tingthe various stages of the pro@e"t resulted in arevision of work s"hedule and e:tension of the"o%pletion date that ulti%ately released &othCC and C=C of whatever "lai%s !8C %ay haveagainst the%- C=C is of the i%pression that sin"ethe su&"ontra"ting %ade &y !8C was %adewithout its "onsent and knowledge, its lia&ilityunder the perfor%an"e &ond should &ee:tinguished-

C=C also pointed out that the re"eiva&le in thea%ount of ?2,73,000-00 a"Auired &y !8C fro%Calte: and the pro"eeds fro% the au"tion sale in

the su% of ?2,'3-50 should &e dedu"ted fro%the award of ?3,''2,25-13-

he Court nds no %erit in the petition-

he Building Contra"t entered into &y !8C andCC provides that

(rt- 2 ;88;/C; 6 I; C6/R(C

2-1 =t is understood that ti%e, Auality of work ina""ordan"e with the 6H/;Rs reAuire%ents, andredu"ed "onstru"tion "osts are the essen"e ofthis Contra"t-

2-2 he C6/R(C6R shall "o%%en"e the"onstru"tion for the rst two )2* levels not laterthan ve )5* days i%%ediately after the date ofe:e"ution of this Contra"t and shall regularlypro"eed and "o%plete the "onstru"tion within

wo Iundred ifty+/ine )257* "alendar daysre"koned fro% the date of signing of this Contra"tor not later than 6"to&er 15, 1777, whi"hever is

earlier- o ensure "o%pletion of the work withinthe ti%e given herein, "onstru"tion work shall &e"ondu"ted at least twenty hours ea"h day with atleast two )2* work shift for every day a"tuallyworked-

2-3 =n the event that the "onstru"tion is not"o%pleted within the aforesaid period of ti%e, the6H/;R is entitled and shall have the right todedu"t fro% any a%ount that %ay &e due to theC6/R(C6R the su% of one+tenth )110* of oneper"ent )1D* of the "ontra"t pri"e for every dayof delay in whatever stage of the pro@e"t asliAuidated da%ages, and not &y way of penalty,and without pre@udi"e to su"h other re%edies asthe 6H/;R %ay, in its dis"retion, e%ployin"luding the ter%ination of this Contra"t, orrepla"e%ent of the C6/R(C6R-

2-4 urther%ore, the C6/R(C6R agrees not toreAuest any e:tension of ti%e due to any delay inthe pro"ure%ent of %aterials needed in the"onstru"tion other than due to "ir"u%stan"es ofor"e <a@eure- or"e <a@eure is here&y dened asany war, "ivil "o%%otion and distur&an"e, a"ts ofod or any other "ause &eyond theC6/R(C6Rs "ontrol and without any

"ontri&uting fault on the part of theC6/R(C6R-

2-5 Contra"tor shall arrange, s"hedule and "arryon the work so as not to interfere with thedelivery and ere"tion of the work of others- ofa"ilitate the ere"tion of su"h other work, theC6/R(C6R shall "ease or resu%e work at anypoint or stage of the ro@e"t, when so dire"ted &ythe 6H/;R or his duly authoriEed representative-#;%phasis supplied$



aragraph 2-3 of the Building Contra"t "learlyprovides a stipulation for the pay%ent ofliAuidated da%ages in "ase of delay in the"onstru"tion of the pro@e"t- 8u"h is in the natureof a penalty "lause :ed &y the "ontra"tingparties as a "o%pensation or su&stitute forda%ages in "ase of &rea"h of the o&ligation-#34$

he "ontra"tor is &ound to pay the stipulateda%ount without need for proof of the e:isten"eand the %easures of da%ages "aused &y the&rea"h-#35$

(rti"le 222 of the Civil Code allows the parties toa "ontra"t to stipulate on liAuidated da%ages to&e paid in "ase of &rea"h- =t is atta"hed to ano&ligation in order to insure perfor%an"e and hasa dou&le fun"tion )1* to provide for liAuidatedda%ages, and )2* to strengthen the "oer"ivefor"e of the o&ligation &y the threat of greaterresponsi&ility in the event of &rea"h-#3$ (s ageneral rule, "ontra"ts "onstitute the law&etween the parties, and they are &ound &y itsstipulations-#3$ or as long as they are not

"ontrary to law, %orals, good "usto%s, pu&li"order, or pu&li" poli"y, the "ontra"ting parties%ay esta&lish su"h stipulations, "lauses, ter%sand "onditions as they %ay dee% "onvenient-#3'$

=n the "ase at &en"h, the perfor%an"e &ondissued &y C=C spe"i"ally provides that

K/6H (99 <;/ BL I;8; R;8;/8

hat we, /-C- R(/C=( C6/8R>C=6/C6R6R(=6/ of <erryland Corporate 6"es,

3250 ra"ia 8t-, "or- ;dsa, Brgy- inagkaisahan,<akati City, as rin"ipal and I=9==/; CI(R;R=/8>R(/C; C6R6R(=6/, a "orporation dulyorganiEed and e:isting under and &y virtue of thelaws of the hilippines, as 8urety, are held andr%ly &ound unto ;R69;>< !=8R=B>6R8 8;R.=C;8 C6R6R(=6/, as o&ligee in the su% of ;868 8=M <=99=6/ ;=I I>/!R;! H;/L;=I I6>8(/! IR;; I>/!R;! H;/L/=/; 100 6/9L )?,'2',327-* hilippineCurren"y for the pay%ent of whi"h su% well andtruly to &e %ade, we &ind ourselves, our heirs,e:e"utors, ad%inistrators, su""essors, and

assigns, @ointly and severally, r%ly &y thesepresents-

I; C6/!==6/ 6 I=8 6B9=(=6/ (R; (86996H8

HI;R;(8, the a&ove &ounden prin"ipal, on the NNNN day of NNNNNNNN 17NNN entered into an NNNNNNNNNNNNNNNN with NNNNNNNNNNN, to fully andfaithfully guarantee that the a&ove+na%edrin"ipal shall furnish, deliver, pla"e and"o%plete any and all ne"essary %aterials, la&or,plant, tools applian"es and eAuip%ent, supplies,

utilities transportation, superintenden"e,supervision and all other fa"ilities in "onne"tionwith the "onstru"tion of a 4+storey"o%%er"ialparking "o%ple: situated at <=(Road "or- !o%esti" Road, asay City as peratta"hed Building Contra"t dated January 2,1777-

rovided, however, that the lia&ility of the 8uretyCo%pany under this &ond shall in no "ase e:"eedthe fa"e value hereof-

HI;R;(8, said o&lige reAuires said prin"ipal togive a good and su"ient &ond in the a&ovestated su% to se"ure the full and faithfulperfor%an"e on its part of said undertaking-

/6H I;R;6R;, if the prin"ipal shall well andtruly perfor% and fulll all the undertakings,"ovenants, ter%s "onditions and agree%entsstipulated in said undertakings then thiso&ligation shall &e null and voidG otherwise it shalre%ain in full for"e and eFe"t- #;%phasis

8upplied$

By the language of the perfor%an"e &ond issued&y C=C, it guaranteed the full and faithful"o%plian"e &y CC of its o&ligations in the"onstru"tion of the ark / ly- =n fa"t, the pri%arypurpose for the a"Auisition of the perfor%an"e&ond was to guarantee to !8C that the pro@e"twould pro"eed in a""ordan"e with the ter%s and"onditions of the "ontra"t and to ensure thepay%ent of a su% of %oney in "ase the"ontra"tor would fail in the full perfor%an"e ofthe "ontra"t-#37$ his guaranty %ade &y C=C

gave !8C the right to pro"eed against it )C=C*following CCs non+"o%plian"e with its o&ligation

( "ontra"t of suretyship is an agree%ent where&ya party, "alled the surety, guarantees theperfor%an"e &y another party, "alled theprin"ipal or o&ligor, of an o&ligation orundertaking in favor of another party, "alled theo&ligee-#40$ (lthough the "ontra"t of a surety isse"ondary only to a valid prin"ipal o&ligation, thesurety &e"o%es lia&le for the de&t or duty ofanother although it possesses no dire"t orpersonal interest over the o&ligations nor does itre"eive any &enet therefro%-#41$ his wase:plained in the "ase of 8tronghold =nsuran"eCo%pany, =n"- v- Repu&li"+(sahi lassCorporation,#42$ where it was written

he suretys o&ligation is not an original and dire"one for the perfor%an"e of his own a"t, &ut%erely a""essory or "ollateral to the o&ligation"ontra"ted &y the prin"ipal- /evertheless,although the "ontra"t of a surety is in essen"ese"ondary only to a valid prin"ipal o&ligation, hislia&ility to the "reditor or pro%isee of theprin"ipal is said to &e dire"t, pri%ary and



a&soluteG in other words, he is dire"tly andeAually &ound with the prin"ipal-

Corollary, when !8C "o%%uni"ated to CC thatit was ter%inating the "ontra"t, C=Cs lia&ility, assurety, arose- he "lai% of !8C against C=Co""urred fro% the failure of CC to perfor% itso&ligation under the &uilding "ontra"t- (s%andated &y (rti"le 204 of the Civil Code, towit

(rti"le 204- By guaranty, a person, "alled theguarantor, &inds hi%self to the "reditor to fulllthe o&ligation of the prin"ipal de&tor in "ase thelatter should fail to do so-

=f a person &inds hi%self solidarily with theprin"ipal de&tor, the provisions of 8e"tion 4,Chapter 3, itle = of this Book shall &e o&served-=n su"h "ase, the "ontra"t is "alled a suretyship-

hus, suretyship arises upon the solidary &indingof a person dee%ed the surety with the prin"ipal

de&tor for the purpose of fullling an o&ligation-#43$ ( surety is "onsidered in law as &eing thesa%e party as the de&tor in relation to whateveris ad@udged tou"hing the o&ligation of the latter,and their lia&ilities are interwoven as to &einsepara&le-#44$ herefore, as surety, C=C&e"o%es lia&le for the de&t or duty of CCalthough it possesses no dire"t or personalinterest over the o&ligations of the latter, nordoes it re"eive any &enet therefro%-#45$

he Court also found untena&le the "ontention ofC=C that the prin"ipal "ontra"t was novated

when !8C and CC e:e"uted the 8epte%&er 10,1777 <6(, without infor%ing the surety, whi"h, ineFe"t, e:tinguished its o&ligation-

( surety agree%ent has two types of relationship)1* the prin"ipal relationship &etween the o&ligeeand the o&ligorG and )2* the a""essory suretyrelationship &etween the prin"ipal and the surety-

he o&ligee a""epts the suretys solidaryundertaking to pay if the o&ligor does not pay-8u"h a""eptan"e, however, does not "hange inany %aterial way the o&ligees relationship withthe prin"ipal o&ligor- /either does it %ake thesurety an a"tive party in the prin"ipal o&ligor+o&ligee relationship- =t follows, therefore, that thea""eptan"e does not give the surety the right tointervene in the prin"ipal "ontra"t- he suretysrole arises only upon the o&ligors default, atwhi"h ti%e, it "an &e dire"tly held lia&le &y theo&ligee for pay%ent as a solidary o&ligor-#4$

urther%ore, in order that an o&ligation %ay &ee:tinguished &y another whi"h su&stitutes thesa%e, it is i%perative that it &e so de"lared inuneAuivo"al ter%s, or that the old and newo&ligation &e in every point in"o%pati&le with

ea"h other-#4$ /ovation of a "ontra"t is neverpresu%ed- =n the a&sen"e of an e:pressagree%ent, novation takes pla"e only when theold and the new o&ligations are in"o%pati&le onevery point-#4'$

>ndou&tedly, a surety is released fro% itso&ligation when there is a %aterial alteration ofthe prin"ipal "ontra"t in "onne"tion with whi"hthe &ond is given, su"h as a "hange whi"hi%poses a new o&ligation on the pro%ising party,or whi"h takes away so%e o&ligation alreadyi%posed, or one whi"h "hanges the legal eFe"t ofthe original "ontra"t and not %erely its for%-#47$=n this "ase, however, no new "ontra"t was"on"luded and perfe"ted &etween !8C and CC-( reading of the 8epte%&er 10, 1777 <6(reveals that only the revision of the works"hedule originally agreed upon was the su&@e"tthereof- he parties saw the need to ad@ust thework s"hedule &e"ause of the varioussu&"ontra"ting %ade &y !8C- =n fa"t, it wasspe"i"ally stated in the <6( that all other ter%s

and "onditions of the Building Contra"t of 2 January 1777 not in"onsistent herewith shallre%ain in full for"e and eFe"t-#50$ here was nonew "ontra"tagree%ent whi"h "ould &e"onsidered to have su&stituted the BuildingContra"t- (s "orre"tly ruled &y the C(, thus

(t rst &lush, it would see% that the partiesagreed on a revised ti%eta&le for the"onstru"tion of ark / ly- But then, nowhere inthe volu%inous re"ords of this "ase "ould He ndthe (nne: ( %entioned in the a&ove+Auotedagree%ent whi"h "ould have shed light to the

Auestion of whether a new period was indeed:ed &y the parties- he testi%ony of appellant;%%anuel ran"ia, 8r-, resident and Chief;:e"utive 6"er of appellant /-C, ran"ia,"andidly dis"losed what truly happened to (nne:(, as he ad%itted that no new ;RC< wasa"tually atta"hed to the <e%orandu% of(gree%ent-

(""ordingly, He nd no "o%pelling reason tode"lare that novation ensued under the prevailing"ir"u%stan"es- he e:e"ution of the BuildingContra"t dated 2 January 1777 does not

"onstitute a novation of the <e%orandu% of(gree%ent dated 10 8epte%&er 1777- here liesno in"o%pati&ility &etween the two "ontra"ts astheir prin"ipal o&@e"t and "onditions re%ained thesa%e- Hhile there is really no hard and fast ruleto deter%ine what %ight "onstitute to &e asu"ient "hange that "an &ring a&out novation,the tou"htone for "ontrariety, however, would &ean irre"on"ila&le in"o%pati&ility &etween the oldand the new o&ligations-#51$

=t %ust likewise &e e%phasiEed that pursuant tothe 8epte%&er 10, 1777 <6(, C=C e:tended the



"overage of the perfor%an"e &ond until <ar"h 2,2000-#52$

inally, as pointed out &y C=C, the re"eiva&le inthe a%ount of ?2,73,000-00 a"Auired &y !8Cfro% Calte: and the pro"eeds fro% the au"tionsale in the su% of ?2,'3-50 should &ededu"ted fro% the award of ?3,''2,25-13- hereis no Aui&&le on this point- he ruling of the C( onthe %atter is very "lear- =t reads

Hith these points r%ly in %ind, He pro"eed tothe ne:t Auestion raised &y appellants whetherthe value of the se"urities given as well as thepro"eeds of the sale of "hattels should &ededu"ted fro% the "lai% of liAuidated da%ages-

He answer in the ar%ative-

here is no Aui&&le that appellant /-C ran"iaassigned a portion of its re"eiva&les fro% Calte:hilippines, =n"- in the a%ount of ?2,73,000-00pursuant to the !eed of (ssign%ent dated 10

8epte%&er 1777- >pon transfer of saidre"eiva&les, appellee etroleu% !istri&utorsauto%ati"ally stepped into the shoes of itstransferor- =t is in keeping with the de%ands of

@usti"e and eAuity that the a%ount of thesere"eiva&les &e dedu"ted fro% the "lai% forliAuidated da%ages-

8o too, vehi"les and eAuip%ent owned &yappellant /-C- ran"ia were sold at pu&li" au"tionat ?1,00,000-00- (fter dedu"ting storage fees,the a%ount of ?2,'3-50 was deposited &eforethe "ourt a Auo- he latter a%ount a""rues in

favor of appellee etroleu% !istri&utors as partialpay%ent of its "lai% for liAuidated da%ages-

HI;R;6R;, the petition is !;/=;!- he July 31,200 !e"ision and !e"e%&er 2', 200 Resolutionof the Court of (ppeals )C(* in C(+-R- C. /o-'241 are (=R<;!- he re"eiva&le in thea%ount of ?2,73,000-00 a"Auired &y !8C fro%Calte: and the pro"eeds fro% the au"tion sale inthe su% of ?2,'3-50 should &e dedu"ted fro%the award of ?3,''2,25-13

GATEWAY ELECTRONICS CORPORATION VSASIANBAN CORPORATION

his petition for review under Rule 45 seeks tonullify and set aside the !e"ision1 dated 6"to&er2', 2005 of the Court of (ppeals )C(* in C(+-R-C. /o- '034 and its Resolution2 of <ar"h 1,200 denying petitionersO %otion forre"onsideration-

he a"ts

etitioner ateway ;le"troni"s Corporation)ateway* is a do%esti" "orporation that used to&e engaged in the se%i+"ondu"tor &usiness-

!uring the period %aterial, petitioner eroni%oB- delos Reyes, Jr- was its president and one(ndrew delos Reyes its e:e"utive vi"e+president-

6n July 23, 177, eroni%o and (ndrew e:e"utedseparate &ut al%ost identi"al deeds of suretyshipfor ateway in favor of respondent (sian&ankCorporation )(sian&ank*, pertinently providing

=He eroni%o B- de los Reyes, Jr- : : : warrant to

the (8=(/B(/K C6R6R(=6/, : : : due andpun"tual pay%ent &y the followingindividuals"o%paniesr%s, hereinafter "alledthe !;B6R)8*, of su"h a%ounts whether due ornot, as indi"ated opposite their respe"tive na%esto wit

owing to the said (8=(/B(/K C6R6R(=6/,hereafter "alled the CR;!=6R, as eviden"ed &yall notes, drafts, overdrafts and other #"redit$o&ligations of every kind and nature"ontra"tedin"urred &y said !;B6R)8* in favor ofsaid CR;!=6R-

=n "ase of default &y any andor all of the!;B6R)8* to pay the whole part of said inde&tn&sp n&sp n&sp n&sp ereinse"ured at %aturity, =H; BR and severally agreeand engage to the CR;!=6R, its su""essors andassigns, the pro%pt pay%ent, : : : of su"h notesdrafts, overdrafts and other "redit o&ligations onwhi"h the !;B6R)8* %ay now &e inde&ted or%ay hereafter &e"o%e inde&ted to theCR;!=6R, together with all interests, penaltyand other &ank "harges as %ay a""rue thereon :: :-

=H; further warrant the due and faithfulperfor%an"e &y the !;B6R)8* of all o&ligationsto &e perfor%ed under any "ontra"ts eviden"inginde&tednesso&ligations and any supple%ents,a%end%ents, "hanges or %odi"ations %adethereto, in"luding &ut not li%ited to, the due andpun"tual pay%ent &y the said!;B6R)8*-<L6>R lia&ility on this !eed of8uretyship shall &e solidary, dire"t and i%%ediateand not "ontingent upon the pursuit &y theCR;!=6R : : : of whatever re%edies it or they%ay have against the !;B6R)8* or these"urities or liens it or they %ay possessG and=H; here&y agree to &e and re%ain &ound uponthis suretyship, : : : and notwithstanding alsothat all o&ligations of the !;B6R)8* to yououtstanding and unpaid at any ti%e %ay e:"eedthe aggregate prin"ipal su% hereina&ove stated-3

9ater develop%ents saw (sian&ank e:tending toateway several e:port pa"king loans in the totalaggregate a%ount of >8! 1,00,''3-4'- his loanpa"kage was later "onsolidated with !ollarro%issory /ote )/* /o- C!+0577+2474 for thea%ount of >8! 1,00,''3-4' and se"ured &y a



"hattel %ortgage over atewayOs eAuip%ent for>8! 2 %illion-

ateway initially %ade pay%ents on its loano&ligations, &ut eventually defaulted- >ponatewayOs reAuest, (sian&ank e:tended the%aturity dates of the loan several ti%es- hesee:tensions &ore the "onfor%ity of three ofatewayOs o"ers, a%ong the% (ndrew-

6n July 15 and 30, 1777, ateway issued twohilippine Co%%er"ial =nternational Bank "he"ksfor the a%ounts of >8! 40,000 and >8! 20,000,respe"tively, as pay%ent for its arrearages andinterests for the periods June 30 and July 30,1777G &ut &oth "he"ks were dishonored forinsu"ien"y of funds- (sian&ankOs de%ands forpay%ent %ade upon ateway and its suretieswent unheeded- (s of /ove%&er 23, 1777,atewayOs o&ligation to (sian&ank, in"lusive ofprin"ipal, interest, and penalties, totaled >8!2,235,452-1-

hus, on !e"e%&er 15, 1777, (sian&ank ledwith the Regional rial Court )RC* in <akati City a"o%plaint for a su% of %oney against ateway,eroni%o, and (ndrew- he "o%plaint, as latera%ended, was eventually raPed to Bran"h 0 ofthe "ourt and do"keted as Civil Case /o- 77+2102entitled (sian Bank Corporation v- ateway;le"troni"s Corporation, eroni%o B- !e 9osReyes, Jr- and (ndrew 8- !e 9os Reyes-

=n its answer to the a%ended "o%plaint, atewaytra"ed the "ause of its nan"ial di"ulties,des"ri&ed the steps it had taken to address its

%ounting pro&le%, and faulted (sian&ank fortrying to under%ine its eForts toward re"overy-

(ndrew also led an answer alleging, a%ongother things, that the deed of suretyship hee:e"uted "overing the h 10 %illion+!o%esti"Bills ur"hased 9ine and the >8! 3 %illion+6%ni&us Credit 9ine did not in"lude / /o- C!+0577+247, the pay%ent of whi"h was e:tendedseveral ti%es without his "onsent-

eroni%o, on the other hand, alleged that thesu&@e"t deed of suretyship, assu%ing theauthenti"ity of his signature on it, was signedwithout his wifeOs "onsent and should, thus, &e"onsidered as a %ere "ontinuing oFer- 9ike(ndrew, eroni%o argued that he ought to &erelieved of his lia&ility under the suretyagree%ent inas%u"h as he too never "onsentedto the repeated loan %aturity date e:tensionsgiven &y (sian&ank to ateway-

(fter due hearing, the RC rendered @udg%entdated 6"to&er , 20035 in favor of ateway, thedispositive portion of whi"h states

HI;R;6R; then, in view of the foregoing, @udg%ent is rendered holding defendantsateway ;le"troni"s Corporation, eroni%o !e9os Reyes and (ndrew !e 9os Reyes @ointly andseverally lia&le to pay the plaintiF the following

a* he su% of Q2,235,452-1 >nited 8tatesCurren"y with interest to &e added on at theprevailing %arket rate over a given thirty day9ondon =nter&ank 6Fered Rate )9=B6R* plus aspread of 5-535' per"ent or ten and#45,455100,000$ per"ent per annu% for the rst35 days and every thirty days &eginning/ove%&er 23, 1777 until fully paidG

&* a penalty "harge after /ove%&er 23, 1777 oftwo per"ent )2D* per %onth until fully paidG

"* attorneyOs fees of twenty per"ent )20D* of thetotal a%ount due and unpaidG and

d* "osts of the suit- 86 6R!;R;!-

hereafter, ateway, eroni%o, and (ndrewappealed to the C(, their re"ourse do"keted asC(+-R- C. /o- '034- ollowing the ling of itsand eroni%oOs @oint appellantsO &rief, atewayled on /ove%&er 10, 2004 a petition forvoluntary insolven"y with the RC in =%us,Cavite, Bran"h 22, do"keted as 8;C Case /o-03+04, in whi"h (sian&ank was listed in theatta"hed 8"hedule of 6&ligations as one of the"reditors- 6n <ar"h 1, 2005, <etro&ank, assu""essor+in+interest of (sian&ank, via a /oti"e ofCreditorOs Clai%, prayed that it &e allowed toparti"ipate in the atewaysOs "reditorsO %eeting-

=n its !e"ision dated 6"to&er 2', 2005, the C(ar%ed the de"ision of the <akati City RC- =nti%e, ateway and eroni%o interposed a %otionfor re"onsideration- his was followed &y a8upple%ental <otion for Re"onsideration dated

January 20, 200, stating that in 8;C Case /o-03+04, the RC in =%us, Cavite had issued an6rder dated !e"e%&er 2, 2004, de"laringateway insolvent and dire"ting all its "reditorsto appear &efore the "ourt on a "ertain date forthe purpose of "hoosing a%ong the%selves theassignee of atewayOs estate whi"h the "ourtOssheriF has %eanwhile pla"ed in "ustodia legis-ateway and eroni%o thus prayed that theassailed de"ision of the <akati City RC &e setaside, the insolven"y "ourt having a"Auirede:"lusive @urisdi"tion over the properties ofateway &y virtue of 8e"tion 0 of ("t /o- 175,without pre@udi"e to (sian&ank pursuing its "lai%in the insolven"y pro"eedings-

=n its <ar"h 1, 200 Resolution, however, the C(denied the %otion for re"onsideration and itssupple%ent-



Ien"e, ateway and eroni%o led this petitionan"hored on the following grounds

=-he #C($ erred in disregarding the esta&lishedrule that an a"tion "o%%en"ed &y a "reditoragainst a @udi"ially de"lared insolvent for there"overy of his "lai% should &e dis%issed andreferred to the insolven"y "ourt- Hhere,therefore, as in this "ase, petitioner ;C#referring to ateway$ has &een de"laredinsolvent : : :, respondent (sian&ankOs "lai% forthe pay%ent of ;COs loans should &e ventilated&efore the insolven"y "ourt : : :-

==-he #C($ erred in ad%itting as eviden"e the!eed of 8urety purportedly signed &y petitionerBR #referring to eroni%o$ despite theune:plained failure of respondent (sian&ank topresent the originals of the !eed of 8urety duringthe trial-

===-he #C($ erred in holding that the repeatede:tensions granted &y respondent (sian&ank to

;C without noti"e to and the e:press "onsent ofpetitioner BR did not dis"harge petitioner BRfro% his lia&ilities as surety ;C in that

(- (n e:tension granted to the de&tor &y the"reditor without the "onsent of the guarantore:tinguishes the guaranty-

B- he #C($ interpreted the supposed !eed of8urety of petitioner BR as too "o%prehensiveand all en"o%passing as to a%ount to a&surdity-

C- he repeated e:tensions granted &y (sian&ankto ;C prevented petitioner BR fro% e:er"isinghis right of su&rogation under (rti"le 20'0 of theCivil Code- (s su"h, petitioner BR should &ereleased fro% his o&ligations as surety of ;C-

=.-=t is a well+settled rule that when a &ankdeviates fro% nor%al &anking pra"ti"e in atransa"tion and sustains in@ury as a result thereof,the &ank is dee%ed to have assu%ed the risk andno right of pay%ent a""rues to the latter againstany party to the transa"tion- By repeatedlye:tending the period for the pay%ent of ;COso&ligations and granting ;C other loans afterthe suretyship agree%ent despite ;COs default

and in failing to fore"lose the "hattel %ortgage"onstituted as se"urity for ;COs loan "ontrary tonor%al &anking pra"ti"es, (sian&ank failed toe:er"ise reasona&le "aution for its own prote"tionand assu%ed the risk of non+pay%ent through itsown a"ts, and thus has no right to pro"eedagainst petitioner BR as surety for the pay%entof ;COs loans-

.-=n (g"aoili v- 8=8, this Ionora&le Court hado""asion to state that in deter%ining the pre"iserelief to give, the "ourt will &alan"e the eAuities

or the respe"tive interests of the parties and takeinto a""ount the relative hardship that one reliefor another %ay o""asion to the%- >pon a&alan"ing of interests of &oth petitioner BR andrespondent (sian&ank, greater and irrepara&lehar% and in@ury would &e suFered &y petitionerBR than respondent (sian&ank if the assailed!e"ision and Resolution of the #C($ would &eupheld : : :- his Ionora&le Court : : : shouldthus e:er"ise its eAuity @urisdi"tion in the instant"ase to the end that it %ay render "o%plete

@usti"e to &oth parties and de"lare petitioner BRas released and dis"harged fro% any lia&ility inrespe"t of respondent (sian&ankOs "lai%s-'

he Ruling of the Court

ateway <ay Be !is"harged fro% 9ia&ility But/ot eroni%o

ateway, having &een de"lared insolvent, arguesthat @urisdi"tion over all "lai%s against all of itsproperties and assets properly pertains to the

insolven"y "ourt- (""ordingly, ateway adds,"iting 8e"- 0 of ("t /o- 175,7 as a%ended, orthe =nsolven"y 9aw, any pending a"tion againstits properties and assets %ust &e dis%issed, the"lai%ant relegated to the insolven"y pro"eedingsfor the "lai%antOs relief-

he "ontention, as for%ulated, is in a Aualiedsense %eritorious- >nder 8e"- 1' of ("t /o- 175,as "ou"hed, the issuan"e of an order de"laringthe petitioner insolvent after the insolven"y "ourtnds the "orresponding petition for insolven"y to&e %eritorious shall stay all pending "ivil a"tions

against the petitionerOs property- or referen"e,said 8e"- 1', setting forth the eFe"ts and"ontents of a voluntary insolven"y order,10pertinently provides

8e"tion 1'- >pon re"eiving and ling saidpetition, s"hedule, and inventory, the "ourt : : :shall %ake an order de"laring the petitionerinsolvent, and dire"ting the sheriF of the provin"eor "ity in whi"h the petition is led to takepossession of, and safely keep, until theappoint%ent of a re"eiver or assignee, all thedeeds, vou"hers, &ooks of a""ount, papers, notes&onds, &ills, and se"urities of the de&tor and allhis real and personal property, estate and eFe"ts: : :- 8aid order shall further for&id the pay%entto the "reditor of any de&ts due to hi% and thedelivery to the de&tor, or to any person for hi%,of any property &elonging to hi%, and thetransfer of any property &y hi%, and shall furtherappoint a ti%e and pla"e for a %eeting of the"reditors to "hoose an assignee of the estate-8aid order shall #&e pu&lished$ : : :- >pon thegranting of said order, all "ivil pro"eedingspending against the said insolvent shall &estayed- Hhen a re"eiver is appointed, or an



assignee "hosen, as provided in this ("t, thesheriF shall thereupon deliver to su"h re"eiver orassignee, as the "ase %ay &e all the property,assets, and &elongings of the insolvent whi"hhave "o%e into his possession : : :- );%phasissupplied-*

Co%ple%enting 8e"- 1' whi"h appropriately"o%es into play upon the granting of #the$order of insolven"y is the su""eeding 8e"- 0whi"h properly applies to the period after the"o%%en"e%ent of pro"eedings in insolven"y-

he two provisions %ay &e har%oniEed asfollows >pon the ling of the petition forinsolven"y, pending "ivil a"tions against theproperty of the petitioner are not ipso fa"tostayed, &ut the insolvent %ay apply with the"ourt in whi"h the a"tions are pending for a stayof the a"tions against the insolventOs property- =fthe "ourt grants su"h appli"ation, pending "ivila"tions against the petitionerOs property shall &estayedG otherwise, they shall "ontinue- 6n"e anorder of insolven"y nevertheless issues, all "ivil

pro"eedings against the petitionerOs property are,&y statutory "o%%and, auto%ati"ally stayed-8e"- 0 is reprodu"ed &elow

8;C=6/ 0- Creditors proving "lai%s "annot sueG8tay of a"tion-S/o "reditor, proving his de&t or"lai%, shall &e allowed to %aintain any suittherefor against the de&tor, &ut shall &e dee%edto have waived all right of a"tion and suit againsthi%, and all pro"eedings already "o%%en"ed, orany unsatised @udg%ent already o&tainedthereon, shall &e dee%ed to &e dis"harged andsurrendered there&yG and after the de&torOs

dis"harge, upon proper appli"ation and proof tothe "ourt having @urisdi"tion, all su"h pro"eedingsshall &e, dis%issed, and su"h unsatised

@udg%ents satised of re"ord rovided, : : :- ("reditor proving his de&t or "lai% shall not &eheld to have waived his right of a"tion or suitagainst the de&tor when a dis"harge has have&een refused or the pro"eedings have &eendeter%ined to the without a dis"harge- /o"reditor whose de&t is prova&le under this ("tshall &e allowed, after the "o%%en"e%ent ofpro"eedings in insolven"y, to prose"ute to nal

@udg%ent any a"tion therefor against the de&tor

until the Auestion of the de&torOs dis"harge shallhave &een deter%ined, and any su"h suitpro"eeding shall, upon the appli"ation of thede&tor or of any "reditor, or the assignee, &estayed to await the deter%ination of the "ourt onthe Auestion of dis"harge rovided, hat if thea%ount due the "reditor is in dispute, the suit, &yleave of the "ourt in insolven"y, %ay pro"eed to

@udg%ent for purpose of as"ertaining the a%ountdue, whi"h a%ount, when ad@udged, %ay &eallowed in the insolven"y pro"eedings, &ute:e"ution shall &e stayed aforesaid- );%phasissupplied-*

(pplying the aforeAuoted provisions, it "anrightfully &e said that the issuan"e of theinsolven"y order of !e"e%&er 2, 2004 had theeFe"t of auto%ati"ally staying the "ivil a"tion fora su% of %oney led &y (sian&ank againstateway- =n net eFe"t, the pro"eedings &efore theC( in C(+-R- C. /o- '034, &ut only insofar asthe "lai% against ateway was "on"erned, was,or ought to have &een, suspended after!e"e%&er 2, 2004, (sian&ank having &een dulynotied of and in fa"t was a parti"ipant in theinsolven"y pro"eedings- he Court of "oursetakes sto"k of the proviso in 8e"- 0 of ("t /o-175 whi"h in a way provided the C( with a

@ustifying tool to "ontinue and to pro"eed to @udg%ent in C(+-R- C. /o- '034, &ut only forthe purpose of as"ertaining the a%ount due fro%ateway- (t any event, on the postulate that

@urisdi"tion over the properties of the insolvent+de"lared ateway lies with the insolven"y "ourt,e:e"ution of the C( insolven"y @udg%ent againstateway "an only &e pursued &efore theinsolven"y "ourt- (sian&ank, no less, tends toagree to this "on"lusion when it stated #;$ven itif is assu%ed that the de"laration of insolven"y ofpetitioner ateway "an &e taken "ogniEan"e of,su"h fa"t does relieve petitioner eroni%o andor(ndrew delos Reyes fro% perfor%ing theiro&ligations &ased on the !eeds of 8uretyship : ::-11

eroni%o, however, is a diFerent story-

(sian&ank argues that the stay of the "olle"tionsuit against ateway is without &earing on thelia&ility of eroni%o as a surety, adding that

"lai%s against a surety %ay pro"eedindependently fro% that against the prin"ipalde&tor- ursuing the point, (sian&ank avers thateroni%o %ay not invoke the insolven"y ofateway as a defense to evade lia&ility-

eroni%o "ounters with the argu%ent that hislia&ility as a surety "annot &e separated fro%atewayOs lia&ility- (s surety, he "ontinues, he isentitled to avail hi%self of all the defensespertaining to ateway, in"luding its insolven"y,suggesting that if ateway is eventually releasedfro% what it owes (sian&ank, he, too, should also

&e so relieved-

eroni%oOs a&ove "ontention is untena&le-

8uretyship is "overed &y (rti"le 204 of the CivilCode, whi"h states

By guaranty a person, "alled the guarantor, &indshi%self to the "reditor to fulll the o&ligation ofthe prin"ipal de&tor in "ase the latter should failto do so-



=f a person &inds hi%self solidarily with theprin"ipal de&tor, the provisions of 8e"tion 4,Chapter 3, itle = of this Book shall &e o&served-=n su"h "ase the "ontra"t is "alled a suretyship-

he CourtOs disAuisition in al%ares v- Court of(ppeals on suretyship is instru"tive, thus

( surety is an insurer of the de&t, whereas aguarantor is an insurer of the solven"y of the

de&tor- ( suretyship is an undertaking that thede&t shall &e paid : : :- 8tated diFerently, asurety pro%ises to pay the prin"ipalOs de&t if theprin"ipal will not pay, while a guarantor agreesthat the "reditor, after pro"eeding against theprin"ipal, %ay pro"eed against the guarantor ifthe prin"ipal is una&le to pay- ( surety &indshi%self to perfor% if the prin"ipal does not,without regard to his a&ility to do so- : : : =nother words, a surety undertakes dire"tly for thepay%ent and is so responsi&le at on"e if theprin"ipal de&tor %akes default : : :-

: : : :

( "reditorOs right to pro"eed against the suretye:ists independently of his right to pro"eedagainst the prin"ipal- >nder (rti"le 121 of theCivil Code, the "reditor %ay pro"eed against anyone of the solidary de&tors or so%e or all of the%si%ultaneously- he rule, therefore, is that if theo&ligation is @oint and several, the "reditor hasthe right to pro"eed even against the suretyalone- 8in"e, generally, it is not ne"essary for the"reditor to pro"eed against a prin"ipal in order tohold the surety lia&le, where, &y the ter%s of the

"ontra"t, the o&ligation of the surety is the sa%eas that of the prin"ipal, then soon as the prin"ipalis in default, the surety is likewise in default, and%ay &e sued i%%ediately and &efore anypro"eedings are had against the prin"ipal-erfor"e, : : : a surety is pri%arily lia&le, andwith the rule that his proper re%edy is to pay thede&t and pursue the prin"ipal for rei%&urse%ent,the surety "annot at law, unless per%itted &ystatute and in the a&sen"e of any agree%entli%iting the appli"ation of the se"urity, reAuirethe "reditor or o&ligee, &efore pro"eeding againstthe surety, to resort to and e:haust his re%edies

against the prin"ipal, parti"ularly where &othprin"ipal and surety are eAually &ound-12

Clearly, (sian&ankOs right to "olle"t pay%ent forthe full a%ount fro% eroni%o, as surety, e:istsindependently of its right against ateway asprin"ipal de&torG13 it "ould thus pro"eed againstone of the% or le separate a"tions against the%to re"over the prin"ipal de&t "overed &y the deedon suretyship, su&@e"t to the rule prohi&itingdou&le re"overy fro% the sa%e "ause-14 hislegal postulate &e"o%es all the %ore "ogent in"ase of an insolven"y situation where, as here,

the insolven"y "ourt is &ereft of @urisdi"tion overthe sureties of the prin"ipal de&tor- (s (sian&ankaptly points out, a suit against the surety, insofaras the suretyOs solidary lia&ility is "on"erned, isnot aFe"ted &y an insolven"y pro"eedinginstituted &y or against the prin"ipal de&tor- hesa%e prin"iple holds true with respe"t to thesurety of a "orporation in distress whi"h is su&@e"tof a reha&ilitation pro"eeding &efore the8e"urities and ;:"hange Co%%ission )8;C*- (swe held in Co%%er"ial Banking Corporation v-C(, a surety of the distressed "orporation "an &esued separately to enfor"e his lia&ility as su"h,notwithstanding an 8;C order de"laring thefor%er under a state of suspension ofpay%ent-15

eroni%o also states that, as things stand, hislia&ility, as "o%pared to that of ateway, is"onte:tually %ore onerous and &urdenso%e,pre"luded as he is fro% seeking re"ourse againstthe insolvent "orporation- ro% this pre%ise,eroni%o "lai%s that sin"e ateway "annot,

owing to the order of insolven"y, &e %ade to payits o&ligation, he, too, &eing @ust a surety, "annotalso &e %ade to pay, o&viously having in %ind(rt- 2054 of the Civil Code, as follows

( guarantor %ay &ind hi%self for less, &ut not for%ore than the prin"ipal de&tor, &oth as regardsthe a%ount and the onerous nature of the"onditions-

8hould he have &ound hi%self for %ore, hiso&ligations shall &e redu"ed to the li%its of thatof the de&tor-

he Court is not "onvin"ed- he a&ove arti"leenun"iates the rule that the o&ligation of aguarantor %ay &e less, &ut "annot &e %ore thanthe o&ligation of the prin"ipal de&tor- he rule,however, "annot plausi&ly &e stret"hed to %eanthat a guarantor or surety is freed fro% lia&ility assu"h guarantor or surety in the event theprin"ipal de&tor &e"o%es insolvent or is una&le topay the o&ligation- his interpretation woulddefeat the very essen"e of a suretyship "ontra"twhi"h, &y denition, refers to an agree%entwhereunder one person, the surety, engages to

&e answera&le for the de&t, default, or%is"arriage of another known as the prin"ipal-1eroni%oOs position that a surety "annot &e%ade to pay when the prin"ipal is una&le to payis "learly spe"ious and %ust &e re@e"ted-

he C( !id /ot ;rr in (d%itting

the !eed of 8uretyship as ;viden"e

oing to the ne:t ground, eroni%o %aintainsthat the C( erred in ad%itting the !eed of



8uretyship purportedly signed &y hi%, given that(sian&ank failed to present its original "opy-

his "ontention is &ereft of %erit-

(s %ay &e noted, paragraph of (sian&ankOs"o%plaint alleged the following

- he loan was se"ured &y the !eeds of8uretyship dated July 23, 177 that were

e:e"uted &y defendants eroni%o B- !e 9osReyes, Jr- and (ndrew 8- !e 9os Reyes- (tta"hedas (nne:es B and C, respe"tively, arephoto"opies of the !eeds of 8uretyship e:e"uted&y defendants eroni%o B- !e 9os Reyes, Jr- and(ndrew 8- !e 9os Reyes- 8u&seAuently, a "hattel%ortgage over defendant atewayOs eAuip%entfor Q2 %illion, >nited 8tates "urren"y, wase:e"uted-1

eroni%o traversed in his answer the foregoingallegation in the following wise 2-5- aragraph is denied, su&@e"t to the spe"ial and ar%ative

defenses and allegations hereinafter set forth-

he ensuing spe"ial and ar%ative defenseswere raised in atewayOs answer

15- ranting even that #eroni%o$ signed the!eed of 8uretyship, his wife : : : had not givenher "onsent thereto- (""ordingly, the se"urity"reated &y the suretyship shall &e "onstrued onlyas a "ontinuing oFer on the part of #eroni%o$and plaintiF and %ay only &e perfe"ted as a&inding "ontra"t upon a""eptan"e &y <rs- !elosReyes- : : :

1- <oreover, assu%ing, gratia argu%enti, that#eroni%o$ %ay &e &ound &y the suretyshipagree%ent, there is no showing that he has"onsented to the repeated e:tensions %ade &yplaintiF in favor of ;C or to a waiver of noti"e ofsu"h e:tensions- =t should &e pointed out that <r-eroni%o delos Reyes e:e"uted the suretyshipagree%ent in his personal "apa"ity and not in his"apa"ity as Chair%an of the Board of ;C- Iis"onsent, insofar as the "ontinuing appli"ation ofthe suretyship agree%ent to ;COs o&ligations inview of the repeated e:tension e:tended &yplaintiF #is "on"erned$, is therefore ne"essary-

6&viously, plaintiF "annot now hold hi% lia&le asa surety to ;COs o&ligations-1'

he Rules of Court pres"ri&es, under its 8e"s- and ', Rule ', the pro"edure should a suit ordefense is predi"ated on a written do"u%ent,thus

8e"- - ("tion or defense &ased on do"u%ent-SHhenever an a"tion or defense is &ased upon awritten instru%ent or do"u%ent, the su&stan"e of su"h instru%ent or do"u%ent shall &e set forth inthe pleading, and the original or a "opy thereof

shall &e atta"hed to the pleading as an e:hi&it,whi"h shall &e dee%ed to &e a part of thepleading, or said "opy %ay with like eFe"t &e setforth in the pleading-

8e"- '- Iow to "ontest su"h do"u%ents-SHhen ana"tion or defense is founded upon a writteninstru%ent, "opied in or atta"hed to the"orresponding pleading as provided in thepre"eding se"tion, the genuineness and duee:e"ution of the instru%ent shall &e dee%edad%itted unless the adverse party, under oath,spe"i"ally denies the%, and sets forth what he"lai%s to &e the fa"tsG &ut the reAuire%ent of anoath does not apply when the adverse party doesnot appear to &e a party to the instru%ent orwhen "o%plian"e with an order for an inspe"tionof the original instru%ent is refused- );%phasissupplied-*

iven the a&ove perspe"tive, (sian&ank, &yatta"hing a photo"opy of the !eed of 8uretyshipto its underlying "o%plaint, hewed to the

reAuire%ents of the a&ove twin provisions-(sian&ank, thus, eFe"tively alleged the duee:e"ution and genuineness of the said deed-ro% that point, eroni%o, if he intended to"ontest the surety deed, should have spe"i"allydenied the due e:e"ution and genuineness of thedeed in the %anner provided &y 8e"- 10, Rule 'of the Rules of Court, thus

8e"- 10- 8pe"i" denial-S( defendant %ustspe"ify ea"h %aterial allegation of fa"t the truthof whi"h he does not ad%it and, wheneverpra"ti"a&le, shall set forth the su&stan"e of the

%atters upon whi"h he relies to support hisdenial- Hhere a defendant desires to deny only apart of an aver%ent, he shall spe"ify so %u"h ofit as is true and %aterial and shall deny only there%ainder- Hhere a defendant is withoutknowledge or infor%ation su"ient to for% a&elief as to the truth of a %aterial aver%ent%ade in the "o%plaint, he shall so state, and thisshall have the eFe"t of a denial- );%phasissupplied-*

=n the instant "ase, eroni%o should have"ategori"ally stated that he did not e:e"ute the

!eed of 8uretyship and that the signatureappearing on it was not his or was falsied- Iis(nswer does not, however, "ontain any su"hstate%ent- /e"essarily then, eroni%o had notspe"i"ally denied, and, thus, is dee%ed to havead%itted, the genuineness and due e:e"ution ofthe deed in Auestion- =n this regard, 8e"- 11, Rule' of the Rules of Court states

8e"- 11- (llegations not spe"i"ally denieddee%ed ad%itted-S<aterial aver%ent in the"o%plaint, other than those as to the a%ount of



unliAuidated da%ages, shall &e dee%ed ad%ittedwhen not spe"i"ally denied- : : :

6wing to eroni%oOs virtual ad%ission of thegenuineness and due e:e"ution of the deed ofsuretyship, (sian&ank, "ontrary to the view ofateway and eroni%o, need not present theoriginal of the deed during the hearings of the"ase- 8e"- 4, Rule 127 of the Rules says so

8e"- 4- Judi"ial ad%issions-S(n ad%ission, ver&alor written, %ade &y the party in the "ourse of thepro"eedings in the sa%e "ase, does not reAuireproof- he ad%ission %ay &e "ontradi"ted only &yshowing that it was %ade through palpa&le%istake or that no su"h ad%ission was %ade-);%phasis supplied-*

eroni%o =s 9ia&le for / /o- C!+0577+247under Iis !eed of 8uretyship

his &rings us to the third ground whi"h involvesthe issue of the "overage of the suretyship-

reli%inarily, an overview on the pro"ess oftaking out loans should rst &e %ade- enerally,espe"ially for large loans, &anks rst approve aline or fa"ility out of whi"h a "lient %ay avail itself of loans in the for% of pro%issory notes withoutneed of further pro"essing andor approval everyti%e a draw down is %ade- =n the instant "ase,(sian&ank approved in favor of ateway the h10 %illion+!o%esti" Bills ur"hased 9ine and the>8! 3 %illion+6%ni&us Credit 9ine- (sian&ankapproved these "redit lines whi"h were "overed&y a "hattel %ortgage as well as the deeds ofsuretyship, su"h that loans e:tended fro% these

lines would already &e se"ured and pre+approved-=n other words, these fa"ilities are not nan"ialo&ligations yet- (sian&ank did not yet lend outany %oney to ateway with the approval of theselines- he loan transa"tion o""urred or theprin"ipal o&ligation, as se"ured &y a suretyagree%ent, was &orn after the e:e"ution of loando"u%ents, su"h as / /o- C!+0577+247-

eroni%o now e:"epts fro% the ruling that thedeed of suretyship he e:e"uted "overed / /o-C!+0577+247 whi"h e%&odied several e:portpa"king loans issued &y (sian&ank to ateway-Ie "lai%s that the deed only se"ured the h 10%illion+!o%esti" Bills ur"hased 9ine and the>8! 3 %illion+6%ni&us Credit 9ine- eroni%odes"ri&es as a&surd the notion that a deed ofsuretyship would se"ure a loan o&ligation"ontra"ted three )3* years after the e:e"ution ofthe surety deed-

eroni%oOs thesis that the deed in Auestion"annot &e a""orded prospe"tive appli"ation iserroneous- o &e sure, the provisions of thesu&@e"t deed of suretyship indi"ate a "ontinuingsuretyship- =n ortune <otors )hils-* v- Court of

(ppeals,17 the Court, "iting "ases, dened andupheld the validity of a "ontinuing suretyship inthis wise

: : : 6f "ourse, a surety is not &ound under anyparti"ular prin"ipal o&ligation until that prin"ipalo&ligation is &orn- But there is no theoreti"al ordo"trinal di"ulty inherent in saying that thesuretyship agree%ent itself is valid and &indingeven &efore the prin"ipal o&ligation intended to&e se"ured there&y is &orn, any %ore than therewould &e in saying that o&ligations whi"h aresu&@e"t to a "ondition pre"edent are valid and&inding &efore the o""urren"e of the "onditionpre"edent-

Co%prehensive or "ontinuing surety agree%entsare in fa"t Auite "o%%onpla"e in present daynan"ial and "o%%er"ial pra"ti"e- ( &ank ornan"ing "o%pany whi"h anti"ipates enteringinto a series of "redit transa"tions with aparti"ular "o%pany, "o%%only reAuires thepro@e"ted prin"ipal de&tor to e:e"ute a "ontinuing

surety agree%ent along with its sureties- Bye:e"uting su"h an agree%ent, the prin"ipalpla"es itself in a position to enter into thepro@e"ted series of transa"tions with its "reditorGwith su"h suretyship agree%ent, there would &eno need to e:e"ute a separate surety "ontra"t or&ond for ea"h nan"ing or "redit a""o%%odatione:tended to the prin"ipal de&tor-20

=n !iTo vs- Court of (ppeals,21 we again hado""asion to dis"ourse on "ontinuingguarantysuretyship thus

: : : ( "ontinuing guaranty is one whi"h is notli%ited to a single transa"tion, &ut whi"h"onte%plates a future "ourse of dealing, "overinga series of transa"tions, generally for anindenite ti%e or until revoked- =t is prospe"tivein its operation and is generally intended toprovide se"urity with respe"t to futuretransa"tions within "ertain li%its, and"onte%plates a su""ession of lia&ilities, for whi"h,as they a""rue, the guarantor &e"o%es lia&le-6therwise stated, a "ontinuing guaranty is onewhi"h "overs all transa"tions, in"luding thosearising in the future, whi"h are within the

des"ription or "onte%plation of the "ontra"t, ofguaranty, until the e:piration or ter%inationthereof- ( guaranty shall &e "onstrued as"ontinuing when &y the ter%s thereof it is evidentthat the o&@e"t is to give a standing "redit to theprin"ipal de&tor to &e used fro% ti%e to ti%eeither indenitely or until a "ertain period : : :-

=n other @urisdi"tions, it has &een held that theuse of parti"ular words and e:pressions su"h aspay%ent of Uany de&t,O Uany inde&tedness,O Uanyde"ien"y,O or Uany su%,O or the guaranty of Uanytransa"tionO or %oney to &e furnished the



prin"ipal de&tor Uat any ti%e,O or Uon su"h ti%eOthat the prin"ipal de&tor %ay reAuire, have &een"onstrued to indi"ate a "ontinuing guaranty-);%phasis supplied-*

By its nature, a "ontinuing suretyship "overs"urrent and future loans, provided that, withrespe"t to future loan transa"tions, they are, to&orrow fro% !iTo, as "ited a&ove, within thedes"ription or "onte%plation of the "ontra"t ofguaranty- he !eed of 8uretyship eroni%osigned envisaged a "ontinuing suretyship when,&y the e:press ter%s of the deed, he warrantedpay%ent of the h 10 %illion+!o%esti" Billsur"hased 9ine and the >8! 3 %illion+6%ni&usCredit 9ine, as eviden"ed &y

: : : notes, drafts, overdrafts and other "redito&ligations on whi"h the !;B6R)8* %ay now &einde&ted or %ay hereafter &e"o%e inde&ted tothe CR;!=6R, together with all interests, penaltyand other &ank "harges as %ay a""rue thereonand all e:penses whi"h %ay &e in"urred &y the

latter in "olle"ting any or all su"h instru%ents-22

;vidently, under the deed of suretyship,eroni%o undertook to se"ure all o&ligationso&tained under the !o%esti" Bills ur"hased 9ineand 6%ni&us Credit 9ine, without anyspe"i"ation as to the period of the loan-

eroni%oOs appli"ation of ar"ia v- Court of(ppeals, a "ase "overing two separate loans,deno%inated as 8H( 9oan and ;:port 9oan, isAuite %ispla"ed- here, the Court ruled that the"ontinuing suretyship only "overed the 8H(

9oan as it was only this loan that was referred toin the "ontinuing suretyship- he Court wrote inar"ia

arti"ular attention %ust &e paid to thestate%ent appearing on the fa"e of the =nde%nity#8uretyship$ (gree%ent : : : eviden"ed &ythose "ertain loan do"u%ents dated (pril 20,17'2 : : :- ro% this state%ent, it is "lear thatthe =nde%nity (gree%ent refers only to the loando"u%ent of (pril 20, 17'2 whi"h is the 8H(loan- =t did not in"lude the ;M6R loan- Ien"e,petitioner "annot &e held answera&le for the;M6R loan-23 );%phasis supplied-*

he =nde%nity (gree%ent in ar"ia spe"i"allyidentied loan do"u%ents eviden"ing o&ligationsof the de&tor that the agree%ent was intended tose"ure- =n the present "ase, however, thesuretyship eroni%o assu%ed did not li%it itselfto a spe"i" loan do"u%ent to the e:"lusion ofanother- he suretyship do"u%ent %erely%entioned the !o%esti" Bills ur"hased 9ine and6%ni&us Credit 9ine as eviden"ed &y all notes,drafts : : : "ontra"tedin"urred &y #ateway$ infavor of #(sian&ank$-24 (s e:plained earlier,

su"h "redit fa"ilities are not loans &y the%selves- hus, the !eed of 8uretyship was intended tose"ure future loans for whi"h these fa"ilities wereopened in the rst pla"e-

9est it &e overlooked, &oth the trial and appellate"ourts found the 6%ni&us Credit 9ine referred toin the !eed of 8uretyship as "overing the e:portpa"king "redit loans (sian&ank e:tended toateway- He agree with this fa"tualdeter%ination- By the very use of the ter%o%ni&us, and in pra"ti"e, an o%ni&us "redit linerefers to a "redit fa"ility when"e a &orrower %ayavail of various kinds of "redit loans- !ened assu"h, an o%ni&us line is &road enough to refer toor "over an e:port pa"king "redit loan-

eroni%oOs allegation that an e:port pa"king"redit loan is separate and distin"t fro% ano%ni&us "redit line is &ut a &are and self+servingassertion &ereft of any fa"tual or legal &asis- 6newho alleges so%ething %ust prove it a %ereallegation is not eviden"e-25 eroni%o has not

dis"harged his &urden of proof- Iis "ontention"annot &e given any weight-

(s a nal and %a@or ground for his release assurety, eroni%o alleges that (sian&ankrepeatedly e:tended the %aturity dates of theo&ligations of ateway without his knowledgeand "onsent- ressing this point, he avers that,"ontrary to the ndings of the C(, he did notwaive his right to noti"e of e:tensions ofatewayOs o&ligations-

8u"h "ontention is una""epta&le as it glosses

over the fa"t that the waiver to &e notied ofe:tensions is e%&edded in surety do"u%entitself, &uilt in the ensuing provision

=n "ase of default &y any andor all of the!;B6R)8* to pay the whole part of saidinde&tedness herein se"ured at %aturity, =H;

@ointly and severally, agree and engage to theCR;!=6R, its su""essors and assigns, thepro%pt pay%ent, without de%and or noti"e fro%said CR;!=6R of su"h notes, drafts, overdraftsand other "redit o&ligations on whi"h the!;B6R)8* %ay now &e inde&ted or %ayhereafter &e"o%e inde&ted to the CR;!=6R,together with all interests, penalty and other&ank "harges as %ay a""rue thereon and alle:penses whi"h %ay &e in"urred &y the latter in"olle"ting any or all su"h instru%ents-2);%phasis supplied-*

=n light of the a&ove provision, eroni%o verilywaived his right to noti"e of the %aturity ofnotes, drafts, overdraft, and other "redito&ligations for whi"h ateway shall &e"o%einde&ted- his waiver ne"essarily in"ludes newagree%ents resulting fro% the novation of



previous agree%ents due to "hanges in their%aturity dates-

(dditionally, eroni%oOs la%ent a&out losing hisright to su&rogation is erroneous- Ie argues that&y virtue of the order of insolven"y issued &y theinsolven"y "ourt, title and right to possession toall the properties and assets of ateway werevested upon atewayOs assignee in a""ordan"ewith 8e"- 32 of the =nsolven"y 9aw-

he transfer of atewayOs property to theinsolven"y assignee, if this &e the "ase, does notnegate eroni%oOs right of su&rogation, for su"hright %ay &e had or e:er"ised in the insolven"ypro"eedings- he possi&ility that he %ay onlyre"over a portion of the a%ount he is lia&le to payis the risk he assu%ed as a surety of ateway-8u"h loss does not, however, render ineFe"tual,let alone invalidate, his suretyship-

eroni%oOs other argu%ents to es"ape lia&ilityare puerile and really partake %ore of a plea for

li&erality- hey need not detain us long- =n gist,eroni%o argues rst, that he is a gratuitoussurety of atewayG se"ond, (sian&ank deviatedfro% nor%al &anking pra"ti"e, su"h as when ite:tended the period for pay%ent of atewayOso&ligation and when it opted not to fore"lose the"hattel %ortgage "onstituted as guarantee ofatewayOs loan o&ligationG and third,i%ple%enting the appealed C(Os de"ision would"ause hi% great har% and in@ury-

(nent the rst argu%ent, su"e it to state thateroni%o was then the president of ateway

and, as su"h, was &eneted, al&eit perhapsindire"tly, &y the loan thus granted &y (sian&ank-(nd as we said in 8e"urity a"i" (ssuran"eCorporation, the surety is lia&le for the de&t ofanother although the surety possesses no dire"tor personal interest over the o&ligation nor doesthe surety re"eive any &enet fro% it-2

Hhether or not (sian&ank really deviated fro%nor%al &anking pra"ti"e &y e:tending the periodfor ateway to "o%ply with its loan o&ligation or&y not going after the "hattel %ortgage advertedto is really of no %o%ent- Banks are pri%arily inthe &usiness of e:tending loans and earn in"o%efro% their lending operations &y way of servi"eand interest "harges- his is why (sian&ank optedto give ateway a%ple opportunity to pay itso&ligations instead of fore"losing the "hattel%ortgage and in the pro"ess holding on to assetsof whi"h the &ank has really no dire"t use-

he following e:"erpts fro% al%ares are in point

He agree with respondent "orporation that its%ere failure to i%%ediately sue petitioner on hero&ligation does not release her fro% lia&ility-

Hhere a "reditor refrains fro% pro"eeding againstthe prin"ipal, the surety is not e:onerated- =nother words, %ere want of diligen"e orfor&earan"e does not aFe"t the "reditorOs rightsvis+V+vis the surety, unless the surety reAuireshi% &y appropriate noti"e to sue on theo&ligation- 8u"h gratuitous indulgen"e of theprin"ipal does not dis"harge the surety whethergiven at the prin"ipalOs reAuest or without it, andwhether it is yielded &y the "reditor throughsy%pathy or fro% an in"lination to favor theprin"ipal : : :- he negle"t of the "reditor to suethe prin"ipal at the ti%e the de&t falls due doesnot dis"harge the surety, even if su"h delay"ontinues until the prin"ipal &e"o%es insolvent-(nd, in the a&sen"e of proof of resultant in@ury, asurety is not dis"harged &y the "reditorOs %erestate%ent that the "reditor will not look to thesurety, or that he need not trou&le hi%self- he"onseAuen"es of the delay, su"h as thesu&seAuent insolven"y of the prin"ipal, or the fa"tthat the re%edies against the prin"ipal %ay &elost &y lapse of ti%e, are i%%aterial-2'

he CourtOs ;Auity Jurisdi"tion

inds /o (ppli"ation to the =nstant Case

eroni%o urges the Court to release anddis"harge hi% fro% any lia&ility arising fro%(sian&ankOs "lai%s if what he ter%s as "o%plete

@usti"e is to &e served- Ie "ites, as supportingreferen"e, (g"aoili v- 8=8,27 presenting in thesa%e &reath the following argu%ents rst, the!eed of 8uretyship is a gratuitous "ontra"t fro%whi"h he did not &enetG se"ond, (sian&ank

assured hi% that the deed would not &e enfor"edagainst hi%G third, the enfor"e%ent of the @udg%ent of the C( would redu"e eroni%o andhis fa%ily to a life of penuryG and fourth,eroni%o would &e una&le to e:er"ise his right ofsu&rogation, ateway having already &eende"lared as insolvent-

he rst and last argu%ents have already &eenaddressed and found to &e without %erit- hese"ond argu%ent is a %atter of defense whi"hhas re%ained unproved and even &elied &y(sian&ank &y its ling of the "o%plaint- He see

no need to further &ela&or any of the%-(s regards the third allegation, su"e it to statethat the predi"a%ent eroni%o nds hi%self in ishis very own doing- Iis %isfortune is &ut theresult of the i%ple%entation of a &ona de"ontra"t he freely e:e"uted, the ter%s of whi"hhe is presu%ed to have thoroughly e:a%ined- Iewas not at all "o%pelled to a"t as suretyG he hada "hoi"e- =t %ay &e %ore oFensive to pu&li"poli"y or good "usto%s if he &e allowed to go&a"k on his undertaking under the surety"ontra"t- he Court "annot &e a party to the



"ontra"tOs i%pair%ent and relieve a surety fro%the eFe"ts of an unwise &ut nonetheless a validsurety "ontra"t-

HI;R;6R;, the instant petition is here&y!;/=;!- he appealed !e"ision dated 6"to&er2', 2005 of the C( and its <ar"h 1, 200Resolution in C(+-R- C. /o- '034 are here&y(=R<;! with the %odi"ation that any "lai% of(sian&ank or its su""essor+in+interest againstateway, if any, arising fro% the @udg%ent in thissuit shall &e pursued &efore the RC, Bran"h 22 in=%us, Cavite as the insolven"y "ourt-

Costs against petitioners-

SALVADOR P. ESCA!O "#$ %ARIO %.SILOSvs.RA&AEL ORTIGAS' (R.

he %ain "ontention raised in this petition is thatpetitioners are not under o&ligation to rei%&urserespondent, a "lai% that "an &e easily de&unked-

he %ore perple:ing Auestion is whether this

o&ligation to repay is solidary, as "ontended &yrespondent and the lower "ourts, or %erely @ointas argued &y petitioners-

6n 2' (pril 17'0, rivate !evelop%entCorporation of the hilippines )!C*1 enteredinto a loan agree%ent with al"on <inerals, =n"-)al"on* where&y !C agreed to %ake availa&leand lend to al"on the a%ount of >8Q320,000-00,for spe"i" purposes and su&@e"t to "ertain ter%sand "onditions-2 6n the sa%e day, threesto"kholders+o"ers of al"on, na%elyrespondent Rafael 6rtigas, Jr- )6rtigas*, eorge (-

8"holey and eorge - 8"holey e:e"uted an(ssu%ption of 8olidary 9ia&ility where&y theyagreed to assu%e in #their$ individual "apa"ity,solidary lia&ility with #al"on$ for the due andpun"tual pay%ent of the loan "ontra"ted &yal"on with !C-3 =n the %eanti%e, twoseparate guaranties were e:e"uted to guaranteethe pay%ent of the sa%e loan &y othersto"kholders and o"ers of al"on, a"ting in theirpersonal and individual "apa"ities- 6neuaranty4 was e:e"uted &y petitioner 8alvador;s"aTo );s"aTo*, while the other5 &y petitioner<ario <- 8ilos )8ilos*, Ri"ardo C- 8ilverio)8ilverio*, Carlos 9- =ndu"tivo )=ndu"tivo* and

JoaAuin J- RodrigueE )RodrigueE*-

wo years later, an agree%ent developed to "ede"ontrol of al"on to ;s"aTo, 8ilos and Joseph <-<atti )<atti*- hus, "ontra"ts were e:e"utedwhere&y 6rtigas, eorge (- 8"holey, =ndu"tivoand the heirs of then already de"eased eorge -8"holey assigned their shares of sto"k in al"onto ;s"aTo, 8ilos and <atti- art of the"onsideration that indu"ed the sale of sto"k was adesire &y 6rtigas, et al-, to relieve the%selves ofall lia&ility arising fro% their previous @oint and

several undertakings with al"on, in"luding thoserelated to the loan with !C- hus, an>ndertaking dated 11 June 17'2 was e:e"uted &ythe "on"erned parties, na%ely with ;s"aTo,8ilos and <atti identied in the do"u%ent as8>R;=;8, on one hand, and 6rtigas, =ndu"tivoand the 8"holeys as 6B9=6R8, on the other-

he >ndertaking reads in part

3- hat whether or not 8>R;=;8 are a&le toi%%ediately "ause !C and (=C to release6B9=6R8 fro% their said guarantees #si"$,8>R;=;8 here&y irrevo"a&ly agree andundertake to assu%e all of 6B9=6RsO saidguarantees #si"$ to !C and (=C under thefollowing ter%s and "onditions

a- >pon re"eipt &y any of #the$ 6B9=6R8 of anyde%and fro% !C andor (=C for the pay%entof (9C6/Os o&ligations with it, any of #the$6B9=6R8 shall i%%ediately infor% 8>R;=;8thereof so that the latter "an ti%ely takeappropriate %easuresG

&- 8hould suit &e i%pleaded &y !C andor (=Cagainst any andor all of 6B9=6R8 for "olle"tionof said loans andor "redit fa"ilities, 8>R;=;8agree to defend 6B9=6R8 at their own e:pense,without pre@udi"e to any andor all of 6B9=6R8i%pleading 8>R;=;8 therein for "ontri&ution,inde%nity, su&rogation or other relief in respe"tto any of the "lai%s of !C andor (=CG and

"- =n the event that any of #the$ 6B9=6R8 is forany reason %ade to pay any a%ount to !Candor (=C, 8>R;=;8 shall rei%&urse 6B9=6R8

for said a%ounts within seven )* "alendar daysfro% su"h pay%entG

4- 6B9=6R8 here&y waive in favor of 8>R;=;8any and all fees whi"h %ay &e due fro% (9C6/arising out of, or in "onne"tion with, their saidguarantees#si"$-'

al"on eventually availed of the su% of>8Q1',55-57 fro% the "redit line e:tended &y!C- =t would also e:e"ute a !eed of Chattel<ortgage over its personal properties to furtherse"ure the loan- Iowever, al"on su&seAuentlydefaulted in its pay%ents- (fter !C fore"losedon the "hattel %ortgage, there re%ained asu&sisting de"ien"y of 5,031,004-0, whi"hal"on did not satisfy despite de%and-7

6n 2' (pril 17'7, in order to re"over theinde&tedness, !C led a "o%plaint for su% of%oney with the Regional rial Court of <akati)RC* against al"on, 6rtigas, ;s"aTo, 8ilos,8ilverio and =ndu"tivo- he "ase was do"keted asCivil Case /o- '7+512'- or his part, 6rtigas ledtogether with his answer a "ross+"lai% against his"o+defendants al"on, ;s"aTo and 8ilos, and also



%anifested his intent to le a third+party"o%plaint against the 8"holeys and <atti-10 he"ross+"lai% lodged against ;s"aTo and 8ilos waspredi"ated on the 17'2 >ndertaking, whereinthey agreed to assu%e the lia&ilities of 6rtigaswith respe"t to the !C loan-

;s"aTo, 6rtigas and 8ilos ea"h sought to seek asettle%ent with !C- he rst to "o%e to ter%swith !C was ;s"aTo, who in !e"e%&er of 1773,entered into a "o%pro%ise agree%ent where&yhe agreed to pay the &ank 1,000,000-00- =ne:"hange, !C waived or assigned in favor of;s"aTo one+third )13* of its entire "lai% in the"o%plaint against all of the other defendants inthe "ase-11 he "o%pro%ise agree%ent wasapproved &y the RC in a Judg%ent12 dated

January 1774-

hen on 24 e&ruary 1774, 6rtigas entered intohis own "o%pro%ise agree%ent13 with !C,allegedly without the knowledge of ;s"aTo, <attiand 8ilos- here&y, 6rtigas agreed to pay !C

1,300,000-00 as full satisfa"tion of the !COs"lai% against 6rtigas,14 in e:"hange for !COsrelease of 6rtigas fro% any lia&ility or "lai%arising fro% the al"on loan agree%ent, and arenun"iation of its "lai%s against 6rtigas-

=n 1775, 8ilos and !C entered into a artialCo%pro%ise (gree%ent where&y he agreed topay 500,000-00 in e:"hange for !COs waiverof its "lai%s against hi%-15

=n the %eanti%e, after having settled with !C,6rtigas pursued his "lai%s against ;s"aTo, 8ilos

and <atti, on the &asis of the 17'2 >ndertaking-Ie initiated a third+party "o%plaint against <attiand 8ilos,1 while he %aintained his "ross+"lai%against ;s"aTo- =n 1775, 6rtigas led a %otion for8u%%ary Judg%ent in his favor against ;s"aTo,8ilos and <atti- 6n 5 6"to&er 1775, the RCissued the 8u%%ary Judg%ent, ordering ;s"aTo,8ilos and <atti to pay 6rtigas, @ointly andseverally, the a%ount of 1,300,000-00, as wellas 20,000-00 in attorneyOs fees-1 he trial "ourtratio"inated that none of the third+partydefendants disputed the 17'2 >ndertaking, andthat the %ere denials of defendants with respe"t

to non+"o%plian"e of 6rtigas of the ter%s and"onditions of the >ndertaking, una""o%panied &yany su&stantial fa"t whi"h would &e ad%issi&le ineviden"e at a hearing, are not su"ient to raisegenuine issues of fa"t ne"essary to defeat a%otion for su%%ary @udg%ent, even if su"h fa"tswere raised in the pleadings-1' =n an 6rderdated <ar"h 177, the trial "ourt denied the%otion for re"onsideration of the 8u%%ary

Judg%ent and awarded 6rtigas legal interest of12D per annu% to &e "o%puted fro% 2'e&ruary 1774-17

ro% the 8u%%ary Judg%ent, re"ourse was had&y way of appeal to the Court of (ppeals- ;s"aToand 8ilos appealed @ointly while <atti appealed &yhis loneso%e- =n a !e"ision20 dated 23 January2002, the Court of (ppeals dis%issed the appealsand ar%ed the 8u%%ary Judg%ent- heappellate "ourt found that the RC did not err inrendering the su%%ary @udg%ent sin"e the threeappellants did not eFe"tively deny their e:e"utionof the 17'2 >ndertaking- he spe"ial defensesthat were raised, pay%ent and e:"ussion, were"hara"teriEed &y the Court of (ppeals asappear#ing$ to &e %erely sha% in the light of thepleadings and supporting do"u%ents andadavits-21 hus, it was "on"luded that therewas no genuine issue that would still reAuire therigors of trial, and that the appealed @udg%entwas de"ided on the &ases of the undisputed andesta&lished fa"ts of the "ase-

Ien"e, the present petition for review led &y;s"aTo and 8ilos-22 wo %ain issues are raised-irst, petitioners dispute that they are lia&le to

6rtigas on the &asis of the 17'2 >ndertaking, ado"u%ent whi"h they do not disavow and have infa"t anne:ed to their petition- 8e"ond, on theassu%ption that they are lia&le to 6rtigas underthe 17'2 >ndertaking, petitioners argue that theyare @ointly lia&le only, and not solidarily- urtherassu%ing that they are lia&le, petitioners alsosu&%it that they are not lia&le for interest and ifat all, the proper interest rate is D and not 12D-

=nterestingly, petitioners do not "hallenge,whether in their petition or their %e%orandu%&efore the Court, the appropriateness of the

su%%ary @udg%ent as a relief favora&le to6rtigas- >nder 8e"tion 3, Rule 35 of the 177Rules of Civil ro"edure, su%%ary @udg%ent %ayavail if the pleadings, supporting adavits,depositions and ad%issions on le show that,e:"ept as to the a%ount of da%ages, there is nogenuine issue as to any %aterial fa"t and that the%oving party is entitled to a @udg%ent as a%atter of law- etitioner have not atte%pted tode%onstrate &efore us that there e:isted agenuine issue as to any %aterial fa"t that wouldpre"lude su%%ary @udg%ent- hus, we ar%with ease the "o%%on rulings of the lower "ourts

that su%%ary @udg%ent is an appropriatere"ourse in this "ase-

he vital issue a"tually raised &efore us iswhether petitioners were "orre"tly held lia&le to6rtigas on the &asis of the 17'2 >ndertaking inthis 8u%%ary Judg%ent- (n e:a%ination of thedo"u%ent reveals several "lauses that %ake it"lear that the agree%ent was &rought forth &ythe desire of 6rtigas, =ndu"tivo and the 8"holeysto &e released fro% their lia&ility under the loanagree%ent whi"h release was, in turn, part of the"onsideration for the assign%ent of their shares



in al"on to petitioners and <atti- he whereas"lauses %anifest that 6rtigas had &ound hi%selfwith al"on for the pay%ent of the loan with!C, and that a%ongst the "onsideration for6B9=6R8 andor their prin"ipals aforesaid sellingis 8>R;=;8O relieving 6B9=6R8 of any and alllia&ility arising fro% their said @oint and severalundertakings with (9C6/-23 <ost "ru"ial is the"lause in aragraph 3 of the >ndertaking whereinpetitioners irrevo"a&ly agree and undertake toassu%e all of 6B9=6RsO said guarantees #si"$ to!C : : : under the following ter%s and"onditions-24

(t the sa%e ti%e, it is "lear that the assu%ption&y petitioners of 6rtigasOs guarantees #si"$ to!C is governed &y stipulated ter%s and"onditions as set forth in su&+paragraphs )a* to)"* of aragraph 3- irst, upon re"eipt &y any of6B9=6R8 of any de%and fro% !C for thepay%ent of al"onOs o&ligations with it, any of6B9=6R8 was to i%%ediately infor%8>R;=;8 thereof so that the latter "an ti%ely

take appropriate %easures- 8e"ond, should anyandor all of 6B9=6R8 &e i%pleaded &y !C ina suit for "olle"tion of its loan, 8>R;=;8agree#d$ to defend 6B9=6R8 at their owne:pense, without pre@udi"e to any andor all of6B9=6R8 i%pleading 8>R;=;8 therein for"ontri&ution, inde%nity, su&rogation or otherrelief25 in respe"t to any of the "lai%s of !C-

hird, if any of the 6B9=6R8 is for any reason%ade to pay any a%ount to #!C$, 8>R;=;8#were to$ rei%&urse 6B9=6R8 for said a%ountswithin seven )* "alendar days fro% su"hpay%ent-2

etitioners "lai% that, "ontrary to paragraph 3)"*of the >ndertaking, 6rtigas was not %ade topay !C the a%ount now sought to &erei%&ursed, as 6rtigas voluntarily paid !C thea%ount of 1-3 <illion as an a%i"a&le settle%entof the "lai%s posed &y the &ank against hi%-Iowever, the su&@e"t "lause in paragraph 3)"*a"tually reads #i$n the event that any of6B9=6R8 is for any reason %ade to pay anya%ount to !C : : :2 (s pointed out &y6rtigas, the phrase for any reason reasona&lyin"ludes any e:tra+@udi"ial settle%ent of

o&ligation su"h as what 6rtigas had undertakento pay to !C, as it is indeed o&vious that thephrase was in"orporated in the "lause to renderthe eventual pay%ent adverted to thereinunli%ited and unAualied-

he interpretation posed &y petitioners wouldhave held water had the >ndertaking %ade "learthat the right of 6rtigas to seek rei%&urse%enta""rued only after he had delivered pay%ent to!C as a "onseAuen"e of a nal and e:e"utory

@udg%ent- 6n the "ontrary, the "lear intent of the>ndertaking was for petitioners and <atti to

relieve the &urden on 6rtigas and his fellow6B9=6R8 as soon as possi&le, and not onlyafter 6rtigas had &een su&@e"ted to a nal ande:e"utory adverse @udg%ent-

aragraph 1 of the >ndertaking en@oinspetitioners to e:ert all eForts to "ause !C : :: to within a reasona&le ti%e release all the6B9=6R8 : : : fro% their guarantees #si"$ to!C : : :2' =n the event that 6rtigas and hisfellow 6B9=6R8 "ould not &e released fro%their guaranties, paragraph 2 "o%%its petitionersand <atti to "ause the Board of !ire"tors ofal"on to %ake a "all on its sto"kholders for thepay%ent of their unpaid su&s"riptions and topledge or assign su"h pay%ents to 6rtigas, et al-,as se"urity for whatever a%ounts the latter %ay&e held lia&le under their guaranties- =n addition,paragraph 1 also %akes "lear that nothing in the>ndertaking shall prevent 6B9=6R8, or any oneof the%, fro% the%selves negotiating with !C: : : for the release of their said guarantees#si"$-27

here is no argu%ent to support petitionersOposition on the i%port of the phrase %ade topay in the >ndertaking, other than an undulyliteralist reading that is "learly in"onsistent withthe thrust of the do"u%ent- >nder the Civil Code,the various stipulations of a "ontra"t shall &einterpreted together, attri&uting to the dou&tfulones that sense whi"h %ay result fro% all of the%taken @ointly-30 9ikewise appli"a&le is theprovision that if so%e stipulation of any "ontra"tshould ad%it of several %eanings, it shall &eunderstood as &earing

that i%port whi"h is %ost adeAuate to render iteFe"tual-31 (s a %eans to eFe"t the generalintent of the do"u%ent to relieve 6rtigas fro%lia&ility to !C, it is his interpretation, not thatof petitioners, that holds sway with this Court-

/either do petitioners i%press us of the non+fulll%ent of any of the other "onditions set inparagraph 3, as they "lai%- ollowing the generalassertion in the petition that 6rtigas violated theter%s of the >ndertaking, petitioners add that6rtigas paid !C B(/K the a%ount of 1-3

%illion without petitioners ;8C(/6 and 8=968Osknowledge and "onsent-32 aragraph 3)a* of the>ndertaking does i%pose a reAuire%ent that anyof the 6B9=6R8 shall i%%ediately infor%8>R;=;8 if they re"eived any de%and forpay%ent of (9C6/Os o&ligations to !C, &utthat reAuire%ent is reasoned so that the#8>R;=;8$ "an ti%ely take appropriate%easures33 presu%a&ly to settle the o&ligationwithout having to &urden the 6B9=6R8- hisnoti"e reAuire%ent in paragraph 3)a* is %arkedlyway oF fro% the suggestion of petitioners that6rtigas, after already having &een i%pleaded as a



defendant in the "olle"tion suit, was o&ligedunder the 17'2 >ndertaking to notify the% &eforesettling with !C-

he other argu%ents petitioners have oFered toes"ape lia&ility to 6rtigas are si%ilarly weak-

etitioners i%pugn 6rtigas for having settled with!C in the rst pla"e- hey note that 6rtigashad, in his answer, denied any lia&ility to !C

and had alleged that he signed the (ssu%ption of 8olidary 9ia&ility not in his personal "apa"ity, &utas an o"er of al"on- Iowever, su"h position,a""ording to petitioners, "ould not &e @ustiedsin"e 6rtigas later voluntarily paid !C thea%ount of 1-3 <illion- 8u"h "ir"u%stan"es,a""ording to petitioners, a%ounted to estoppel onthe part of 6rtigas-

;ven as we entertain this argu%ent at depth, itspre%ises are still erroneous- he artialCo%pro%ise (gree%ent &etween !C and6rtigas e:pressly stipulated that 6rtigasOs oFer to

pay !C was "onditioned without #6rtigasOs$ad%itting lia&ility to plaintiF !C BankOs"o%plaint, and to ter%inate and dis%iss the said"ase as against 6rtigas solely-34 etitionersprofess it is unthinka&le for 6rtigas to havevoluntarily paid !C without ad%itting hislia&ility,35 yet su"h "ontention &ased onassu%ption "annot supersede the literal ter%s ofthe artial Co%pro%ise (gree%ent-

etitioners further o&serve that 6rtigas %ade thepay%ent to !C after he had already assignedhis o&ligation to petitioners through the 17'2

>ndertaking- Let the fa"t is !C did pursue a @udi"ial "lai% against 6rtigas notwithstanding the>ndertaking he e:e"uted with petitioners- /ot&eing a party to su"h >ndertaking, !C was notpre"luded &y a "ontra"t fro% pursuing its "lai%against 6rtigas &ased on the original (ssu%ptionof 8olidary 9ia&ility-

(t the sa%e ti%e, the >ndertaking did notpre"lude 6rtigas fro% relieving his distressthrough a settle%ent with the "reditor &ank-=ndeed, paragraph 1 of the >ndertaking e:presslystates that nothing herein shall prevent6B9=6R8, or any one of the%, fro% the%selvesnegotiating with !C : : : for the release oftheir said guarantees #si"$-3 8i%ply put, the>ndertaking did not &ar 6rtigas fro% pursuing hisown settle%ent with !C- /either did the>ndertaking &ar 6rtigas fro% re"overing fro%petitioners whatever a%ount he %ay have paid!C through his own settle%ent- he stipulationthat if 6rtigas was for any reason %ade to payany a%ount to !C#,$ : : : 8>R;=;8 shallrei%&urse 6B9=6R8 for said a%ounts withinseven )* "alendar days fro% su"h pay%ent3

%akes it "lear that petitioners re%ain lia&le torei%&urse 6rtigas for the su%s he paid !C-

He now turn to the set of argu%ents posed &ypetitioners, in the alternative, that is, on theassu%ption that they are indeed lia&le-

etitioners su&%it that they "ould only &e held @ointly, not solidarily, lia&le to 6rtigas, "lai%ingthat the >ndertaking did not provide for e:press

solidarity- hey "ite (rti"le 120 of the /ew CivilCode, whi"h states in part that #t$here is asolidary lia&ility only when the o&ligatione:pressly so states, or when the law or the natureof the o&ligation reAuires solidarity-

6rtigas in turn argues that petitioners, as well as<atti, are @ointly and severally lia&le for the>ndertaking, as the language used in theagree%ent "learly shows that it is a suretyagree%ent3' &etween the o&ligors )6rtigasgroup* and the sureties );s"aTo group*- 6rtigaspoints out that the >ndertaking uses the word

8>R;=;8 although the do"u%ent, in des"ri&ingthe parties- =t is further "ontended that theprin"ipal o&@e"tive of the parties in e:e"uting the>ndertaking "annot &e attained unless petitionersare solidarily lia&le &e"ause the total loano&ligation "an not &e paid or settled to free orrelease the 6B9=6R8 if one or any of the8>R;=;8 default fro% their o&ligation in the>ndertaking-37

=n "ase, there is a "on"urren"e of two or %ore"reditors or of two or %ore de&tors in one and thesa%e o&ligation, (rti"le 120 of the Civil Code

states that a%ong the%, #t$here is a solidarylia&ility only when the o&ligation e:pressly sostates, or when the law or the nature of theo&ligation reAuires solidarity- (rti"le 1210supplies further "aution against the &roadinterpretation of solidarity &y providing heindivisi&ility of an o&ligation does not ne"essarilygive rise to solidarity- /or does solidarity of itselfi%ply indivisi&ility-

hese Civil Code provisions esta&lish that in "aseof "on"urren"e of two or %ore "reditors or of twoor %ore de&tors in one and the sa%e o&ligation,and in the a&sen"e of e:press and indu&ita&leter%s "hara"teriEing the o&ligation as solidary,the presu%ption is that the o&ligation is only

@oint- =t thus &e"o%es in"u%&ent upon the partyalleging that the o&ligation is indeed solidary in"hara"ter to prove su"h fa"t with apreponderan"e of eviden"e-

he >ndertaking does not "ontain any e:pressstipulation that the petitioners agreed to &indthe%selves @ointly and severally in theiro&ligations to the 6rtigas group, or any su"hter%s to that eFe"t- Ien"e, su"h o&ligation



esta&lished in the >ndertaking is presu%ed onlyto &e @oint- 6rtigas, as the party alleging that theo&ligation is in fa"t solidary, &ears the &urden toover"o%e the presu%ption of @ointness ofo&ligations- He rule and so hold that he failed todis"harge su"h &urden-

6rtigas pla"es pri%ary relian"e on the fa"t thatthe petitioners and <atti identied the%selves inthe >ndertaking as 8>R;=;8, a ter% repeatedno less than thirteen )13* ti%es in the do"u%ent-6rtigas "lai%s that su"h %anner of identi"ationsu"iently esta&lishes that the o&ligation ofpetitioners to hi% was @oint and solidary innature-

he ter% surety has a spe"i" %eaning underour Civil Code- (rti"le 204 provides the statutorydenition of a surety agree%ent, thus

(rt- 204- By guaranty a person, "alled theguarantor, &inds hi%self to the "reditor to fulllthe o&ligation of the prin"ipal de&tor in "ase the

latter should fail to do so-

=f a person &inds hi%self solidarily with theprin"ipal de&tor, the provisions of 8e"tion 4,Chapter 3, itle = of this Book shall &e o&served-=n su"h "ase the "ontra"t is "alled a suretyship-#;%phasis supplied$40

(s provided in (rti"le 204 in a surety agree%entthe surety undertakes to &e &ound solidarily withthe prin"ipal de&tor- hus, a surety agree%ent isan an"illary "ontra"t as it presupposes thee:isten"e of a prin"ipal "ontra"t- =t appears that

6rtigasOs argu%ent rests solely on the solidarynature of the o&ligation of the surety under(rti"le 204- =n tande% with the no%en"lature8>R;=;8 a""orded to petitioners and <atti inthe >ndertaking, however, this argu%ent "anonly &e via&le if the o&ligations esta&lished in the

>ndertaking do partake of the nature of asuretyship as dened under (rti"le 204 in therst pla"e- hat "learly is not the "ase here,notwithstanding the use of the no%en"lature8>R;=;8 in the >ndertaking-

(gain, as indi"ated &y (rti"le 204, a suretyship

reAuires a prin"ipal de&tor to who% the surety issolidarily &ound &y way of an an"illary o&ligationof segregate identity fro% the o&ligation &etweenthe prin"ipal de&tor and the "reditor- hesuretyship does &ind the surety to the "reditor,inas%u"h as the latter is vested with the right topro"eed against the for%er to "olle"t the "redit inlieu of pro"eeding against the prin"ipal de&tor forthe sa%e o&ligation-41 (t the sa%e ti%e, there isalso a legal tie "reated &etween the surety andthe prin"ipal de&tor to whi"h the "reditor is notprivy or party to- he %o%ent the surety fully

answers to the "reditor for the o&ligation "reated&y the prin"ipal de&tor, su"h o&ligation ise:tinguished-42 (t the sa%e ti%e, the surety%ay seek rei%&urse%ent fro% the prin"ipalde&tor for the a%ount paid, for the surety does infa"t &e"o%e su&rogated to all the rights andre%edies of the "reditor-43

/ote that (rti"le 204 itself spe"i"ally "alls forthe appli"ation of the provisions on @oint andsolidary o&ligations to suretyship "ontra"ts-44(rti"le 121 of the Civil Code thus "o%es intoplay, re"ogniEing the right of rei%&urse%ent fro%a "o+de&tor )the prin"ipal de&tor, in "ase ofsuretyship* in favor of the one who paid )i-e-, thesurety*-45 Iowever, a signi"ant distin"tion stilllies &etween a @oint and several de&tor, on onehand, and a surety on the other- 8olidaritysignies that the "reditor "an "o%pel any one ofthe @oint and several de&tors or the surety aloneto answer for the entirety of the prin"ipal de&t-

he diFeren"e lies in the respe"tive fa"ulties ofthe @oint and several de&tor and the surety to

seek rei%&urse%ent for the su%s they paid outto the "reditor-

!r- olentino e:plains the diFeren"es &etween asolidary "o+de&tor and a surety

( guarantor who &inds hi%self in solidu% withthe prin"ipal de&tor under the provisions of these"ond paragraph does not &e"o%e a solidary "o+de&tor to all intents and purposes- here is adiFeren"e &etween a solidary "o+de&tor and aador in solidu% )surety*- he latter, outside ofthe lia&ility he assu%es to pay the de&t &efore

the property of the prin"ipal de&tor has &eene:hausted, retains all the other rights, a"tionsand &enets whi"h pertain to hi% &y reason ofthe ansaG while a solidary "o+de&tor has noother rights than those &estowed upon hi% in8e"tion 4, Chapter 3, itle =, Book =. of the CivilCode-

he se"ond paragraph of #(rti"le 204$ ispra"ti"ally eAuivalent to the "ontra"t ofsuretyship- he "ivil law suretyship is,a""ordingly, nearly synony%ous with the"o%%on law guarantyG and the "ivil law

relationship e:isting &etween the "o+de&torslia&le in solidu% is si%ilar to the "o%%on lawsuretyship-4

=n the "ase of @oint and several de&tors, (rti"le121 %akes plain that the solidary de&tor whoeFe"ted the pay%ent to the "reditor %ay "lai%fro% his "o+de&tors only the share whi"h"orresponds to ea"h, with the interest for thepay%ent already %ade- 8u"h solidary de&tor wilnot &e a&le to re"over fro% the "o+de&tors the fula%ount already paid to the "reditor, &e"ause theright to re"overy e:tends only to the proportional



share of the other "o+de&tors, and not as to theparti"ular proportional share of the solidaryde&tor who already paid- =n "ontrast, even as thesurety is solidarily &ound with the prin"ipal de&torto the "reditor, the surety who does pay the"reditor has the right to re"over the full a%ountpaid, and not @ust any proportional share, fro%the prin"ipal de&tor or de&tors- 8u"h right to fullrei%&urse%ent falls within the other rights,a"tions and &enets whi"h pertain to the surety&y reason of the su&sidiary o&ligation assu%ed&y the surety-

Hhat is the sour"e of this right to fullrei%&urse%ent &y the suretyW He nd the rightunder (rti"le 20 of the Civil Code, whi"hassures that #t$he guarantor who pays for ade&tor %ust &e inde%nied &y the latter, su"hinde%nity "o%prising of, a%ong others, the totala%ount of the de&t-4 urther, (rti"le 20 ofthe Civil Code likewise esta&lishes that #t$heguarantor who pays is su&rogated &y virtuethereof to all the rights whi"h the "reditor had

against the de&tor-4'

(rti"les 20 and 20 e:pli"itly pertain toguarantors, and one %ight argue that theprovisions should not e:tend to sureties,espe"ially in light of the Aualier in (rti"le 204that the provisions on @oint and severalo&ligations should apply to sureties- He re@e"tthat argu%ent, and instead adopt !r- olentinoOso&servation that #t$he referen"e in the se"ondparagraph of #(rti"le 204$ to the provisions of8e"tion 4, Chapter 3, itle =, Book =., on solidaryor several o&ligations, however, does not %ean

that suretyship is withdrawn fro% the appli"a&leprovisions governing guaranty-47 or if that werenot the i%pli"ation, there would &e no %aterialdiFeren"e &etween the surety as dened under(rti"le 204 and the @oint and several de&tors, for&oth "lasses of o&ligors would &e governed &ye:a"tly the sa%e rules and li%itations-

(""ordingly, the rights to inde%ni"ation andsu&rogation as esta&lished and granted to theguarantor &y (rti"les 20 and 20 e:tend aswell to sureties as dened under (rti"le 204-

hese rights granted to the surety who pays

%aterially diFer fro% those granted under (rti"le121 to the solidary de&tor who pays, sin"e theinde%ni"ation that pertains to the lattere:tends only #to$ the share whi"h "orresponds toea"h #"o+de&tor$- =t is for this reason that theCourt "annot a""ord the "on"lusion that &e"ausepetitioners are identied in the >ndertaking as8>R;=;8, they are "onseAuently @oint andseverally lia&le to 6rtigas-

=n order for the "on"lusion espoused &y 6rtigas tohold, in light of the general presu%ption favoring

@oint lia&ility, the Court would have to &e satised

that a%ong the petitioners and <atti, there is oneor so%e of the% who stand as the prin"ipalde&tor to 6rtigas and another as surety who hasthe right to full rei%&urse%ent fro% the prin"ipalde&tor or de&tors- /o suggestion is %ade &y theparties that su"h is the "ase, and "ertainly the>ndertaking is not revelatory of su"h intention- =fthe Court were to give full fruition to the use ofthe ter% sureties as "on"lusive indi"ation of thee:isten"e of a surety agree%ent that in turn givesrise to a solidary o&ligation to pay 6rtigas, thene"essary i%pli"ation would &e to lay down a"orresponding set of rights and o&ligations as&etween the 8>R;=;8 whi"h petitioners and<atti did not "learly intend-

=t is not i%possi&le that as &etween ;s"aTo, 8ilosand <atti, there was an agree%ent where&y inthe event that 6rtigas were to seekrei%&urse%ent fro% the% per the ter%s of the>ndertaking, one of the% was to a"t as suretyand to pay 6rtigas in full, su&@e"t to his right tofull rei%&urse%ent fro% the other two o&ligors- =n

su"h "ase, there would have &een, in fa"t, asurety agree%ent whi"h evin"es a solidaryo&ligation in favor of 6rtigas- Let if there wasindeed su"h an agree%ent, it does not appear onthe re"ord- <ore "onseAuentially, no su"hintention is reXe"ted in the >ndertaking itself, thevery do"u%ent that "reates the "onditionalo&ligation that petitioners and <atti rei%&urse6rtigas should he &e %ade to pay !C- he%ere utiliEation of the ter% 8>R;=;8 "ould notwork to su"h eFe"t, espe"ially as it does notappear who e:a"tly is the prin"ipal de&tor whoseo&ligation is assured or guaranteed &y the

surety-

6rtigas further argues that the nature of the>ndertaking reAuires solidary o&ligation of the8ureties, sin"e the >ndertaking e:pressly seeksto reliev#e$ o&ligors of any and all lia&ility arisingfro% their said @oint and several undertaking with#$al"on, and for the sureties to irrevo"a&lyagree and undertake to assu%e all of o&ligorssaid guarantees to !C-50 He do not dou&tthat a nding of solidary lia&ility a%ong thepetitioners works to the &enet of 6rtigas in thefa"ilitation of these goals, yet the >ndertaking

itself "ontains no stipulation or "lause thatesta&lishes petitionersO o&ligation to 6rtigas assolidary- <oreover, the ai%s adverted to &y6rtigas do not &y the%selves esta&lish that thenature of the o&ligation reAuires solidarity- ;ven ifthe lia&ility of petitioners and <atti weread@udged as %erely @oint, the full relief andrei%&urse%ent of 6rtigas arising fro% hispay%ent to !C would still &e a""o%plishedthrough the "o%plete e:e"ution of su"h a

@udg%ent-



etitioners further "lai% that they are not lia&lefor attorneyOs fees sin"e the >ndertaking"ontained no su"h stipulation for attorneyOs fees,and that the situation did not fall under theinstan"es under (rti"le 220' of the Civil Codewhere attorneyOs fees are re"overa&le in thea&sen"e of stipulation-

He disagree- (s 6rtigas points out, the a"ts oro%issions of the petitioners led to his &eingi%pleaded in the suit led &y !C- he>ndertaking was pre"isely e:e"uted as a %eansto o&tain the release of 6rtigas and the 8"holeysfro% their previous o&ligations as sureties ofal"on, espe"ially "onsidering that they werealready divesting their shares in the "orporation-8pe"i" provisions in the >ndertaking o&ligatepetitioners to work for the release of 6rtigas fro%his surety agree%ents with al"on- 8pe"i"provisions likewise %andate the i%%ediaterepay%ent of 6rtigas should he still &e %ade topay !C &y reason of the guaranty agree%entsfro% whi"h he was ostensi&ly to &e released

through the eForts of petitioners- /one of theseprovisions were "o%plied with &y petitioners, and(rti"le 220')2* pre"isely allows for the re"overyof attorneyOs fees #w$hen the defendantOs a"t oro%ission has "o%pelled the plaintiF to litigatewith third persons or to in"ur e:penses to prote"this interest-

inally, petitioners "lai% that they should not &elia&le for interest sin"e the >ndertaking does not"ontain any stipulation for interest, and assu%ingthat they are lia&le, that the rate of interestshould not &e 12D per annu%, as ad@udged &y

the RC-

he se%inal ruling in ;astern 8hipping 9ines, =n"-v- Court of (ppeals51 set forth the rules withrespe"t to the %anner of "o%puting legalinterest

=- Hhen an o&ligation, regardless of its sour"e,i-e-, law, "ontra"ts, Auasi+"ontra"ts, deli"ts orAuasi+deli"ts is &rea"hed, the "ontravenor "an &eheld lia&le for da%ages- he provisions under

itle M.=== on !a%ages of the Civil Code governin deter%ining the %easure of re"overa&le

da%ages-==- Hith regard parti"ularly to an award of interestin the "on"ept of a"tual and "o%pensatoryda%ages, the rate of interest, as well as thea""rual thereof, is i%posed, as follows

1- Hhen the o&ligation is &rea"hed, and it"onsists in the pay%ent of a su% of %oney, i-e-, aloan or for&earan"e of %oney, the interest dueshould &e that whi"h %ay have &een stipulated inwriting- urther%ore, the interest due shall itselfearn legal interest fro% the ti%e it is @udi"ially

de%anded- =n the a&sen"e of stipulation, the rateof interest shall &e 12D per annu% to &e"o%puted fro% default, i-e-, fro% @udi"ial ore:tra@udi"ial de%and under and su&@e"t to theprovisions of (rti"le 117 of the Civil Code-

2- Hhen an o&ligation, not "onstituting a loan orfor&earan"e of %oney, is &rea"hed, an interest onthe a%ount of da%ages awarded %ay &ei%posed at the dis"retion of the "ourt at the rateof D per annu%- /o interest, however, shall &ead@udged on unliAuidated "lai%s or da%agese:"ept when or until the de%and "an &eesta&lished with reasona&le "ertainty-(""ordingly, where the de%and is esta&lishedwith reasona&le "ertainty, the interest shall &eginto run fro% the ti%e the "lai% is %ade @udi"iallyor e:tra@udi"ially )(rt- 117, Civil Code* &ut whensu"h "ertainty "annot &e so reasona&lyesta&lished at the ti%e the de%and is %ade, theinterest shall &egin to run only fro% the date the

@udg%ent of the "ourt is %ade )at whi"h ti%eAuanti"ation of da%ages %ay &e dee%ed to

have &een reasona&ly as"ertained*- he a"tual&ase for the "o%putation of legal interest shall, inany "ase, &e on the a%ount nally ad@udged-

3- Hhen the @udg%ent of the "ourt awarding asu% of %oney &e"o%es nal and e:e"utory, therate of legal interest, whether the "ase falls underparagraph 1 or paragraph 2, a&ove, shall &e 12Dper annu% fro% su"h nality until its satisfa"tion,this interi% period &eing dee%ed to &e &y thenan eAuivalent to a for&earan"e of "redit-52

8in"e what was the "onstituted in the

>ndertaking "onsisted of a pay%ent in a su% of%oney, the rate of interest thereon shall &e 12Dper annu% to &e "o%puted fro% default, i-e-,fro% @udi"ial or e:tra@udi"ial de%and- he interestrate i%posed &y the RC is thus proper- Iowever,the "o%putation should &e re"koned fro% @udi"ialor e:tra@udi"ial de%and- er re"ords, there is noindi"ation that 6rtigas %ade any e:tra@udi"ialde%and to petitioners and <atti after he paid!C, &ut on 14 <ar"h 1774, 6rtigas %ade a

@udi"ial de%and when he led a hird+artyCo%plaint praying that petitioners and <atti &e%ade to rei%&urse hi% for the pay%ents %ade to

!C- =t is the ling of this hird arty Co%plainton 14 <ar"h 1774 that should &e "onsidered asthe date of @udi"ial de%and fro% whi"h the"o%putation of interest should &e re"koned-538in"e the RC held that interest should &e"o%puted fro% 2' e&ruary 1774, theappropriate redenition should &e %ade-

HI;R;6R;, the etition is R(/;! in (R- he 6rder of the Regional rial Court dated 56"to&er 1775 is %odied &y de"laring thatpetitioners and Joseph <- <atti are only @ointlylia&le, not @ointly and severally, to respondent



Rafael 6rtigas, Jr- in the a%ount of1,300,000-00- he 6rder of the Regional rialCourt dated <ar"h 177 is <6!==;! in that thelegal interest of 12D per annu% on the a%ount of 1,300,000-00 is to &e "o%puted fro% 14 <ar"h1774, the date of @udi"ial de%and, and not fro%2' e&ruary 1774 as dire"ted in the 6rder of thelower "ourt- he assailed rulings are ar%ed inall other respe"ts- Costs against petitioners-

86 6R!;R;!-

BAN O& CO%%ERCE "#$ STEP)EN *.TAALA' VS S+ouses ANDRES "#$ ELI*A&LORES

Before the Court is a petition for review on"ertiorari under Rule 45 of the Rules of Court,assailing the !e"ision1 dated e&ruary 2', 200and the Resolution2 dated (ugust 7, 200 of theCourt of (ppeals )C(* in C(+-R- C. /o- '032-

he fa"ts of the "ase are as follows

Respondents led a "ase for spe"i" perfor%an"eagainst petitioners &efore the Regional rial Court)RC* of YueEon City, do"keted as Civil Case /o-Y+7'+35425- Respondents are the registeredowners of a "ondo%iniu% unit in ;%&assyarden Io%es, Hest riangle, YueEon City,registered under Condo%iniu% Certi"ate of itle)CC* /o- 2130,3 issued &y the Register of !eedsof YueEon City-4

6n 6"to&er 22, 1773, respondents &orrowed%oney fro% petitioner &ank in the a%ount of/ine Iundred housand esos )700,000-00*-Respondents e:e"uted a Real ;state <ortgage5over the "ondo%iniu% unit as "ollateral, and thesa%e was annotated at the &a"k of CC /o- 2130-

6n 6"to&er 3, 1775, respondents again &orrowed6ne <illion 6ne Iundred housand esos)1,100,000-00* fro% petitioner &ank, whi"h wasalso se"ured &y a %ortgage over the sa%eproperty annotated at the &a"k of CC /o- 2130-

6n January 2, 177, respondents paid 6ne <illion;leven housand ive Iundred ifty+ive esosand 54 "entavos )1,011,555-54*, as eviden"ed

&y 6"ial Re"eipt /o- 1441 issued &ypetitioner &ank- 6n the fa"e of the re"eipt, it waswritten that the pay%ent was in full pay%ent ofthe loan and interest- Respondents then askedpetitioner &ank to "an"el the %ortgageannotations on CC /o- 2130 sin"e the loansse"ured &y the real estate %ortgage were alreadypaid in full- Iowever, the &ank refused to "an"elthe sa%e and de%anded pay%ent of our <illion8i: Iundred hirty+hree housand /ine Iundred8i:teen esos and 8i:ty+8even Centavos )4,33,71-*, representing the outstanding

o&ligation of respondents as of e&ruary 2,177'- Respondents reAuested for an a""ountingwhi"h would e:plain how the said a%ount wasarrived at- Iowever, instead of heedingrespondentsO reAuest, petitioner &ank applied fore:tra+@udi"ial fore"losure of the %ortgages overthe "ondo%iniu% unit- he pu&li" au"tion salewas s"heduled on 8epte%&er 4, 177'- etitioner8tephen Z- aala, a notary pu&li", was tasked topreside over the au"tion sale-'

Respondents led suit with the RC, YueEon City,assailing the validity of the fore"losure andau"tion sale of the property- hey averred thatthe loans se"ured &y the property had already&een paid in full- urther%ore, they "lai%ed thatthe /oti"e of (u"tion 8ale &y /otary u&li"7failed to "o%ply with the provisions of ("t /o-3135, as a%ended &y ("t /o- 411', reAuiring thepu&li"ation and posting of the noti"e of au"tionsale in at least three )3* pu&li" pla"es in YueEonCity-10 Respondents likewise prayed for thepay%ent of %oral and e:e%plary da%ages, and

attorneyOs fees, and for the issuan"e of ate%porary restraining order andor writ ofpreli%inary in@un"tion to en@oin the e:tra+@udi"ialfore"losure sale of the property-11

6n 6"to&er 23, 177', the RC grantedrespondentsO prayer for issuan"e of a writ ofpreli%inary in@un"tion, restraining petitioner &ankfro% fore"losing on the %ortgage-12

etitioner &ank ad%itted that there were only two)2* %ortgage loans annotated at the &a"k of CC/o- 2130, &ut denied that respondents had

already fully settled their outstanding o&ligationswith the &ank-13 =t averred that several "reditlines were granted to respondent (ndres lores&y petitioner &ank that were se"ured &ypro%issory notes e:e"uted &y hi%, and whi"hwere either in"reased or e:tended fro% ti%e toti%e- he loan that was paid on January 2, 177,in the a%ount of 1,011,555-54, was only one ofhis loans with the &ank- here were re%ainingloans already due and de%anda&le, and had not&een paid &y respondents despite repeatedde%ands &y petitioner &ank- he re%ainingloans, although not availed of at the sa%e ti%e,

were si%ilarly se"ured &y the su&@e"t real estate%ortgage as provided in the "ontinuing guarantyagree%ent therein-14

etitioner &ank alleged that respondentsreAuested and were granted an in"rease in theirBills !is"ounted 9ine fro% /ine Iundred

housand esos )700,000-00* to wo <illionesos )2,000,000-00*, whi"h was se"ured &y thesa%e real estate %ortgage on CC /o- 2130-Iowever, the su&@e"t "ondo%iniu% unit"o%%anded only a %arket value of 6ne <illion8even Iundred wenty+hree housand 8i:



Iundred esos )1,23,00-00*, and a loan valueof /ine Iundred ifty+/ine housand 8i: Iundred8i:teen esos )757,1-00*- 8in"e the %arketvalue of the "ondo%iniu% unit was lower thanthe "o%&ined loans, the parties agreed to : thea%ount of the real estate %ortgage at1,100,000-00- <oreover, petitioner &ankstressed that under the ter%s of the two realestate %ortgages, future loans of respondentswere also "overed-151avvphi1

6n !e"e%&er 4, 2002, the RC rendered aresolution,1 the fallo of whi"h reads

R6< I; 6R;6=/ <=9=;>, the present "asefor spe"i" perfor%an"e with da%ages andin@un"tion led &y plaintiFs, 8ps- (ndres and ;liEalores against defendants, Bank of Co%%er"eand 8tephen Z- aala, is here&y !=8<=88;!-9ikewise, the "ounter"lai% led &y defendants,Bank of Co%%er"e and 8tephen Z- aala againstplaintiFs, 8ps- (ndres and ;liEa lores is!=8<=88;! for insu"ien"y of eviden"e-

86 6R!;R;!-1

=n denying respondentsO "o%plaint for spe"i"perfor%an"e, the RC ratio"inated thatrespondentsO right of a"tion hinged %ainly on thevera"ity of their "lai% that they faithfully"o%plied with their loan o&ligations and had fullypaid the% in January 177- he RC stated thatthe eviden"e su&%itted &y petitioner &ank,spe"i"ally the pro%issory notes and state%entof a""ount dated e&ruary 2, 177', negated this"ontention- he RC de"lared that respondents

in"urred other de&ts fro% petitioner &ank, whi"h%ust &e paid rst &efore they "ould &e a&solvedof lia&ility, and, "onseAuently, de%and therelease of the %ortgage- he RC also stru"kdown respondentsO assertion that petitioner &ankdid not "o%ply with the posting and pu&li"ationreAuire%ents under ("t /o- 3135, as a%ended-

Respondents led a %otion for re"onsideration,whi"h was, however, denied &y the RC in ade"ision1' dated (ugust ', 2003-

(ggrieved, respondents appealed to the C(-

<eanwhile, on <ar"h 25, 2004, the au"tion saleof the su&@e"t property was "ondu"ted, andpetitioner &ank was awarded the property, as thehighest &idder-

6n e&ruary 2', 200, the C( rendered a!e"ision17 reversing the de"ision and theresolution of the RC- he dispositive portion ofthe C( !e"ision reads

=/ .=;H 6 (99 I; 6R;6=/, the instantappeal is R(/;!G the "hallenged !e"ision

dated !e"e%&er 4, 2002, is R;.;R8;! and 8;(8=!;G and a new one entered

)a* ordering the "an"ellation of the real estate%ortgage annotations on the dorsal side of CC/o- 2130 of the Registry of !eeds of YueEon CityG

)&* ordering appellee Bank to issue a"orresponding release of %ortgages to plaintiFs+appellantsO CC /o- 2130G

)"* de"laring null and void the "hallenged e:tra+ @udi"ial fore"losure and pu&li" au"tion sale heldon <ar"h 25, 2004 together with the Certi"ate of8ale dated (pril 14, 2004 issued in favor ofappellee BankG and,

)d* appelleesO "ounter"lai%s are ordereddis%issed, for la"k of su"ient &asis therefor-

/o "osts-

86 6R!;R;!-20

he C( ratio"inated that the prin"ipal o&ligationor loan was already e:tinguished &y the fullpay%ent thereof- ConseAuently, the real estate%ortgages se"uring the prin"ipal o&ligation werealso e:tinguished- ( real estate %ortgage, &eingan a""essory "ontra"t, "annot survive without theprin"ipal o&ligation it se"ures- he C( also notedthat the two %ortgages were individuallyannotated at the &a"k of CC /o- 2130- hus, theC( opined that the individual annotations "learlyindi"ated that the said %ortgages were not%eant to serve as a "ontinuing guaranty for anyfuture loan that respondents would o&tain fro%

petitioner &ank-

etitioners led a %otion for re"onsideration- 6n(ugust 7, 200, the C( issued a Resolution21denying the sa%e-

Ien"e, the instant petition-

he sole issue for resolution is whether the realestate %ortgage over the su&@e"t "ondo%iniu%unit is a "ontinuing guaranty for the future loansof respondent spouses despite the full pay%entof the prin"ipal loans annotated on the title of the

su&@e"t property-

He resolve this issue in the ar%ative-

he "ontested portion of the !eed of Real ;state<ortgage dated 6"to&er 22, 1773 for theprin"ipal o&ligation of 700,000-00 and of these"ond one dated 6"to&er 3, 1775 for the su% of1,100,000-00, unifor%ly read

H=/;88;I hat



for and in "onsideration of the "redita""o%%odations granted &y the <6R(;;#Bank of Co%%er"e$ to the <6R(6R #(ndreslores$ andor NNNNNNNNNNNNNNNNNNNNN here&yinitially :ed at

NNNNNNNNNNNNNNNNNNNNNNNNNNNNN;868)NNNNNNNNNNNN*, hilippine Curren"y, and asse"urity for the pay%ent of the sa%e, on de%andor at %aturity as the "ase %ay &e, &e the interesta""ruing thereon, the "ost of "olle"ting the sa%e,the "ost of keeping the %ortgaged property)ies*,of all a%ounts now owed or hereafter owing &ythe <6R(6R to the <6R(;; under thisor separate instru%ents and agree%ents, or inrespe"t of any &ill, note, "he"k, draft a""epted,paid or dis"ounted, or advan"es %ade and allother o&ligations to every kind already in"urredor whi"h %ay hereafter &e in"urred, for the use ora""o%%odation of the <6R(6R, as well asthe faithful perfor%an"e of the ter%s and"onditions of this %ortgage and of the separateinstru%ents andor do"u%ents under whi"h"redits have &een or %ay hereafter &e advan"ed&y the <6R(;; to the <6R(6R,in"luding their renewals, e:tensions andsu&stitutions, any and all of whi"h separateinstru%ents andor do"u%ents and theirrenewals, e:tensions and su&stitutions arehereunto in"orporated and %ade integral partshereof, the <6R(6R #(ndres lores$ hastransferred and "onveyed, as &y these presentsithe does here&y transfer and "onvey, &y way ofirst <ortgage, to the <6R(;; #Bank ofCo%%er"e$, its su""essors and assigns, all its hisrights, title and interest to that par"el)s* of land,together with all the &uildings and i%prove%ents

now e:isting or whi"h %ay hereafter &e ere"tedor "onstru"ted thereon, in"luding all other rightsor &enets anne:ed to or inherent therein nowe:isting or whi"h %ay hereafter e:ist, situated in;%&assy arden Io%es, YueEon City,hilippines, and %ore parti"ularly des"ri&ed in6riginalransfer Certi"ate)s* of itle /o- CC /o-2130 of the Registry of !eeds #of$ YueEon City, asfollows

CC /o- 2130

>nit /o- 9+2, lo"ated on Building 9, "onsisting of

/inety ive point wenty )75-20* 8Auare <eters,%ore of less, with arking 8pa"e /o- 9+2-22

=t is petitioner &ankOs "ontention that the saidundertaking, stipulated in the !eed of Real ;state<ortgage dated 6"to&er 22, 1773 and 6"to&er 3,1775, is a "ontinuing guaranty %eant to se"urefuture de&ts or "redit a""o%%odations granted&y petitioner &ank in favor of respondents- 6n theother hand, respondents posit that, sin"e theyhave already paid the loans se"ured &y the realestate %ortgages, the %ortgage should not &efore"losed &e"ause it does not in"lude future

de&ts of the spouses or de&ts not annotated atthe &a"k of CC /o- 2130-

( "ontinuing guaranty is a re"ogniEed e:"eptionto the rule that an a"tion to fore"lose a %ortgage%ust &e li%ited to the a%ount %entioned in the%ortgage "ontra"t-23 >nder (rti"le 2053 of theCivil Code, a guaranty %ay &e given to se"ureeven future de&ts, the a%ount of whi"h %ay not&e known at the ti%e the guaranty is e:e"uted-

his is the &asis for "ontra"ts deno%inated as a"ontinuing guaranty or suretyship- ( "ontinuingguaranty is not li%ited to a single transa"tion, &ut"onte%plates a future "ourse of dealing, "overinga series of transa"tions, generally for anindenite ti%e or until revoked- =t is prospe"tivein its operation and is generally intended toprovide se"urity with respe"t to futuretransa"tions within "ertain li%its, and"onte%plates a su""ession of lia&ilities, for whi"h,as they a""rue, the guarantor &e"o%es lia&le- =nother words, a "ontinuing guaranty is one that"overs all transa"tions, in"luding those arising in

the future, whi"h are within the des"ription or"onte%plation of the "ontra"t of guaranty, untilthe e:piration or ter%ination thereof-24

( guaranty shall &e "onstrued as "ontinuingwhen, &y the ter%s thereof, it is evident that theo&@e"t is to give a standing "redit to the prin"ipalde&tor to &e used fro% ti%e to ti%e eitherindenitely or until a "ertain period, espe"ially ifthe right to re"all the guaranty is e:presslyreserved- =n other @urisdi"tions, it has &een heldthat the use of parti"ular words and e:pressions,su"h as pay%ent of any de&t, any

inde&tedness, any de"ien"y, or any su%, orthe guaranty of any transa"tion or %oney to &efurnished the prin"ipal de&tor at any ti%e oron su"h ti%e that the prin"ipal de&tor %ayreAuire, has &een "onstrued to indi"ate a"ontinuing guaranty-25

=n the instant "ase, the language of the realestate %ortgage una%&iguously reveals that these"urity provided in the real estate %ortgage is"ontinuing in nature- hus, it was intended asse"urity for the pay%ent of the loans annotatedat the &a"k of CC /o- 2130, and as se"urity for

all a%ounts that respondents %ay owe petitioner&ank- =t is well settled that %ortgages given tose"ure future advan"e or loans are valid and lega"ontra"ts, and that the a%ounts na%ed as"onsideration in said "ontra"ts do not li%it thea%ount for whi"h the %ortgage %ay stand asse"urity if fro% the four "orners of the instru%entthe intent to se"ure future and otherinde&tedness "an &e gathered-2

( %ortgage given to se"ure advan"e%ents is a"ontinuing se"urity and is not dis"harged &yrepay%ent of the a%ount na%ed in the %ortgage



until the full a%ounts of the advan"e%ents arepaid-2 RespondentsO full pay%ent of the loansannotated on the title of the property shall noteFe"t the release of the %ortgage &e"ause, &ythe e:press ter%s of the %ortgage, it was %eantto se"ure all future de&ts of the spouses and su"hde&ts had &een o&tained and re%ain unpaid->nless full pay%ent is %ade &y the spouses of allthe a%ounts that they have in"urred fro%petitioner &ank, the property is &urdened &y the%ortgage-

WHEREFORE, in view of the foregoing, theDecision dated February 28, 2006 and theResoution dated !ugust ", 200 of the Court of(ppeals in C(+-R- C. /o- '032 are here&yR;.;R8;! and 8; (8=!;- he de"ision of theRegional rial Court dated !e"e%&er 4, 2002 ishere&y R;=/8(;!-

86 6R!;R;!-

%ARIANO LI% vs. SEC,RITY BAN

CORPORATION

his deals with the etition for Review onCertiorari under Rule 45 of the Rules of Courtpraying that the !e"ision1 of the Court of (ppeals)C(*, pro%ulgated on July 30, 200', and theResolution2 dated June 1, 2007, denyingpetitioner[s %otion for re"onsideration thereof, &ereversed and set aside-

etitioner e:e"uted a Continuing 8uretyship infavor of respondent to se"ure any and all typesof "redit a""o%%odation that %ay &e granted &y

the &ank hereinto and hereinafter in favor ofRaul (rroyo for the a%ount of 2,000,000-00whi"h is "overed &y a Credit(gree%entro%issory /ote-3 8aid pro%issorynote stated that the interest on the loan shall &e17D per annu%, "o%pounded %onthly, for therst 30 days fro% the date thereof, and if thenote is not fully paid when due, an additionalpenalty of 2D per %onth of the total outstandingprin"ipal and interest due and unpaid, shall &ei%posed-

=n turn, the Continuing 8uretyship4 e:e"uted &ypetitioner stipulated that

3- 9ia&ility of the 8urety- + he lia&ility of the8urety is solidary and not "ontingent upon thepursuit of the Bank of whatever re%edies it %ayhave against the !e&tor or the "ollateralsliens it%ay possess- =f any of the uaranteed6&ligations is not paid or perfor%ed on due date)at stated %aturity or &y a""eleration*, the 8uretyshall, without need for any noti"e, de%and or anyother a"t or deed, i%%ediately &e"o%e lia&letherefor and the 8urety shall pay and perfor% thesa%e-5

uaranteed 6&ligations are dened in the sa%edo"u%ent as follows

a* uaranteed 6&ligations + the o&ligations ofthe !e&tor arising fro% all "redita""o%%odations e:tended &y the Bank to the!e&tor, in"luding in"reases, renewals, roll+overs,e:tensions, restru"turings, a%end%ents ornovations thereof, as well as )i* all o&ligations ofthe !e&tor presently or hereafter owing to theBank, as appears in the a""ounts, &ooks andre"ords of the Bank, whether dire"t or indire"t,and )ii* any and all e:penses whi"h the Bank %ayin"ur in enfor"ing any of its rights, powers andre%edies under the Credit =nstru%ents as denedherein&elow-

he de&tor, Raul (rroyo, defaulted on his loano&ligation- hereafter, petitioner re"eived a/oti"e of inal !e%and dated (ugust 2, 2001,infor%ing hi% that he was lia&le to pay the loano&tained &y Raul and ;dwina (rroyo, in"ludingthe interests and penalty fees a%ounting to

,03,1'5-54, and de%anding pay%ent thereof-or failure of petitioner to "o%ply with saidde%and, respondent led a "o%plaint for"olle"tion of su% of %oney against hi% and the(rroyo spouses- 8in"e the (rroyo spouses "an nolonger &e lo"ated, su%%ons was not served onthe%, hen"e, only petitioner a"tively parti"ipatedin the "ase-

(fter trial, the Regional rial Court of !avao )RC*rendered @udg%ent against petitioner- hedispositive portion of the RC !e"ision reads asfollows

Hherefore, @udg%ent is here&y rendered orderingdefendant 9i% to pay the following su%s-

1- he prin"ipal su% of two %illion pesos plusnineteen per"ent interest of the outstandingprin"ipal interest due and unpaid to &e "o%putedfro% January 2', 177 until fully paid, plus twoper"ent interest per %onth as penalty to &e"o%puted fro% e&ruary 2', 177 until fully paid-

2- our hundred thousand pesos as attorney[sfees-

3- hirty thousand pesos as litigation e:penses-

86 6R!;R;!-'

etitioner appealed to the C(, &ut the appellate"ourt, in its !e"ision dated July 30, 200', ar%edthe RC @udg%ent with the %odi"ation thatinterest &e "o%puted fro% (ugust 1, 177G thepenalty should start only fro% (ugust 2', 177Gthe award of attorney[s fees is set at 10D of thetotal a%ount dueG and the award for litigatione:penses in"reased to 72,321-10-7



etitioner[s %otion for re"onsideration of the C(!e"ision was denied per Resolution dated June 1,2007-

etitioner then elevated the %atter to this Courtvia a petition for review on "ertiorari, where the%ain issue is whether petitioner %ay validly &eheld lia&le for the prin"ipal de&tor[s loan o&tainedsi: %onths after the e:e"ution of the Continuing8uretyship-

he other issues, su"h as the proper "o%putationof the total inde&tedness and the a%ount oflitigation e:penses are fa"tual %atters that had&een satisfa"torily addressed &y the C(, to wit)1* the C( ruled that respondent shouldre"o%pute the total a%ount due, sin"e thepro"eeds fro% the fore"losure of the real estateand "hattel %ortgages were dedu"ted only on

June 20, 2001, when the pu&li" au"tions were"ondu"ted on (ugust 2, 177' and 8epte%&er ,1777, respe"tively, thus, the a%ount of thepro"eeds fro% the fore"losure of the %ortgaged

properties should have &een dedu"ted fro% thea%ount of inde&tedness on the date the pu&li"au"tion was heldG and )2* the C( likewise pointedout that as "an &e seen fro% the 9egal eesor%,10 the litigation e:pense in"urred &yrespondent was 72,321-10, the a%ount it paidas ling fee- =t is horn&ook prin"iple that thisCourt is not a trier of fa"ts, hen"e, su"h issueswill not &e revisited &y this Court in the presentpetition- Hith regard to the propriety of %akingpetitioner a hostile witness, respondent is "orre"tthat the issue "annot &e raised for the rst ti%eon appeal- hus, the Court will no longer address

these issues whi"h had &een i%properly raised inthis petition for review on "ertiorari-

he %ain issue deserves s"ant "onsideration, &utthe %atter of the award of attorney[s feesdeserves ree:a%ination-

he nature of a suretyship is elu"idated inhilippine Charter =nsuran"e Corporation v-etroleu% !istri&utors 8ervi"e Corporation11 inthis wise

( "ontra"t of suretyship is an agree%ent where&ya party, "alled the surety, guarantees theperfor%an"e &y another party, "alled theprin"ipal or o&ligor, of an o&ligation orundertaking in favor of another party, "alled theo&ligee- (lthough the "ontra"t of a surety isse"ondary only to a valid prin"ipal o&ligation, thesurety &e"o%es lia&le for the de&t or duty ofanother although it possesses no dire"t orpersonal interest over the o&ligations nor does itre"eive any &enet therefro%- his was e:plainedin the "ase of 8tronghold =nsuran"e Co%pany,=n"- v- Repu&li"+(sahi lass Corporation, where itwas written

he surety[s o&ligation is not an original anddire"t one for the perfor%an"e of his own a"t, &ut%erely a""essory or "ollateral to the o&ligation"ontra"ted &y the prin"ipal- /evertheless,although the "ontra"t of a surety is in essen"ese"ondary only to a valid prin"ipal o&ligation, hislia&ility to the "reditor or pro%isee of theprin"ipal is said to &e dire"t, pri%ary anda&soluteG in other words, he is dire"tly andeAually &ound with the prin"ipal-

: : : :

hus, suretyship arises upon the solidary &indingof a person dee%ed the surety with the prin"ipalde&tor for the purpose of fullling an o&ligation- (surety is "onsidered in law as &eing the sa%eparty as the de&tor in relation to whatever isad@udged tou"hing the o&ligation of the latter,and their lia&ilities are interwoven as to &einsepara&le- : : :-12

=n this "ase, what petitioner e:e"uted was a

Continuing 8uretyship, whi"h the Court des"ri&edin 8aludo, Jr- v- 8e"urity Bank Corporation13 asfollows

he essen"e of a "ontinuing surety has &eenhighlighted in the "ase of otanes v- ChinaBanking Corporation in this wise

Co%prehensive or "ontinuing surety agree%entsare, in fa"t, Auite "o%%onpla"e in present daynan"ial and "o%%er"ial pra"ti"e- ( &ank ornan"ing "o%pany whi"h anti"ipates enteringinto a series of "redit transa"tions with a

parti"ular "o%pany, nor%ally reAuires thepro@e"ted prin"ipal de&tor to e:e"ute a "ontinuingsurety agree%ent along with its sureties- Bye:e"uting su"h an agree%ent, the prin"ipalpla"es itself in a position to enter into thepro@e"ted series of transa"tions with its "reditorGwith su"h suretyship agree%ent, there would &eno need to e:e"ute a separate surety "ontra"t or&ond for ea"h nan"ing or "redit a""o%%odatione:tended to the prin"ipal de&tor-14

he ter%s of the Continuing 8uretyship e:e"uted&y petitioner, Auoted earlier, are very"lear-1\wphi1 =t states that petitioner, as surety,shall, without need for any noti"e, de%and or anyother a"t or deed, i%%ediately &e"o%e lia&le andshall pay all "redit a""o%%odations e:tended &ythe Bank to the !e&tor, in"luding in"reases,renewals, roll+overs, e:tensions, restru"turings,a%end%ents or novations thereof, as well as )i*all o&ligations of the !e&tor presently orhereafter owing to the Bank, as appears in thea""ounts, &ooks and re"ords of the Bank, whetherdire"t or indire"t, and



)ii* any and all e:penses whi"h the Bank %ayin"ur in enfor"ing any of its rights, powers andre%edies under the Credit =nstru%ents as denedherein&elow-15 8u"h stipulations are valid andlegal and "onstitute the law &etween the parties,as (rti"le 2053 of the Civil Code provides that #a$guaranty %ay also &e given as se"urity for futurede&ts, the a%ount of whi"h is not yet knownG : ::- hus, petitioner is uneAuivo"ally &ound &y theter%s of the Continuing 8uretyship- here "an &eno "avil then that petitioner is lia&le for theprin"ipal of the loan, together with the interestand penalties due thereon, even if said loan waso&tained &y the prin"ipal de&tor even after thedate of e:e"ution of the Continuing 8uretyship-

Hith regard to the award of attorney[s fees, itshould &e noted that (rti"le 220' of the CivilCode does not prohi&it re"overy of attorney[s feesif there is a stipulation in the "ontra"t forpay%ent of the sa%e- hus, in (sian Constru"tionand !evelop%ent Corporation v- Cathay a"i"8teel Corporation )C((8C6*,1 the Court, "iting

itan Constru"tion Corporation v- >ni+ield;nterprises, =n"-,1 e:pounded as follows

he law allows a party to re"over attorney[s feesunder a written agree%ent- =n Barons <arketingCorporation v- Court of (ppeals, the Court ruledthat

#$he attorney[s fees here are in the nature ofliAuidated da%ages and the stipulation therefor isaptly "alled a penal "lause- =t has &een said thatso long as su"h stipulation does not "ontravenelaw, %orals, or pu&li" order, it is stri"tly &inding

upon defendant- he attorney[s fees so providedare awarded in favor of the litigant, not his"ounsel-

6n the other hand, the law also allows parties toa "ontra"t to stipulate on liAuidated da%ages to&e paid in "ase of &rea"h- ( stipulation onliAuidated da%ages is a penalty "lause where theo&ligor assu%es a greater lia&ility in "ase of&rea"h of an o&ligation- he o&ligor is &ound topay the stipulated a%ount without need for proofon the e:isten"e and on the %easure of da%ages"aused &y the &rea"h-1'

Iowever, even if su"h attorney[s fees are allowed&y law, the "ourts still have the power to redu"ethe sa%e if it is unreasona&le- =n rade =nvest%ent Corporation of the hilippines v-Ro&lett =ndustrial Constru"tion Corp-,17 the CourteAuita&ly redu"ed the a%ount of attorney[s feesto &e paid sin"e interests and penalties had&allooned to thri"e as %u"h as the prin"ipal de&t-

hat is also the "ase here- he award ofattorney[s fees a%ounting to ten per"ent )10D*of the prin"ipal de&t, plus interest and penalty"harges, would denitely e:"eed the prin"ipal

a%ountG thus, %aking the attorney[s fees%anifestly e:or&itant- Ien"e, we redu"e thea%ount of attorney[s fees to ten per"ent )10D* ofthe prin"ipal de&t only-

HI;R;6R;, the petition is (R=(99L R(/;!- he !e"ision of the Court of (ppeals, dated July30, 200', in C(+-R- C. /o- 0042, is (=R<;!with <6!==C(=6/ in that the award ofattorney[s fees is redu"ed to ten per"ent )10D* ofthe prin"ipal de&t only-

86 6R!;R;!

&IDELI*A (. AGLIBOT vs.INGERSOL L. SANTIA

Before the Court is a etition for Review onCertiorari under Rule 45 of the 177 Rules of Civilro"edure seeking to annul and set aside the!e"ision1 dated <ar"h = ', 200' of the Court of(ppeals )C(* in C(+-R- 8 /o- 100021, whi"hreversed the !e"ision2 dated (pril 3, 200 of theRegional rial Court )RC* of !agupan City,

Bran"h 40, in Cri%inal Case /os- 200+0557+! to200+057+! and entered a new @udg%ent- hefallo reads as follows

HI;R;6R;, the instant petition is R(/;! andthe assailed Joint !e"ision dated (pril 3, 200 ofthe RC of !agupan City, Bran"h 40, and its 6rderdated June 12, 200 are R;.;R8;! (/! 8;(8=!; and a new one is entered ordering privaterespondent ideliEa J- (gli&ot to pay petitioner thetotal a%ount of 3,000,000-00 with 12D interestper annu% fro% the ling of the =nfor%ationsuntil the nality of this !e"ision, the su% of

whi"h, in"lusive of interest, shall &e su&@e"tthereafter to 12D annual interest until fully paid-

86 6R!;R;!-3

6n !e"e%&er 23, 200', the appellate "ourtdenied herein petitionerOs %otion forre"onsideration-

(nte"edent a"ts

rivate respondent+"o%plainant ;ngr- =ngersol 9-8antia )8antia* loaned the a%ount of2,500,000-00 to a"i" 9ending Capital

Corporation )9CC*, through its <anager,petitioner ideliEa J- (gli&ot )(gli&ot*- he loanwas eviden"ed &y a ro%issory /ote dated July 1,2003, issued &y (gli&ot in &ehalf of 9CC, paya&lein one year su&@e"t to interest at 24D per annu%-(llegedly as a guaranty or se"urity for thepay%ent of the note, (gli&ot also issued anddelivered to 8antia eleven )11* post+datedpersonal "he"ks drawn fro% her own de%anda""ount %aintained at <etro&ank, Ca%ilingBran"h- (gli&ot is a %a@or sto"kholder of 9CC,with headAuarters at 2 Casi%iro ownhouse,Casi%iro (venue, Zapote, 9as iTas, <etro



<anila, where %ost of the sto"kholders alsoreside-4

>pon present%ent of the aforesaid "he"ks forpay%ent, they were dishonored &y the &ank forhaving &een drawn against insu"ient funds or"losed a""ount- 8antia thus de%anded pay%entfro% 9CC and (gli&ot of the fa"e value of the"he"ks, &ut neither of the% heeded his de%and-ConseAuently, eleven )11* =nfor%ations forviolation of Batas a%&ansa Bilang 22 )B-- 22*,"orresponding to the nu%&er of dishonored"he"ks, were led against (gli&ot &efore the<uni"ipal rial Court in Cities )<CC*, !agupanCity, Bran"h 3, do"keted as Cri%inal Case /os-44 to 44- ;a"h =nfor%ation, e:"ept as tothe a%ount, nu%&er and date of the "he"ks, andthe reason for the dishonor, unifor%ly alleged, asfollows

hat so%eti%e in the %onth of 8epte%&er, 2003in the City of !agupan, hilippines and within the

@urisdi"tion of this Ionora&le Court, the a&ove+

na%ed a""used, =!;9=Z( J- (9=B6, did thenand there, willfully, unlawfully and "ri%inally,draw, issue and deliver to one ;ngr- =ngersol 9-8antia, a <;R6B(/K Che"k /o- 000,Ca%iling arla" Bran"h, postdated /ove%&er 1,2003, in the a%ount of 50,000-00, hilippineCurren"y, paya&le to and in pay%ent of ano&ligation with the "o%plainant, although thesaid a""used knew fully well that she did nothave su"ient funds in or "redit with the said&ank for the pay%ent of su"h "he"k in full uponits present%ent, su"h that when the said "he"kwas presented to the drawee &ank for pay%ent

within ninety )70* days fro% the date thereof, thesa%e was dishonored for reason !(=, andreturned to the "o%plainant, and despite noti"eof dishonor, a""used failed andor refused to payandor %ake good the a%ount of said "he"kwithin ve )5* days &anking days #si"$, to theda%age and pre@udi"e of one ;ngr- =ngersol 9-8antia in the aforesaid a%ount of 50,000-00 andother "onseAuential da%ages-5

(gli&ot, in her "ounter+adavit, ad%itted that shedid o&tain a loan fro% 8antia, &ut "lai%ed thatshe did so in &ehalf of 9CCG that &efore granting

the loan, 8antia de%anded and o&tained fro% hera se"urity for the repay%ent thereof in the for%of the aforesaid "he"ks, &ut with theunderstanding that upon re%ittan"e in "ash ofthe fa"e a%ount of the "he"ks, 8antia would"orrespondingly return to her ea"h "he"k so paidG&ut despite having already paid the said "he"ks,8antia refused to return the% to her, although hegave her assuran"e that he would not depositthe%G that in &rea"h of his pro%ise, 8antiadeposited her "he"ks, resulting in their dishonorGthat she did not re"eive any noti"e of dishonor ofthe "he"ksG that for want of noti"e, she "ould not

&e held "ri%inally lia&le under B-- 22 over thesaid "he"ksG and that the reason 8antia led the"ri%inal "ases against her was &e"ause sherefused to agree to his de%and for higherinterest-

6n (ugust 1', 200, the <CC in its Joint!e"ision de"reed as follows

HI;R;6R;, in view of the foregoing, the

a""used, =!;9=Z( J- (9=B6, is here&y(CY>=;! of all "ounts of the "ri%e of violationof the &oun"ing "he"ks law on reasona&le dou&t-Iowever, the said a""used is ordered to pay theprivate "o%plainant the su% of 3,000,000-00representing the total fa"e value of the eleven"he"ks plus interest of 12D per annu% fro% theling of the "ases on /ove%&er 2, 2004 until fullypaid, attorneyOs fees of 30,000-00 as well as the"ost of suit-

86 6R!;R;!-

6n appeal, the RC rendered a !e"ision dated(pril 3, 200 in Cri%inal Case /os- 200+0557+!to 200+057+!, whi"h further a&solved (gli&ot ofany "ivil lia&ility towards 8antia, to wit

HI;R;6R;, pre%ises "onsidered, the Joint!e"ision of the "ourt a Auo regarding the "ivilaspe"t of these "ases is reversed and set asideand a new one is entered dis%issing the said "ivilaspe"t on the ground of failure to fulll, a"ondition pre"edent of e:hausting all %eans to"olle"t fro% the prin"ipal de&tor-

86 6R!;R;!-

8antiaOs %otion for re"onsideration was denied inthe RCOs 6rder dated June 12, 200-' 6n petitionfor review to the C( do"keted as C(+-R- 8 /o-100021, 8antia interposed the followingassign%ent of errors, to wit

=n &rushing aside the law and @urispruden"e onthe %atter, the Regional rial Court seriouslyerred

1- =n reversing the @oint de"ision of the trial "ourt&y dis%issing the "ivil aspe"t of these "asesG

2- =n "on"luding that it is the a"i" 9ending andCapital Corporation and not the privaterespondent whi"h is prin"ipally responsi&le forthe a%ount of the "he"ks &eing "lai%ed &y thepetitionerG

3- =n nding that the petitioner failed to e:haustall availa&le legal re%edies against the prin"ipalde&tor a"i" 9ending and Capital CorporationG

4- =n nding that the private respondent is a %ereguarantor and not an a""o%%odation party, and



thus, "annot &e "o%pelled to pay the petitionerunless all legal re%edies against the a"i"9ending and Capital Corporation have &eene:hausted &y the petitionerG

5- =n denying the %otion for re"onsideration led&y the petitioner-7

=n its now assailed de"ision, the appellate "ourtre@e"ted the RCOs dis%issal of the "ivil aspe"t of

the aforesaid B-- 22 "ases &ased on the ground it"ited, whi"h is that the failure to fulll a"ondition pre"edent of e:hausting all %eans to"olle"t fro% the prin"ipal de&tor- he appellate"ourt held that sin"e (gli&otOs a"Auittal &y the<CC in Cri%inal Case /os- 44 to 44 wasupon a reasona&le dou&t10 on whether theprose"ution was a&le to satisfa"torily esta&lishthat she did re"eive a noti"e of dishonor, areAuisite to hold her "ri%inally lia&le under B--22, her a"Auittal did not operate to &ar 8antiaOsre"overy of "ivil inde%nity-

=t is a:io%ati" that the e:tin"tion of penal a"tiondoes not "arry with it the eradi"ation of "ivillia&ility, unless the e:tin"tion pro"eeds fro% ade"laration in the nal @udg%ent that the fa"tfro% whi"h the "ivil lia&ility %ight arise did note:ist- ("Auittal will not &ar a "ivil a"tion in thefollowing "ases )1* where the a"Auittal is &asedon reasona&le dou&t as only preponderan"e ofeviden"e is reAuired in "ivil "asesG )2* where the"ourt de"lared the a""usedOs lia&ility is not"ri%inal &ut only "ivil in nature#G$ and )3* wherethe "ivil lia&ility does not arise fro% or is not&ased upon the "ri%inal a"t of whi"h the a""used

was a"Auitted-11 )Citation o%itted*

he C( therefore ordered (gli&ot to personallypay 8antia 3,000,000-00 with interest at 12Dper annu%, fro% the ling of the =nfor%ationsuntil the nality of its de"ision- hereafter, thesu% due, to &e "o%pounded with the a""ruedinterest, will in turn &e su&@e"t to annual interestof 12D fro% the nality of its @udg%ent until fullpay%ent- =t thus %odied the <CC @udg%ent,whi"h si%ply i%posed a straight interest of 12Dper annu% fro% the ling of the "ases on/ove%&er 2, 2004 until the 3,000,000-00 due is

fully paid, plus attorneyOs fees of 30,000-00 andthe "osts of the suit-

=ssue

/ow &efore the Court, (gli&ot %aintains that itwas error for the appellate "ourt to ad@udge herpersonally lia&le for issuing her own eleven )11*post+dated "he"ks to 8antia, sin"e she did so in&ehalf of her e%ployer, 9CC, the true &orrowerand &ene"iary of the loan- 8till %aintaining thatshe was a %ere guarantor of the said de&t of9CC when she agreed to issue her own "he"ks,

(gli&ot insists that 8antia failed to e:haust all%eans to "olle"t the de&t fro% 9CC, theprin"ipal de&tor, and therefore he "annot now &eper%itted to go after her su&sidiary lia&ility-

Ruling of the Court

he petition is &ereft of %erit-

(gli&ot "annot invoke the &enet of e:"ussion

he RC in its de"ision held that, =t is o&vious,fro% the fa"e of the ro%issory /ote : : : thatthe a""used+appellant signed the sa%e on &ehalfof 9CC as <anager thereof and nowhere does itappear therein that she signed as ana""o%%odation party-12 he RC further ruledthat what (gli&ot agreed to do &y issuing herpersonal "he"ks was %erely to guarantee theinde&tedness of 9CC- 8o now petitioner (gli&otreasserts that as a guarantor she %ust &ea""orded the &enet of e:"ussion S priore:haustion of the property of the de&tor S as

provided under (rti"le 205' of the Civil Code, towit

(rt- 205'- he guarantor "annot &e "o%pelled topay the "reditor unless the latter has e:haustedall the property of the de&tor, and has resorted toall the legal re%edies against the de&tor-

=t is settled that the lia&ility of the guarantor isonly su&sidiary, and all the properties of theprin"ipal de&tor, the 9CC in this "ase, %ust rst&e e:hausted &efore the guarantor %ay &e heldanswera&le for the de&t-13 hus, the "reditor%ay hold the guarantor lia&le only after @udg%enthas &een o&tained against the prin"ipal de&torand the latter is una&le to pay, for o&viously theUe:haustion of the prin"ipalOs propertyO ] the&enet of whi"h the guarantor "lai%s ] "annoteven &egin to take pla"e &efore @udg%ent has&een o&tained-14 his rule is "ontained in (rti"le20215 of the Civil Code, whi"h provides that thea"tion &rought &y the "reditor %ust &e ledagainst the prin"ipal de&tor alone, e:"ept inso%e instan"es %entioned in (rti"le 20571when the a"tion %ay &e &rought against &oth theguarantor and the prin"ipal de&tor-

he Court %ust, however, re@e"t (gli&otOs "lai%as a %ere guarantor of the inde&tedness of 9CCto 8antia for want of proof, in view of (rti"le1403)2* of the Civil Code, e%&odying the 8tatuteof rauds, whi"h provides

(rt- 1403- he following "ontra"ts areunenfor"ea&le, unless they are ratied

: : : :

)2* hose that do not "o%ply with the 8tatute ofrauds as set forth in this nu%&er- =n the following



"ases an agree%ent hereafter %ade shall &eunenfor"ea&le &y a"tion, unless the sa%e, orso%e note or %e%orandu% thereof, &e in writing,and su&s"ri&ed &y the party "harged, or &y hisagentG eviden"e, therefore, of the agree%ent"annot &e re"eived without the writing, or ase"ondary eviden"e of its "ontents

a* (n agree%ent that &y its ter%s is not to &eperfor%ed within a year fro% the %aking thereofG

&* ( spe"ial pro%ise to answer for the de&t,default, or %is"arriage of anotherG

"* (n agree%ent %ade in "onsideration of%arriage, other than a %utual pro%ise to %arryG

d* (n agree%ent for the sale of goods, "hattels orthings in a"tion, at a pri"e not less than vehundred pesos, unless the &uyer a""ept andre"eive part of su"h goods and "hattels, or theeviden"es, or so%e of the%, or su"h things ina"tion, or pay at the ti%e so%e part of the

pur"hase %oneyG &ut when a sale is %ade &yau"tion and entry is %ade &y the au"tioneer inhis sales &ook, at the ti%e of the sale, of thea%ount and kind of property sold, ter%s of sale,pri"e, na%es of pur"hasers and person on whosea""ount the sale is %ade, it is a su"ient%e%orandu%G

e* (n agree%ent for the leasing of a longer periodthan one year, or for the sale of real property orof an interest thereinG

f* ( representation to the "redit of a third person-)=tali"s ours*

>nder the a&ove provision, "on"erning a guarantyagree%ent, whi"h is a pro%ise to answer for thede&t or default of another,1 the law "learlyreAuires that it, or so%e note or %e%orandu%thereof, &e in writing- 6therwise, it would &eunenfor"ea&le unless ratied,1' although under(rti"le 135'17 of the Civil Code, a "ontra"t ofguaranty does not have to appear in a pu&li"do"u%ent-20 Contra"ts are generally o&ligatoryin whatever for% they %ay have &een enteredinto, provided all the essential reAuisites for theirvalidity are present, and the 8tatute of rauds

si%ply provides the %ethod &y whi"h the"ontra"ts enu%erated in (rti"le 1403)2* %ay &eproved, &ut it does not de"lare the% invalid @ust&e"ause they are not redu"ed to writing- hus,the for% reAuired under the 8tatute is for"onvenien"e or evidentiary purposes only-21

6n the other hand, (rti"le 2055 of the Civil Codealso provides that a guaranty is not presu%ed,&ut %ust &e e:press, and "annot e:tend to %orethan what is stipulated therein- his is theo&vious rationale why a "ontra"t of guarantee is

unenfor"ea&le unless %ade in writing oreviden"ed &y so%e writing- or as pointed out &y8antia, (gli&ot has not shown any proof, su"h asa "ontra"t, a se"retaryOs "erti"ate or a &oardresolution, nor even a note or %e%orandu%thereof, where&y it was agreed that she wouldissue her personal "he"ks in &ehalf of the"o%pany to guarantee the pay%ent of its de&t to8antia- Certainly, there is nothing shown in thero%issory /ote signed &y (gli&ot herselfre%otely "ontaining an agree%ent &etween herand 9CC rese%&ling her guaranteeing its de&t to8antia- (nd neither is there a showing that 9CCthereafter ratied her a"t of guaranteeing itsinde&tedness &y issuing her own "he"ks to8antia-

hus did the C( re@e"t the RCOs ruling that(gli&ot was a %ere guarantor of the inde&tednessof 9CC, and as su"h "ould not &e "o%pelled topay #8antia$, unless the latter has e:hausted allthe property of 9CC, and has resorted to all thelegal re%edies against 9CC : : :-22

(gli&ot is an a""o%%odation party and thereforelia&le to 8antia

8e"tion 1'5 of the /egotia&le =nstru%ents 9awdenes a "he"k as a &ill of e:"hange drawn on a&ank paya&le on de%and, while 8e"tion 12 ofthe said law denes a &ill of e:"hange as anun"onditional order in writing addressed &y oneperson to another, signed &y the person giving it,reAuiring the person to who% it is addressed topay on de%and or at a :ed or deter%ina&lefuture ti%e a su% "ertain in %oney to order or to

&earer-

he appellate "ourt ruled that &y issuing her ownpost+dated "he"ks, (gli&ot there&y &ound herselfpersonally and solidarily to pay 8antia, anddis%issed her "lai% that she issued her said"he"ks in her o"ial "apa"ity as 9CCOs %anager%erely to guarantee the invest%ent of 8antia- =tnoted that she "ould have issued 9CCOs "he"ks,&ut instead she "hose to issue her own "he"ks,drawn against her personal a""ount with<etro&ank- =t "on"luded that (gli&ot intended topersonally assu%e the repay%ent of the loan,

pointing out that in her Counter+(davit, sheeven ad%itted that she was personally inde&tedto 8antia, and only raised pay%ent as herdefense, a "lear ad%ission of her lia&ility for thesaid loan-

he appellate "ourt refused to give "reden"e to(gli&otOs "lai% that she had an understandingwith 8antia that the "he"ks would not &epresented to the &ank for pay%ent, &ut were to&e returned to her on"e she had %ade "ashpay%ents for their fa"e values on %aturity- =tnoted that (gli&ot failed to present any proof that



she had indeed paid "ash on the a&ove "he"ks asshe "lai%ed- his is pre"isely why 8antia de"idedto deposit the "he"ks in order to o&tain pay%entof his loan-

he fa"ts &elow present a "lear situation where(gli&ot, as the %anager of 9CC, agreed toa""o%%odate its loan to 8antia &y issuing herown post+dated "he"ks in pay%ent thereof- 8he iswhat the /egotia&le =nstru%ents 9aw "alls ana""o%%odation party-23 Con"erning the lia&ilityof an a""o%%odation party, 8e"tion 27 of thesaid law provides

8e"- 27- 9ia&ility of an a""o%%odation party- ](n a""o%%odation party is one who has signedthe instru%ent as %aker, drawer, a""eptor, orindorser, without re"eiving value therefor, and forthe purpose of lending his na%e to so%e otherperson- 8u"h a person is lia&le on the instru%entto a holder for value notwithstanding su"h holderat the ti%e of taking the instru%ent knew hi% to&e only an a""o%%odation party-

(s ela&orated in he hil- Bank of Co%%er"e v-(ruego24

(n a""o%%odation party is one who has signedthe instru%ent as %aker, drawer, indorser,without re"eiving value therefor and for thepurpose of lending his na%e to so%e otherperson- 8u"h person is lia&le on the instru%ent toa holder for value, notwithstanding su"h holder,at the ti%e of the taking of the instru%ent knewhi% to &e only an a""o%%odation party- =nlending his na%e to the a""o%%odated party,

the a""o%%odation party is in eFe"t a surety forthe latter- Ie lends his na%e to ena&le thea""o%%odated party to o&tain "redit or to raise%oney- Ie re"eives no part of the "onsiderationfor the instru%ent &ut assu%es lia&ility to theother parties thereto &e"ause he wants toa""o%%odate another- : : :-25 )Citation o%itted*

he relation &etween an a""o%%odation partyand the party a""o%%odated is, in eFe"t, one ofprin"ipal and surety ] the a""o%%odation party&eing the surety- =t is a settled rule that a suretyis &ound eAually and a&solutely with the prin"ipaland is dee%ed an original pro%isor and de&torfro% the &eginning- he lia&ility is i%%ediate anddire"t-2 =t is not a valid defense that thea""o%%odation party did not re"eive anyvalua&le "onsideration when he e:e"uted theinstru%entG nor is it "orre"t to say that the holderfor value is not a holder in due "ourse %erely&e"ause at the ti%e he a"Auired the instru%ent,he knew that the indorser was only ana""o%%odation party-21\wphi1

<oreover, it was held in (ruego that unlike in a"ontra"t of suretyship, the lia&ility of the

a""o%%odation party re%ains not only pri%ary&ut also un"onditional to a holder for value, su"hthat even if the a""o%%odated party re"eives ane:tension of the period for pay%ent without the"onsent of the a""o%%odation party, the latter isstill lia&le for the whole o&ligation and su"he:tension does not release hi% &e"ause as far asa holder for value is "on"erned, he is a solidary"o+de&tor-

he %ere fa"t, then, that (gli&ot issued her own"he"ks to 8antia %ade her personally lia&le to thelatter on her "he"ks without the need for 8antiato rst go after 9CC for the pay%ent of itsloan-2' =t would have &een otherwise had it &eenshown that (gli&ot was a %ere guarantor, e:"eptthat sin"e "he"ks were issued ostensi&ly inpay%ent for the loan, the provisions of the/egotia&le =nstru%ents 9aw %ust take pri%a"y inappli"ation-

HI;R;6R;, pre%ises "onsidered, the etitionfor Review on Certiorari is !;/=;! and the

!e"ision dated <ar"h 1', 200' of the Court of(ppeals in C(+-R- 8 /o- = 00021 is here&y(=R<;!-

86 6R!;R;!-

BEN(A%IN BITANGAvs. PYRA%IDCONSTR,CTION ENGINEERINGCORPORATION

(ssailed in this etition for Review under Rule 451of the Revised Rules of Court are )1* the!e"ision2 dated 11 (pril 200 of the Court of(ppeals in C(+-R- C. /o- '00 whi"h ar%edwith %odi"ation the partial !e"ision3 dated 27/ove%&er 2002 of the Regional rial Court )RC*,Bran"h 7, of YueEon City, in Civil Case /o- Y+01+45041, granting the %otion for su%%ary

@udg%ent led &y respondent yra%idConstru"tion and ;ngineering Corporation andde"laring petitioner Ben@a%in Bitanga and hiswife, <arilyn Bitanga )<arilyn*, solidarily lia&le topay ,000,000-000 to respondentG and )2* theResolution4 dated 5 July 200 of the appellate"ourt in the sa%e "ase denying petitionerOs<otion for Re"onsideration-

he generative fa"ts are

6n 8epte%&er 2001, respondent led with theRC a Co%plaint for spe"i" perfor%an"e andda%ages with appli"ation for the issuan"e of awrit of preli%inary atta"h%ent against thepetitioner and <arilyn- he Co%plaint wasdo"keted as Civil Case /o- Y+01+45041-

Respondent alleged in its Co%plaint that on 2<ar"h 177, it entered into an agree%ent with



<a"rogen Realty, of whi"h petitioner is theresident, to "onstru"t for the latter the 8hoppersold Building, lo"ated at !r- (- 8antos (venue"orner alayag Road, 8u"at, araTaAue City-Respondent "o%%en"ed "ivil, stru"tural, andar"hite"tural works on the "onstru"tion pro@e"t &y<ay 177- Iowever, <a"rogen Realty failed tosettle respondentOs progress &illings- etitioner,through his representatives and agents, assuredrespondent that the outstanding a""ount of<a"rogen Realty would &e paid, and reAuestedrespondent to "ontinue working on the"onstru"tion pro@e"t- Relying on the assuran"es%ade &y petitioner, who was no less than theresident of <a"rogen Realty, respondent"ontinued the "onstru"tion pro@e"t-

=n (ugust 177', respondent suspended work onthe "onstru"tion pro@e"t sin"e the "onditions thatit i%posed for the "ontinuation thereof, in"ludingpay%ent of unsettled a""ounts, had not &een"o%plied with &y <a"rogen Realty- 6n 18epte%&er 1777, respondent instituted with the

Constru"tion =ndustry (r&itration Co%%ission)C=(C* a "ase for ar&itration against <a"rogenRealty seeking pay%ent &y the latter of its unpaid&illings and pro@e"t "osts- etitioner, through"ounsel, then "onveyed to respondent hispurported willingness to a%i"a&ly settle thear&itration "ase- 6n 1 (pril 2000, &efore thear&itration "ase "ould &e set for trial, respondentand <a"rogen Realty entered into a Co%pro%ise(gree%ent,5 with petitioner a"ting as signatoryfor and in &ehalf of <a"rogen Realty- >nder theCo%pro%ise (gree%ent, <a"rogen Realty agreedto pay respondent the total a%ount of

,000,000-00 in si: eAual %onthly install%ents,with ea"h install%ent to &e delivered on the 15thday of the %onth, &eginning 15 June 2000-<a"rogen Realty also agreed that if it woulddefault in the pay%ent of two su""essive %onthlyinstall%ents, i%%ediate e:e"ution "ould issueagainst it for the unpaid &alan"e, without need of

@udg%ent or de"ree fro% any "ourt or tri&unal-etitioner guaranteed the o&ligations of <a"rogenRealty under the Co%pro%ise (gree%ent &ye:e"uting a Contra"t of uaranty in favor ofrespondent, &y virtue of whi"h he irrevo"a&ly andun"onditionally guaranteed the full and "o%plete

pay%ent of the prin"ipal a%ount of lia&ility of<a"rogen Realty in the su% of ,000,000-00->pon @oint %otion of respondent and <a"rogenRealty, the C=(C approved the Co%pro%ise(gree%ent on 25 (pril 2000-

Iowever, "ontrary to petitionerOs assuran"es,<a"rogen Realty failed and refused to pay all the%onthly install%ents agreed upon in theCo%pro%ise (gree%ent- Ien"e, on 8epte%&er2000, respondent %oved for the issuan"e of awrit of e:e"ution' against <a"rogen Realty,whi"h C=(C granted-

6n 27 /ove%&er 2000, the sheriF7 led a returnstating that he was una&le to lo"ate any propertyof <a"rogen Realty, e:"ept its &ank deposit of20,242-33, with the lanters Bank, BuendiaBran"h-

Respondent then %ade, on 3 January 2001, awritten de%and10 on petitioner, as guarantor of<a"rogen Realty, to pay the ,000,000-00, or topoint out availa&le properties of the <a"rogenRealty within the hilippines su"ient to "overthe o&ligation guaranteed- =t also %ade ver&alde%ands on petitioner- Let, respondentOsde%ands were left unheeded-

hus, a""ording to respondent, petitionerOso&ligation as guarantor was already due andde%anda&le- (s to <arilynOs lia&ility, respondent"ontended that <a"rogen Realty was owned and"ontrolled &y petitioner and <arilyn andor &y"orporations owned and "ontrolled &y the%-<a"rogen Realty is 77D owned &y the (sian(ppraisal Ioldings, =n"- )((I=*, whi"h in turn is

77D owned &y <arilyn- 8in"e the "o%pletion ofthe "onstru"tion pro@e"t would have redounded tothe &enet of &oth petitioner and <arilyn andortheir "orporationsG and "onsidering, %oreover,<arilynOs enor%ous interest in ((I=, the"orporation whi"h "ontrols <a"rogen Realty,<arilyn "annot &e unaware of the o&ligationsin"urred &y <a"rogen Realty andor petitioner inthe "ourse of the &usiness operations of the said"orporation-

Respondent prayed in its Co%plaint that the RC,after hearing, render a @udg%ent ordering

petitioner and <arilyn to "o%ply with theiro&ligation under the Contra"t of uaranty &ypaying respondent the a%ount of ,000,000-000)less the &ank deposit of <a"rogen Realty withlanterOs Bank in the a%ount of 20,242-23* and400,000-000 for attorneys fees and e:penses oflitigation- Respondent also sought the issuan"e ofa writ of preli%inary atta"h%ent as se"urity forthe satisfa"tion of any @udg%ent that %ay &ere"overed in the "ase in its favor-

<arilyn led a <otion to !is%iss,11 asserting thatrespondent had no "ause of a"tion against her,

sin"e she did not "o+sign the Contra"t ofuaranty with her hus&andG nor was she a partyto the Co%pro%ise (gree%ent &etweenrespondent and <a"rogen Realty- 8he had no partat all in the e:e"ution of the said "ontra"ts- <ereownership &y a single sto"kholder or &y another"orporation of all or nearly all of the "apital sto"kof another "orporation is not &y itself a su"ientground for disregarding the separate personalityof the latter "orporation- Respondent %isread8e"tion 4, Rule 3 of the Revised Rules of Court-



he RC denied <arilynOs <otion to !is%iss forla"k of %erit, and in its 6rder dated 24 January2002 de"reed that

he <otion o !is%iss Co%plaint (gainst!efendant <arilyn (ndal Bitanga led on/ove%&er 12, 2001 is denied for la"k of %erit"onsidering that 8e"- 4, Rule 3, of the Rules ofCourt )177* spe"i"ally provides, as follows

8;C- 4- 8pouses as parties- S Ius&and and wifeshall sue or &e sued @ointly, e:"ept as provided &ylaw-

and that this "ase does not "o%e within thee:"eption-12

etitioner led with the RC on 12 /ove%&er2001, his (nswer13 to respondentOs Co%plaintaverring therein that he never %aderepresentations to respondent that <a"rogenRealty would faithfully "o%ply with its o&ligationsunder the Co%pro%ise (gree%ent- Ie did not

oFer to guarantee the o&ligations of <a"rogenRealty to enti"e respondent to enter into theCo%pro%ise (gree%ent &ut that, on the "ontrary,it was respondent that reAuired <a"rogen Realtyto oFer so%e for% of se"urity for its o&ligations&efore agreeing to the "o%pro%ise- etitionerfurther alleged that his wife <arilyn was notaware of the o&ligations that he assu%ed under&oth the Co%pro%ise (gree%ent and theContra"t of uaranty as he did not infor% hera&out said "ontra"ts, nor did he se"ure her"onsent thereto at the ti%e of their e:e"ution-

(s a spe"ial and ar%ative defense, petitionerargued that the &enet of e:"ussion was stillavaila&le to hi% as a guarantor sin"e he had setit up prior to any @udg%ent against hi%-(""ording to petitioner, respondent failed toe:haust all legal re%edies to "olle"t fro%<a"rogen Realty the a%ount due under theCo%pro%ise (gree%ent, "onsidering that<a"rogen Realty still had un"olle"ted "reditswhi"h were %ore than enough to pay for thesa%e- iven these pre%ise, petitioner "ould not&e held lia&le as guarantor- ConseAuently,petitioner presented his "ounter"lai% forda%ages-

(t the pre+trial held on 5 8epte%&er 2002, theparties su&%itted the following issues for theresolution of the RC

)1* whether the defendants were lia&le under the"ontra"t of guarantee dated (pril 1, 2000entered into &etween Ben@a%in Bitanga and theplaintiFG

)2* whether defendant wife <arilyn Bitanga islia&le in this a"tionG

)3* whether the defendants are entitled to the&enet of e:"ussion, the plaintiF on the one hand"lai%ing that it gave due noti"e to the guarantor,Ben@a%in Bitanga, and the defendants"ontending that no proper noti"e was re"eived &yBen@a%in BitangaG

)4* if da%ages are due, whi"h party is lia&leG and

)5* whether the &enet of e:"ussion "an still &e

invoked &y the defendant guarantor even afterthe noti"e has &een allegedly sent &y the plaintiFalthough proper re"eipt is denied-14

6n 20 8epte%&er 2002, prior to the trial proper,respondent led a <otion for 8u%%ary

Judg%ent-15 Respondent alleged therein that itwas entitled to a su%%ary @udg%ent on a""ountof petitionerOs ad%ission during the pre+trial ofthe genuineness and due e:e"ution of theContra"t of uaranty- he "ontention of petitionerand <arilyn that they were entitled to the &enetof e:"ussion was not a genuine issue- Respondent

had already e:hausted all legal re%edies to"olle"t fro% <a"rogen Realty, &ut its eFortsproved unsu""essful- iven that the ina&ility of<a"rogen Realty as de&tor to pay the a%ount ofits de&t was already proven &y the return of thewrit of e:e"ution to C=(C unsatised, the lia&ilityof petitioner as guarantor already arose-1 =n anyevent, petitioner and <arilyn were dee%ed tohave forfeited their right to avail the%selves ofthe &enet of e:"ussion &e"ause they failed to"o%ply with (rti"le 2001 of the Civil Codewhen petitioner ignored respondentOs de%andletter dated 3 January 2001 for pay%ent of the

a%ount he guaranteed-1' he duty to "olle"t thesupposed re"eiva&les of <a"rogen Realty fro% its"reditors "ould not &e i%posed on respondent,sin"e petitioner and <arilyn never infor%edrespondent a&out su"h un"olle"ted "redits evenafter re"eipt of the de%and letter for pay%ent-

he allegation of petitioner and <arilyn that they"ould not respond to respondentOs de%and lettersin"e they did not re"eive the sa%e wasunsu&stantiated and insu"ient to raise agenuine issue of fa"t whi"h "ould defeatrespondentOs <otion for 8u%%ary Judg%ent- he"lai% that <arilyn never parti"ipated in the

transa"tions that "ul%inated in petitionerOse:e"ution of the Contra"t of uaranty wasnothing %ore than a sha%-

=n opposing respondentOs foregoing <otion for8u%%ary Judg%ent, petitioner and <arilyn"ountered that there were genuinely disputedfa"ts that would reAuire trial on the %erits- heyappended thereto an adavit e:e"uted &ypetitioner, in whi"h he de"lared that his spouse<arilyn "ould not &e held personally lia&le underthe Contra"t of uaranty or the Co%pro%ise(gree%ent, nor should her share in the "on@ugal



partnership &e %ade answera&le for the guarantypetitioner assu%ed, &e"ause his undertaking ofthe guaranty did not in any way redound to the&enet of their fa%ily- (s guarantor, petitionerwas entitled to the &enet of e:"ussion, and hedid not waive his right thereto- Ie never re"eivedthe respondentOs de%and letter dated 3 January2001, as <s- !ette Ra%os, the person whore"eived it, was not an e%ployee of <a"rogenRealty nor was she authoriEed to re"eive theletter on his &ehalf- (s a guarantor, petitioner"ould resort to the &enet of e:"ussion at anyti%e &efore @udg%ent was rendered againsthi%-17 etitioner reiterated that <a"rogen Realtyhad un"olle"ted "redits whi"h were %ore thansu"ient to satisfy the "lai% of respondent-

6n 27 /ove%&er 2002, the RC rendered a partial!e"ision, the dispositive portion of whi"hprovides

HI;R;6R;, su%%ary @udg%ent is renderedordering defendants 86>8;8 B;/J(<=/ B=(/(

and <(R=9L/ (/!(9 B=(/( to pay the #hereinrespondent$, @ointly and severally, the a%ount of,000,000-00, less 20,242-23 )representing thea%ount garnished &ank deposit of <(CR6;/ inthe lanters Bank, Buendia Bran"h*G and the"osts of suit-

Hithin 10 days fro% re"eipt of this partialde"ision, the #respondent$ shall infor% the Courtwhether it shall still pursue the rest of the "lai%sagainst the defendants- 6therwise, su"h "lai%sshall &e "onsidered waived-20

etitioner and <arilyn led a <otion forRe"onsideration of the afore+Auoted !e"ision,whi"h the RC denied in an 6rder dated 2

January 2003-21

=n ti%e, petitioner and <arilyn led an appealwith the Court of (ppeals, do"keted as C(+-R-C. '00- =n its !e"ision dated 11 (pril 200, theappellate "ourt held

>6/ I; .=;H H; (K; 6 I=8 C(8;, I>8,the @udg%ent appealed fro% %ust &e, as ithere&y is, <6!==;! to the eFe"t that defendant+appellant <arilyn Bitanga is ad@udged not lia&le,whether solidarily or otherwise, with her hus&andthe defendant+appellant Ben@a%in Bitanga, underthe "o%pro%ise agree%ent or the "ontra"t ofguaranty- /o "osts in this instan"e-22

=n holding that <arilyn Bitanga was not lia&le, theCourt of (ppeals "ited Ra%os v- Court of(ppeals,23 in whi"h it was de"lared that a"ontra"t "annot &e enfor"ed against one who isnot a party to it- he Court of (ppeals statedfurther that the su&stantial ownership of shares in<a"rogen Realty &y <arilyn Bitanga was notenough &asis to hold her lia&le-

he Court of (ppeals, in its Resolution dated 5 July 200, denied petitionerOs <otion forRe"onsideration24 of its earlier !e"ision-

etitioner is now &efore us via the presentetition with the following assign%ent of errors

=-I; C6>R 6 (;(98 R(.;9L ;RR;! =/(=R<=/ I; .(9=!=L 6 I; (R=(98><<(RL J>!<;/ BL I; R;=6/(9 R=(9C6>R 6 Y>;Z6/ C=L, BR(/CI 7, !;8=;

I; C9;(R ;M=8;/C; 6 !=8>;! ;/>=/;(/! <(;R=(9 (C8 6 I; C(8; I(8I6>9! I(.; R;Y>=R;! ( R=(9 6/ I;

<;R=8-

==-I; C6>R 6 (;(98 R(.;9L ;RR;! =//6 >I69!=/ I; R=I 6 ;==6/;RB;/J(<=/ <- B=(/( (8 ( <;R; >(R(/6R

6 I; B;/;= 6 ;MC>88=6/ >/!;R (R=C9;8205', 2057, 200, 201, (/! 202 6 I; C=.=9C6!; 6 I; I=9==/;8-25

(s in the two "ourts &elow, it is petitionerOsposition that su%%ary @udg%ent is i%proper inCivil Case /o- Y+01+45041 &e"ause there aregenuine issues of fa"t whi"h have to &e threshed

out during trial, to wit)(* Hhether or not there was proper servi"e ofnoti"e to petitioner "onsidering the said letter ofde%and was allegedly re"eived &y one !etteRa%os at <a"rogen o"e and not &y hi% at hisresiden"e-

)B* Hhether or not petitioner is entitled to the&enet of e:"ussionW2

He are not persuaded &y petitionerOs argu%ents-

Rule 35 of the Revised Rules of Civil ro"edure

provides

8e"tion 1- 8u%%ary @udg%ent for "lai%ant- S (party seeking to re"over upon a "lai%,"ounter"lai%, or "ross+"lai% or to o&tain ade"laratory relief %ay, at any ti%e after thepleading in answer thereto has &een served,%ove with supporting adavits, depositions orad%issions for a su%%ary @udg%ent in his favorupon all or any part thereof-

or a su%%ary @udg%ent to &e proper, the%ovant %ust esta&lish two reAuisites )a* there



%ust &e no genuine issue as to any %aterial fa"t,e:"ept for the a%ount of da%agesG and )&* theparty presenting the %otion for su%%ary

@udg%ent %ust &e entitled to a @udg%ent as a%atter of law- Hhere, on the &asis of thepleadings of a %oving party, in"luding do"u%entsappended thereto, no genuine issue as to a%aterial fa"t e:ists, the &urden to produ"e agenuine issue shifts to the opposing party- =f theopposing party fails, the %oving party is entitledto a su%%ary @udg%ent-2

=n a su%%ary @udg%ent, the "ru"ial Auestion isare the issues raised &y the opposing party notgenuine so as to @ustify a su%%ary @udg%entW2'

irst oF, we rule that the issue regarding thepropriety of the servi"e of a "opy of the de%andletter on the petitioner in his o"e is a sha%issue- =t is not a &ar to the issuan"e of a su%%ary

@udg%ent in respondentOs favor-

( genuine issue is an issue of fa"t whi"h reAuires

the presentation of eviden"e as distinguishedfro% an issue whi"h is a sha%, "titious,"ontrived or false "lai%- o forestall su%%ary

@udg%ent, it is essential for the non+%oving partyto "onr% the e:isten"e of genuine issues, as towhi"h he has su&stantial, plausi&le and fairlyargua&le defense, i-e-,27 issues of fa"t "alling forthe presentation of eviden"e upon whi"hreasona&le ndings of fa"t "ould return a verdi"tfor the non+%oving party, although a %eres"intilla of eviden"e in support of the partyopposing su%%ary @udg%ent will &e insu"ientto pre"lude entry thereof-

8igni"antly, petitioner does not deny the re"eiptof the de%and letter fro% the respondent- Ie%erely raises a howl on the i%propriety of servi"ethereof, stating that the address to whi"h thesaid letter was sent was not his residen"e &ut theo"e of <a"rogen Realty, thus it "annot &e"onsidered as the "orre"t %anner of "onveying aletter of de%and upon hi% in his personal"apa"ity-30

8e"tion , Rule 13 of the Rules of Court states

8;C- - ersonal servi"e- S 8ervi"e of the papers%ay &e %ade &y delivering personally a "opy tothe party or his "ounsel, or &y leaving it in hiso"e with his "lerk or with a person having"harge thereof- =f no person is found in his o"e,or his o"e is not known, or he has no o"e,then &y leaving the "opy, &etween the hours ofeight in the %orning and si: in the evening, atthe partyOs or "ounselOs residen"e, if known, witha person of su"ient age and dis"retion thenresiding therein-

he adavit of <r- Ro&ert 6- agdilao, %essengerof respondentOs "ounsel states in part

2- 6n 4 January 2001, (tty- Jose .i"ente B-8alaEar, then one of the (sso"iates of the (CCR(9aw 6"es, instru"ted %e to deliver to the o"eof <r- Ben@a%in Bitanga a letter dated 3 January2001, pertaining to Constru"tion =ndustry(r&itration Co%%ission )hereafter, C=(C* Case/o- 77+5, entitled yra%id Constru"tion;ngineering Corporation vs- <a"rogen RealtyCorporation-

3- (s instru"ted, = i%%ediately pro"eeded to theo"e of <r- Bitanga lo"ated at the 12th loor,lanters !evelop%ent Bank Building, 314 8enatoril uyat (venue, <akati City- = delivered the saidletter to <s- !ette Ra%os, a person of su"ientage and dis"retion, who introdu"ed herself as oneof the e%ployees of <r- Bitanga andor of thelatterOs "o%panies-31 );%phasis supplied-*

He e%phasiEe that when petitioner signed the

Contra"t of uaranty and assu%ed o&ligation asguarantor, his address in the said "ontra"t wasthe sa%e address where the de%and letter wasserved-32 Ie does not deny that the said pla"e ofservi"e, whi"h is the o"e of <a"rogen, was alsothe address that he used when he signed asguarantor in the Contra"t of uaranty- /or doeshe deny that this is his o"e addressG instead, he%erely insists that the person who re"eived theletter and signed the re"eiving "opy is not ane%ployee of his "o%pany- etitioner "ould haveeasily su&stantiated his allegation &y asu&%ission of an adavit of the personnel

%anager of his o"e that no su"h person isindeed e%ployed &y petitioner in his o"e, &utthat eviden"e was not su&%itted-33 (ll things arepresu%ed to have &een done "orre"tly and withdue for%ality until the "ontrary is proved- his

@uris tantu% presu%ption stands even against the%ost well+reasoned allegation pointing to so%epossi&le irregularity or ano%aly-34 =t ispetitionerOs &urden to over"o%e the presu%ption&y su"ient eviden"e, and so far we have notseen anything in the re"ord to supportpetitionerOs "harges of ano%aly &eyond his &areallegation- etitioner "annot now &e heard to

"o%plain that there was an irregular servi"e ofthe de%and letter, as it does not es"ape ourattention that petitioner hi%self indi"ated 3148en- il uyat (venue, <akati City as his o"eaddress in the Contra"t of uaranty-

<oreover, under 8e"tion , Rule 13 of the Rules ofCourt, there is su"ien"y of servi"e when thepapers, or in this "ase, when the de%and letter ispersonally delivered to the party or his "ounsel,or &y leaving it in his o"e with his "lerk or witha person having "harge thereof, su"h as whatwas done in this "ase-



He have "onsistently e:postulated that insu%%ary @udg%ents, the trial "ourt "andeter%ine a genuine issue on the &asis of thepleadings, ad%issions, do"u%ents, adavits or"ounter adavits su&%itted &y the parties- Hhenthe fa"ts as pleaded appear un"ontested orundisputed, then there is no real or genuine issueor Auestion as to any fa"t, and su%%ary

@udg%ent is "alled for-35

he Court of (ppeals was "orre"t in holding that

Iere, the issue of non+re"eipt of the letter ofde%and is a sha% or pretended issue, not agenuine and su&stantial issue- =ndeed, againstthe positive assertion of <r- Ro&erto 6- agdilao)the private "ourier* in his adavit that hedelivered the su&@e"t letter to a "ertain <s- !etteRa%os who introdu"ed herself as one of thee%ployees of #herein petitioner$ <r- Ben@a%inBitanga andor of the latterOs "o%panies, said#petitioner$ %erely oFered a &are denial- But &aredenials, unsu&stantiated &y fa"ts, whi"h would &e

ad%issi&le in eviden"e at a hearing, are notsu"ient to raise a genuine issue of fa"tsu"ient to defeat a %otion for su%%ary

@udg%ent-3

He further ar% the ndings of &oth the RC andthe Court of (ppeals that, given the settled fa"tsof this "ase, petitioner "annot avail hi%self of the&enet of e:"ussion-

>nder a "ontra"t of guarantee, the guarantor&inds hi%self to the "reditor to fulll theo&ligation of the prin"ipal de&tor in "ase the

latter should fail to do so- he guarantor whopays for a de&tor, in turn, %ust &e inde%nied &ythe latter- Iowever, the guarantor "annot &e"o%pelled to pay the "reditor unless the latterhas e:hausted all the property of the de&tor andresorted to all the legal re%edies against thede&tor- his is what is otherwise known as the&enet of e:"ussion-3

(rti"le 200 of the Civil Code reads

(rt- 200- =n order that the guarantor %ay %akeuse of the &enet of e:"ussion, he %ust set it upagainst the "reditor upon the latterOs de%and forpay%ent fro% hi%, and point out to the "reditoravaila&le property of the de&tor within hilippineterritory, su"ient to "over the a%ount of thede&t-3'

he afore+Auoted provision i%poses a "onditionfor the invo"ation of the defense of e:"ussion-(rti"le 200 of the Civil Code "learly reAuires thatin order for the guarantor to %ake use of the&enet of e:"ussion, he %ust set it up against the"reditor upon the latterOs de%and for pay%entand point out to the "reditor availa&le property of

the de&tor within the hilippines su"ient to"over the a%ount of the de&t-3

=t %ust &e stressed that despite having &eenserved a de%and letter at his o"e, petitionerstill failed to point out to the respondentproperties of <a"rogen Realty su"ient to "overits de&t as reAuired under (rti"le 200 of the CivilCode- 8u"h failure on petitionerOs part fore"loseshis right to set up the defense of e:"ussion-

Horthy of note as well is the 8heriFOs returnstating that the only property of <a"rogen Realtywhi"h he found was its deposit of 20,242-23 withthe lanters Bank-

(rti"le 2057)5* of the Civil Code thus ndsappli"ation and pre"ludes petitioner fro%interposing the defense of e:"ussion- He Auote

(rt- 2057- his e:"ussion shall not take pla"e

: : : :

)5* =f it %ay &e presu%ed that an e:e"ution onthe property of the prin"ipal de&tor would notresult in the satisfa"tion of the o&ligation-

(s the Court of (ppeals "orre"tly ruled

He nd untena&le the "lai% that the #hereinpetitioner$ Ben@a%in Bitanga "annot &e"o%pelled to pay yra%id &e"ause the <a"rogenRealty has allegedly su"ient assets- Reason

he said #petitioner$ had not genuinely"ontroverted the return %ade &y 8heriF Joseph -Bisnar, who ar%ed that, after e:erting diligent

eForts, he was not a&le to lo"ate any property&elonging to the <a"rogen Realty, e:"ept for a&ank deposit with the lanterOs Bank at Buendia,in the a%ount of 20,242-23- =t is a:io%ati" thatthe lia&ility of the guarantor arises when theinsolven"y or ina&ility of the de&tor to pay thea%ount of de&t is proven &y the return of the writof e:e"ution that had not &een unsatised-40

HI;R;6R;, pre%ises "onsidered, the instantpetition is !;/=;! for la"k of %erit- he !e"isionof the Court of (ppeals dated 11 (pril 200 andits Resolution dated 5 July 200 are (=R<;!-

Costs against petitioner-

SPO,SES AL&REDO "#$ S,SANA ONG vs.P)ILIPPINE CO%%ERCIAL INTERNATIONALBAN.

his is a petition for review on "ertiorari underRule 45 of the Rules of Court to set aside the!e"ision of the Court of (ppeals in C(+-R- 8 /o-37255, dated e&ruary 1, 2003, ar%ing thede"ision of the trial "ourt denying petitionersO%otion to dis%iss-



he fa"ts Baliwag <ahogany Corporation )B<C*is a do%esti" "orporation engaged in the%anufa"ture and e:port of nished woodprodu"ts- etitioners+spouses (lfredo and 8usana6ng are its resident and reasurer, respe"tively-

6n (pril 20, 1772, respondent hilippineCo%%er"ial =nternational Bank )now ;Auita&le+hilippine Co%%er"ial =nternational Bank or ;+C=B* led a "ase for "olle"tion of a su% of%oney1 against petitioners+spouses- Respondent&ank sought to hold petitioners+spouses lia&le assureties on the three )3* pro%issory notes theyissued to se"ure so%e of B<COs loans, totallingve %illion pesos )5,000,000-00*-

he "o%plaint alleged that in 1771, B<C neededadditional "apital for its &usiness and applied forvarious loans, a%ounting to a total of ve %illionpesos, with the respondent &ank- etitioners+spouses a"ted as sureties for these loans andissued three )3* pro%issory notes for the purpose->nder the ter%s of the notes, it was stipulated

that respondent &ank %ay "onsider de&tor B<Cin default and de%and pay%ent of the re%aining&alan"e of the loan upon the levy, atta"h%ent orgarnish%ent of any of its properties, or uponB<COs insolven"y, or if it is de"lared to &e in astate of suspension of pay%ents- Respondent&ank granted B<COs loan appli"ations-

6n /ove%&er 22, 1771, B<C led a petition forreha&ilitation and suspension of pay%ents withthe 8e"urities and ;:"hange Co%%ission )8;C*after its properties were atta"hed &y "reditors-Respondent &ank "onsidered de&tor B<C in

default of its o&ligations and sought to "olle"tpay%ent thereof fro% petitioners+spouses assureties- =n due ti%e, petitioners+spouses ledtheir (nswer-1awphi1-n^t

6n 6"to&er 13, 1772, a <e%orandu% of(gree%ent )<6(*2 was e:e"uted &y de&tor B<C,the petitioners+spouses as resident and

reasurer of B<C, and the "onsortiu% of "reditor&anks of B<C )of whi"h respondent &ank isin"luded*- he <6( took eFe"t upon its approval&y the 8;C on /ove%&er 2, 1772-3

hereafter, petitioners+spouses %oved todis%iss4 the "o%plaint- hey argued that as the8;C de"lared the prin"ipal de&tor B<C in a stateof suspension of pay%ents and, under the <6(,the "reditor &anks, in"luding respondent &ank,agreed to te%porarily suspend any pending "ivila"tion against the de&tor B<C, the &enets of the<6( should &e e:tended to petitioners+spouseswho a"ted as B<COs sureties in their "ontra"ts ofloan with respondent &ank- etitioners+spousesaverred that respondent &ank is &arred fro%pursuing its "olle"tion "ase led against the%-

he trial "ourt denied the %otion to dis%iss-etitioners+spouses appealed to the Court of(ppeals whi"h ar%ed the trial "ourtOs rulingthat a "reditor "an pro"eed against petitioners+spouses as surety independently of its right topro"eed against the prin"ipal de&tor B<C-

Ien"e this appeal-

etitioners+spouses "lai% that the "olle"tion "ase

led against the% &y respondent &ank should &edis%issed for three )3* reasons irst, the <6(provided that during its eFe"tivity, there shall &ea suspension of ling or pursuing of "olle"tion"ases against the B<C and this provision should&enet petitioners as sureties- 8e"ond, prin"ipalde&tor B<C has &een pla"ed under suspension ofpay%ent of de&ts &y the 8;CG petitioners "ontendthat it would pre@udi"e the% if the prin"ipalde&tor B<C would en@oy the suspension ofpay%ent of its de&ts while petitioners, who a"tedonly as sureties for so%e of B<COs de&ts, would&e "o%pelled to %ake the pay%entG petitioners

add that "o%pelling the% to pay is "ontrary to(rti"le 203 of the Civil Code whi"h provides thata "o%pro%ise &etween the "reditor and prin"ipalde&tor &enets the guarantor and should notpre@udi"e the latter- 9astly, petitioners rely on(rti"le 20'1 of the Civil Code whi"h provides thatthe guarantor %ay set up against the "reditor allthe defenses whi"h pertain to the prin"ipal de&torand are inherent in the de&tG &ut not those whi"hare purely personal to the de&tor- etitionersaver that if the prin"ipal de&tor B<C "an set upthe defense of suspension of pay%ent of de&tsand ling of "olle"tion suits against respondent

&ank, petitioners as sureties should likewise &eallowed to avail of these defenses-

He nd no %erit in petitionersO "ontentions-

Relian"e of petitioners+spouses on (rti"les 203and 20'1 of the Civil Code is %ispla"ed as theseprovisions refer to "ontra"ts of guaranty- hey donot apply to suretyship "ontra"ts- etitioners+spouses are not guarantors &ut sureties of B<COsde&ts- here is a sea of diFeren"e in the rightsand lia&ilities of a guarantor and a surety- (guarantor insures the solven"y of the de&tor

while a surety is an insurer of the de&t itself- ("ontra"t of guaranty gives rise to a su&sidiaryo&ligation on the part of the guarantor- =t is onlyafter the "reditor has pro"eeded against theproperties of the prin"ipal de&tor and the de&tre%ains unsatised that a guarantor "an &e heldlia&le to answer for any unpaid a%ount- his isthe prin"iple of e:"ussion- =n a suretyship"ontra"t, however, the &enet of e:"ussion is notavaila&le to the surety as he is prin"ipally lia&lefor the pay%ent of the de&t- (s the surety insuresthe de&t itself, he o&ligates hi%self to pay thede&t if the prin"ipal de&tor will not pay,



regardless of whether or not the latter isnan"ially "apa&le to fulll his o&ligation- hus, a"reditor "an go dire"tly against the suretyalthough the prin"ipal de&tor is solvent and isa&le to pay or no prior de%and is %ade on theprin"ipal de&tor- ( surety is dire"tly, eAually anda&solutely &ound with the prin"ipal de&tor for thepay%ent of the de&t and is dee%ed as an originalpro%issor and de&tor fro% the &eginning-5

>nder the suretyship "ontra"t entered into &ypetitioners+spouses with respondent &ank, thefor%er o&ligated the%selves to &e solidarily&ound with the prin"ipal de&tor B<C for thepay%ent of its de&ts to respondent &anka%ounting to ve %illion pesos )5,000,000-00*->nder (rti"le 121 of the Civil Code, respondent&ank as "reditor %ay pro"eed against petitioners+spouses as sureties despite the e:e"ution of the<6( whi"h provided for the suspension ofpay%ent and ling of "olle"tion suits againstB<C- Respondent &ankOs right to "olle"t pay%entfro% the surety e:ists independently of its right

to pro"eed dire"tly against the prin"ipal de&tor- =nfa"t, the "reditor &ank %ay go against the suretyalone without prior de%and for pay%ent on theprin"ipal de&tor-

he provisions of the <6( regarding thesuspension of pay%ents &y B<C and the non+ling of "olle"tion suits &y the "reditor &ankspertain only to the property of the prin"ipalde&tor B<C- irstly, in the reha&ilitationre"eivership led &y B<C, only the properties ofB<C were %entioned in the petition with the8;C-' 8e"ondly, there is nothing in the <6( that

involves the lia&ilities of the sureties whoseproperties are separate and distin"t fro% that ofthe de&tor B<C- 9astly, it &ears to stress that the<6( e:e"uted &y B<C and signed &y the "reditor+&anks was approved &y the 8;C whose

@urisdi"tion is li%ited only to "orporations and"orporate assets- =t has no @urisdi"tion over theproperties of B<COs o"ers orsureties-1awphi1-n^t

Clearly, the "olle"tion suit led &y respondent&ank against petitioners+spouses as sureties "anprosper- he trial "ourtOs denial of petitionersO

%otion to dis%iss was proper-

=/ .=;H HI;R;6, the petition is !=8<=88;! forla"k of %erit- /o pronoun"e%ent as to "osts-

REP,BLIC &LO,R %ILLS CORPORATIONvs.&ORBES &ACTORS' INC.

etitioner led this present etition for Review1under Rule 45 of the Rules of Court, seeking areversal of the Court of (ppeals !e"ision,2 thedispositive portion of whi"h states

HI;R;6R;, pre%ises "onsidered, the !e"isiondated (pril 15, 177 rendered &y the Regional

rial Court of <akati City, Bran"h 0, is here&y(=R<;!, with <6!==C(=6/8, as follows

1* he legal interest rate of si: per"ent )D* perannu% should &e "o%puted fro% the date of theling of the "o%plaint whi"h shall &e"o%e twelveper"ent )12D* per annu% fro% the ti%e the

@udg%ent &e"o%es nal and e:e"utory until itssatisfa"tion-

2* he award of 300,000-00 as e:e%plaryda%ages is redu"ed to 50,000-00G

3* he award of 400,00-00 as attorneyOs fees islikewise redu"ed to 5,000-00G

4* he !e"ision is here&y ar%ed in all otherrespe"ts-

86 6R!;R;!-

he "ase arose when petitioner refused to paythe de%urrage &eing "olle"ted &y respondent-

he fa"ts are as follows

=n a "ontra"t dated 2 (pril 17'3, respondent wasappointed as the e:"lusive hilippine indentrepresentative of Ri"h"o Rotterda% B-.- )Ri"h"o*,a foreign "orporation, in the sale of the latterOs"o%%odities- >nder one of the ter%s of the"ontra"t, respondent was to assu%e the lia&ilitiesof all the hilippine &uyers, should they fail tohonor the "o%%it%ents on the dis"hargingoperations of ea"h vessel, in"luding the pay%ent

of de%urrage and other penalties- =n su"hinstan"es, Ri"h"o shall have the option to de&itthe a""ount of respondent "orresponding to thelia&ilities of the &uyers, and respondent shall then&e dee%ed to &e su&rogated to all the rights ofRi"h"o against these defaulting &uyers-3

8o%eti%e in 17', petitioner pur"hasedCanadian &arley and soy&ean %eal fro% Ri"h"o-

he latter thereafter "hartered four )4* vessels totransport the produ"ts to the hilippines- ;a"h ofthe "arrier &ulk "argoes was "overed &y aContra"t of 8ale e:e"uted &etween respondent as

the seller and duly authoriEed representative ofRi"h"o and petitioner as the &uyer- he four"ontra"ts spe"i"ally referred to the "harter partyin deter%ining de%urrage or dispat"h rate- he"ontra"t further provided that petitionerguarantees to settle any de%urrage due withinone )1* %onth fro% respondentOs presentation ofthe state%ent-

>pon delivery of the &arley and soy&ean %eal,petitioner failed to dis"harge the "argoes fro%the four )4* vessels at the "o%puted allowa&le



period to do so- hus, it in"urred a de%urragea%ounting to a total of >8Q173,73-41-

6n nu%erous o""asions, on &ehalf of Ri"h"o,respondent de%anded fro% petitioner thepay%ent of the de%urrage, to no avail-ConseAuently, on 20 6"to&er 1771, Ri"h"o sent a"o%%uni"ation to respondent, infor%ing it thatthe de%urrage due fro% petitioner had &eende&ited fro% the respondentOs a""ount-

hereafter, on 12 e&ruary 1772, respondent ledwith the Regional rial Court )RC*, /ationalCapital Judi"ial Region, <akati City, a Co%plaintfor de%urrage and da%ages against petitioner-<eanwhile, the latter raised the defense that thedelay was due to respondentOs ine"ien"y inunloading the "argo-

6n 15 (pril 177, after trial on the %erits, theRC rendered a !e"ision4 holding petitioner lia&leto pay de%urrage and da%ages to respondent, towit

34- HI;R;6R;, the Court here&y renders @udg%ent as follows

34-1 he defendant R;>B9=C 96>R <=998C6R6R(=6/ is ordered to pay the plaintiF6RB;8 (C6R8, =/C- the following

34-1-1- >8Q173,73-41 or its hilippine ;86eAuivalent at the rate of e:"hange at the ti%e ofpay%ent S (s de%urrage-

34-1-2 8i: )* per"ent of the a%ount in thepre"eding paragraph 34-1-1 S er annu% fro%

6"to&er 27, 1771 until the said a%ount is fullypaid S (s da%ages-

34-1-3- 300,000-00 S (s e:e%plary da%ages-

34-1-4- 400,000-00 S (s attorneyOs fees-

34-2- he C6>/;RC9(=< is !=8<=88;!G and

34-3- Cost is ta:ed against the defendant-

he RC found that the delay in dis"harging the"argoes within the allowa&le period was due topetitionerOs failure to provide enough &arges onwhi"h to load the goods- =t likewise found thatpetitioner in fa"t a"knowledged that the latterhad in"urred de%urrage when it alleged that the"o%putation was &loated- etitioner was thuslia&le to pay de%urrage &ased on the sales"ontra"ts e:e"uted with respondent and on the"ontra"t e:e"uted &etween respondent andRi"h"o-

inally, the "ourt ruled that respondent wasentitled to da%ages fro% petitionerOs wanton,fraudulent, re"kless, oppressive or %alevolent

refusal to pay the latterOs lia&ilities despiterepeated de%ands-

8u&seAuently, petitioner appealed to the Court of (ppeals )C(*, alleging that respondent was not areal party+in+interest to &ring the "olle"tion suit-etitioner insisted that the pay%ent of de%urrageshould &e %ade to the owner of the vessels thattransported the goods, and not to respondentwho was %erely the indent representative ofRi"h"o, the "harterer of the vessel- =n addition,petitioner "lai%ed that it was denied due pro"esswhen the RC refused to reset the hearing for thepresentation of Reynaldo 8antos, petitionerOswitness and e:port %anager- inally, petitioner"ontested the RCOs award of e:e%plary da%agesand attorneyOs fees-

6n 1' e&ruary 2002, the C( pro%ulgated theassailed !e"ision- =t upheld the validity of theContra"ts of 8ale and held that these had thefor"e of law &etween the "ontra"ting parties and%ust &e "o%plied with in good faith- Iowever,

the appellate "ourt %odied the trial "ourtOsaward of da%ages- =t held that e:e%plaryda%ages are not intended to enri"h anyone, thusredu"ing the a%ount fro% 300,000 to 50,000-=t also found the award of attorneyOs fees to &ee:"essive, and "onseAuently redu"ed it fro%400,000 to 5,000-

Ien"e this etition-

hree issues are raised for the resolution &y thisCourt- irst, petitioner assails the right ofrespondent to de%and pay%ent of de%urrage-

etitioner asserts that, &y denition, de%urrageis the su% :ed &y the "ontra"t of "arriage asre%uneration to the ship owner for the detentionof the vessel &eyond the nu%&er of days allowed&y the "harter party-5 hus, sin"e respondent isnot the ship owner, it has no right to de%and thepay%ent of de%urrage and has no personality to&ring the "lai% against petitioner- 8e"ond,petitioner Auestions the propriety of the award ofda%ages in favor of respondent- (nd third, thefor%er insists that it was denied due pro"esswhen the RC denied its <otion to reset thehearing to present its witness-

He nd the petition without %erit-

he fa"ts are undisputed- he delay in"urred &ypetitioner in dis"harging the "argoes fro% thevessels was due to its own fault- =ts o&ligation tode%urrage is esta&lished &y the Contra"ts of 8aleit e:e"uted, wherein it agreed to the "onditions toprovide all dis"harging fa"ilities at its e:pense inorder to eFe"t the i%%ediate dis"harge of "argoGand to pla"e for its a""ount all dis"harging "osts,fees, ta:es, duties and all other "harges in"urreddue to the nature of the i%portation-



<eanwhile, respondent uneAuivo"ally esta&lishedthat Ri"h"o "harged to it the de%urrage due fro%petitioner- hus, at the %o%ent that Ri"h"ode&ited the a""ount of respondent, the latter isdee%ed to have su&rogated to the rights of thefor%er, who in turn, paid de%urrage to the shipowner- =t is therefore i%%aterial that respondentis not the ship owner, sin"e it has &een a&le toprove that it has stepped into the shoes of the"reditor-

8u&rogation is either legal or "onventional-9egal su&rogation is an eAuita&le do"trine andarises &y operation of the law, without anyagree%ent to that eFe"t e:e"uted &etween thepartiesG "onventional su&rogation rests on a"ontra"t, arising where an agree%ent is %adethat the person paying the de&t shall &esu&rogated to the rights and re%edies of theoriginal "reditor- he "ase at &ar is an e:a%pleof legal su&rogation, the petitioner andrespondent having no e:press agree%ent on theright of su&rogation- hus, it is of no %o%ent that

the Contra"ts of 8ale did not e:pressly state thatde%urrage shall &e paid to respondent- Byoperation of law, respondent has &e"o%e the realparty+in+interest to pursue the pay%ent ofde%urrage- (s aptly stated &y the RC

17- rue it is that de%urrage is, as a rule, ana%ount paya&le to a shipowner &y a "harterer forthe detention of the vessel &eyond the periodallowed for the loading or unloading or sailing-

his however, does not %ean that a party "annotstipulate with another who is not a shipowner, onde%urrage- =n this "ase, 6RB;8 stipulated under

the "harter parties on de%urrage with theshipowners- his stipulation "ould &e the &asis ofthe provisions on de%urrage in the four )4*Contra"ts of 8ale );:hs- B, /, M, and CC* and"ontra"t &etween 6RB;8 and R=CIC6 );:h- (*-

: : : : : : : : :

20- R=CIC6 de&ited the >8Q173,73-41 fro% thea""ounts of 6RB;8 as eviden"ed &y ;:h- 66-Ien"e, 6RB;8 was su&rogated to the right ofR=CIC6 to "olle"t the said a%ount fro% R<pursuant to the "ontra"t &etween R=CIC6 and

6RB;8 );:h- (*-21- >nder ;:h- (, 6RB;8 guaranteed its _&uyers )si"* pay%ent s"hedule_ ConseAuently,it was su&rogated to the rights of R=CIC6 arisingfro% the failure of R< to pay its de%urrage and6RB;8 paid for it- he su&rogation was pursuantto (rti"les 1302 and 20, /ew Civil Code, whi"hread

(rt- 1302- =t is presu%ed that there is legalsu&rogation

)1* Hhen a "reditor pays another "reditor who ispreferred, even without the de&torOs knowledgeG

)2* Hhen a third person, not interested in theo&ligation, pays with the e:press or ta"it approvaof the de&torG

)3* Hhen, even without the knowledge of thede&tor, a person interested in the fulll%ent ofthe o&ligation pays, without pre@udi"e to the

eFe"ts of "onfusion as to the latterOs share-

(rt- 20- he guarantor who pays is su&rogated&y virtue thereof to all the rights whi"h the"reditor had against the de&tor-

=f the guarantor has "o%pro%ised with the"reditor, he "annot de%and of the de&tor %orethan what he has really paid-

(s we held in ire%anOs und =nsuran"e Co%panyv- Ja%ila Co%pany, =n"-

_8u&rogation has &een referred to as thedo"trine of su&stitution- =t is an ar% of eAuitythat %ay guide or even for"e one to pay a de&tfor whi"h an o&ligation was in"urred &ut whi"hwas in whole or in part paid &y another )'3 C-J-8-5, ', note 1, "iting ire%an[s und=nde%nity Co- vs- 8tate Co%pensation =nsuran"eund, 207 a"- 2d 55*-

8u&rogation is founded on prin"iples of @usti"eand eAuity, and its operation is governed &yprin"iples of eAuity- =t rests on the prin"iple thatsu&stantial @usti"e should &e attained regardlessof for%, that is, its &asis is the doing of "o%plete,

essential, and perfe"t @usti"e &etween all theparties without regard to for%)'3 C-J-8- 57+'0*'1avvphi1

(nent the se"ond issue, we have previously heldin epsi Cola rodu"ts hil-, =n"- v- Court of(ppeals,7 that a %otion for "ontinuan"e ofpostpone%ent is not a %atter of right- Rather, the%otion is addressed to the sound dis"retion ofthe "ourt, whose a"tion thereon will not &edistur&ed &y appellate "ourts in the a&sen"e of"lear and %anifest a&use of dis"retion, resultingin a denial of su&stantial @usti"e-

6n the last issue, we nd that the award ofe:e%plary da%ages proper- etitioner refused tohonor the "ontra"t despite respondentOs repeatedde%ands and its proof of pay%ent to Ri"h"oG anddespite its repeated pro%ise to settle itsoutstanding o&ligations in the span of al%ost veyears- etitioner indeed a"ted in a wanton,fraudulent, re"kless, oppressive or %alevolent%anner- Be"ause respondent was also for"ed toinitiate the present Co%plaint, it was only properthat it was awarded attorneyOs fees- 9astly, theC( was "orre"t in redu"ing the award of



e:e%plary da%ages or attorneyOs fees, sin"eneither is %eant to enri"h anyone-

HI;R;6R;, in view of the foregoing, theassailed !e"ision of the Court of (ppeals ishere&y (=R<;!- he present etition is !;/=;!-

A&P GENERAL INS,RANCE CORPORATIONvs.NOEL %OLINA' (,ANITO AR-,E*A' LEODY VENANCIO' (OSE OLAT' ANGEL CORTE*'

PANCRASIO SI%PAO' CONRADO CALAPONAND NATIONAL LABOR RELATIONSCO%%ISSION &IRST DIVISION/

his is a petition for review on "ertiorari of the!e"ision1 dated (ugust 20, 2001 of the Court of(ppeals in C(+-R- 8 /o- 5'3 whi"h dis%issedherein petitionerOs spe"ial "ivil a"tion for"ertiorari- Before the appellate "ourt, petitioner( eneral =nsuran"e Corporation )(=C*sought to reverse the Resolution2 dated 6"to&er5, 1777 of the /ational 9a&or RelationsCo%%ission )/9RC* in /9RC /CR C(+01105+7

for having &een issued with grave a&use ofdis"retion- he /9RC ar%ed the 6rder3 dated<ar"h 30, 1777 of 9a&or (r&iter ;dgardo<adriaga in /9RC /CR Case /o- 02+002+70whi"h had denied (=COs 6%ni&us <otion toYuash /oti"eHrit of arnish%ent and !is"harge(=COs appeal &ond for failure of Radon8e"urity (llied 8ervi"es (gen"y )Radon8e"urity* to pay the pre%iu%s on said &ond-;Aually "hallenged is the Resolution4 dated!e"e%&er 14, 2001 of the appellate "ourt in C(+-R- 8 /o- 5'3 whi"h denied hereinpetitionerOs %otion for re"onsideration-

he fa"ts of this "ase are not disputed-

he private respondents are the "o%plainants ina "ase for illegal dis%issal, do"keted as /9RC/CR Case /o- 02+002+70, led against Radon8e"urity (llied 8ervi"es (gen"y andor RaAuel(Auias and ;ver ;%poriu%, =n"- =n his !e"isiondated (ugust 20, 177, the 9a&or (r&iter ruledthat the private respondents were illegallydis%issed and ordered Radon 8e"urity to paythe% separation pay, &a"kwages, and other%onetary "lai%s-

Radon 8e"urity appealed the 9a&or (r&iterOsde"ision to pu&li" respondent /9RC and posted asupersedeas &ond, issued &y herein petitioner(=C as surety- he appeal was do"keted as/9RC /CR C(+01105+7-

6n (pril , 177', the /9RC ar%ed with%odi"ation the de"ision of the 9a&or (r&iter- he/9RC found the herein private respondents"onstru"tively dis%issed and ordered Radon8e"urity to pay the% their separation pay, in lieuof reinstate%ent with &a"kwages, as well as their

%onetary &enets li%ited to three years, plusattorneyOs fees eAuivalent to 10D of the entirea%ount, with Radon 8e"urity and ;ver ;%poriu%,=n"- ad@udged @ointly and severally lia&le-

Radon 8e"urity duly %oved for re"onsideration,&ut this was denied &y the /9RC in its Resolutiondated June 22, 177'-

Radon 8e"urity then led a etition for Certiorari

do"keted as -R- /o- 134'71 with this Court, &utwe dis%issed this petition in our Resolution of(ugust 31, 177'-

Hhen the !e"ision dated (pril , 177' of the/9RC &e"a%e nal and e:e"utory, privaterespondents led an >rgent <otion for ;:e"ution-(s a result, the /9RC Resear"h and =nfor%ation>nit su&%itted a Co%putation of the <onetary(wards in a""ordan"e with the /9RC de"ision-Radon 8e"urity opposed said "o%putation in its<otion for Re"o%putation-

6n e&ruary 5, 1777, the 9a&or (r&iter issued aHrit of ;:e"ution5 in"orporating the "o%putationof the /9RC Resear"h and =nfor%ation >nit- hatsa%e date, the 9a&or (r&iter dis%issed the<otion for Re"o%putation led &y Radon 8e"urity-By virtue of the writ of e:e"ution, the /9RC8heriF issued a /oti"e of arnish%ent againstthe supersedeas &ond-

Both ;ver ;%poriu%, =n"- and Radon 8e"urity%oved to Auash the writ of e:e"ution-

6n <ar"h 30, 1777, the 9a&or (r&iter denied &oth%otions, and Radon 8e"urity appealed to the/9RC-

6n (pril 14, 1777, (=C entered the fray &yling &efore the 9a&or (r&iter an 6%ni&us <otionto Yuash /oti"eHrit of arnish%ent and to!is"harge (=COs (ppeal Bond on the groundthat said &ond has &een "an"elled and thus non+e:istent in view of the failure of Radon 8e"urity topay the yearly pre%iu%s-

6n (pril 30, 1777, the 9a&or (r&iter denied(=COs 6%ni&us <otion for la"k of %erit-' he9a&or (r&iter pointed out that the Auestion of

non+pay%ent of pre%iu%s is a dispute &etweenthe party who posted the &ond and the insurerG toallow the &ond to &e "an"elled &e"ause of thenon+pay%ent of pre%iu%s would result in afa"tual and legal a&surdity wherein a surety will&e rendered nugatory &y the si%ple e:pedient ofnon+pay%ent of pre%iu%s-

he petitioner then appealed the 9a&or (r&iterOsorder to the /9RC- he appeals of Radon 8e"urityand (=C were @ointly heard as /9RC /CR C(+01105+7-



6n 6"to&er 5, 1777, the /9RC disposed of /9RC/CR C(+01105+7 in this wise

HI;R;6R;, pre%ises "onsidered, the appealsunder "onsideration are here&y !=8<=88;! forla"k of %erit-

86 6R!;R;!-7

=n dis%issing the appeal of (=C, the /9RC

pointed out that (=COs theory that the &ond"annot any%ore &e pro"eeded against for failureof Radon 8e"urity to pay the pre%iu% isuntena&le, "onsidering that the &ond is eFe"tiveuntil the nality of the de"ision-10 he /9RCstressed that a "ontrary ruling would allowrespondents to si%ply stop paying the pre%iu%to frustrate satisfa"tion of the %oney

@udg%ent-11

(=C then %oved for re"onsideration, &ut the/9RC denied the %otion in its Resolution12 datede&ruary 27, 2000-

(=C then led a spe"ial "ivil a"tion for"ertiorari, do"keted as C(+-R- 8 /o- 5'3, withthe Court of (ppeals, on the ground that the/9RC "o%%itted a grave a&use of dis"retion inar%ing the 6rder dated <ar"h 30, 1777 of the9a&or (r&iter-

6n (ugust 20, 2001, the appellate "ourtdis%issed C(+-R- 8 /o- 5'3, disposing asfollows

HI;R;6R;, the foregoing "onsidered, thepetition is denied due "ourse and a""ordingly

!=8<=88;!-

86 6R!;R;!-13

(=C seasona&ly %oved for re"onsideration,&ut this was denied &y the appellate "ourt in itsResolution14 of !e"e%&er 14, 2001-

Ien"e, the instant "ase an"hored on the loneassign%ent of error that

I; C6>R 6 (;(98 8;R=6>89L ;RR;! =/8>8(=/=/ I; >B9=C R;86/!;/ /9RC

(9I6>I I; 9(;R R(.;9L (B>8;! =8!=8CR;=6/ HI;/ = (RB=R(R=9L =/6R;! I;(C I( 8>BJ;C (;(9 B6/! H(8 (9R;(!LC(/C;99;! 6R /6/+(L<;/ 6 R;<=>< (/!

I>8 = C6>9! /6 B; 8>BJ;C 6 ;M;C>=6/6R (R/=8I<;/-15

he petitioner "ontends that under 8e"tion 41of the =nsuran"e Code, whi"h is dee%ed writteninto every insuran"e "ontra"t or "ontra"t ofsurety, an insurer %ay "an"el a poli"y upon non+pay%ent of the pre%iu%- 8aid "an"ellation is&inding upon the &ene"iary as the right of a

&ene"iary is su&ordinate to that of the insured-etitioner points out that in 8outh 8ea 8urety =nsuran"e Co-, =n"- v- C(,1 this Court held thatpay%ent of pre%iu% is a "ondition pre"edent toand essential for the e"a"iousness of a "ontra"tof insuran"e-1' Ien"e, following >CB eneral=ns- Co-, =n"- v- <asagana ela%art, =n"-,17 noinsuran"e poli"y, other than life, issued originallyor on renewal is valid and &inding until a"tualpay%ent of the pre%iu%-20 he petitioner alsopoints to <alayan =nsuran"e Co-, =n"- v- CruE(rnaldo,21 whi"h reiterated that an insurer %ay"an"el an insuran"e poli"y for non+pay%ent ofpre%iu%-22 Ien"e, a""ording to petitioner, theCourt of (ppeals "o%%itted a reversi&le error innot holding that under 8e"tion 23 of the=nsuran"e Code, the surety &ond &etween it andRadon 8e"urity was not valid and &inding for non+pay%ent of pre%iu%s, even as against a thirdperson who was intended to &enet therefro%-

he private respondents adopted in toto theratio"inations of the Court of (ppeals that

inas%u"h as a supersedeas &ond was posted forthe &enet of a third person to guarantee that the%oney @udg%ent will &e satised in "ase it isar%ed on appeal, the third person who standsto &enet fro% said &ond is entitled to noti"e ofits "an"ellation for any reason- 9ikewise, the/9RC should have &een notied to ena&le it totake the proper a"tion under the "ir"u%stan"es-

he respondents su&%it that fro% its very nature,a supersedeas &ond re%ains eFe"tive and thesurety lia&le thereon until for%ally dis"hargedfro% said lia&ility- o hold otherwise would ena&lea losing party to frustrate a %oney @udg%ent &y

the si%ple e:pedient of "easing to pay pre%iu%s

He nd %erit in the su&%issions of the privaterespondents-

he "ontroversy &efore the Court involves %orethan @ust the %ere appli"ation of the provisions ofthe =nsuran"e Code to the fa"tual "ir"u%stan"es-

his instant "ase, after all, tra"es its roots to ala&or "ontroversy involving illegally dis%issedworkers- =t thus entails the appli"ation of la&orlaws and regulations- Re"all that the heart of thedispute is not an ordinary "ontra"t of property or

life insuran"e, &ut an appeal &ond reAuired &y&oth su&stantive and ad@e"tive law in appeals inla&or disputes, spe"i"ally (rti"le 22324 of the9a&or Code, as a%ended &y Repu&li" ("t /o-15,25 and Rule .=, 8e"tion 2 of the Revised/9RC Rules of ro"edure- 8aid provisions%andate that in la&or "ases where the @udg%entappealed fro% involves a %onetary award, theappeal %ay &e perfe"ted only upon the posting ofa "ash or surety &ond issued &y a reputa&le&onding "o%pany a""redited &y the /9RC-2 heperfe"tion of an appeal &y an e%ployer onlyupon the posting of a "ash or surety &ond "learly



and "ategori"ally shows the intent of thelaw%akers to %ake the posting of a "ash orsurety &ond &y the e%ployer to &e the e:"lusive%eans &y whi"h an e%ployerOs appeal %ay &eperfe"ted-2' (dditionally, the ling of a "ash orsurety &ond is a @urisdi"tional reAuire%ent in anappeal involving a %oney @udg%ent to the/9RC-27 =n addition, Rule .=, 8e"tion of theRevised /9RC Rules of ro"edure is a"onte%poraneous "onstru"tion of (rti"le 223 &ythe /9RC- (s an interpretation of a law &y thei%ple%enting ad%inistrative agen"y, it isa""orded great respe"t &y this Court-30 /ote thatRule .=, 8e"tion "ategori"ally states that the"ash or surety &ond posted in appeals involving%onetary awards in la&or disputes shall &e ineFe"t until nal disposition of the "ase- his"ould only &e "onstrued to %ean that the surety&ond shall re%ain valid and in for"e until nalityand e:e"ution of @udg%ent, with the resultantdis"harge of the surety "o%pany only thereafter,if we are to give teeth to the la&or prote"tion"lause of the Constitution- o "onstrue theprovision any other way would open theXoodgates to uns"rupulous and heartlesse%ployers who would si%ply forego payingpre%iu%s on their surety &ond in order to evadepay%ent of the %onetary @udg%ent- he Court"annot &e a party to any su"h iniAuity-

<oreover, the =nsuran"e Code supports theprivate respondentsO argu%ents- he petitionerOsrelian"e on 8e"tions 4 and of the =nsuran"eCode is %ispla"ed- he said provisions refer toinsuran"e "ontra"ts in general- he instant "asepertains to a surety &ondG thus, the appli"a&le

provision of the =nsuran"e Code is 8e"tion 1,31whi"h spe"i"ally governs suretyship- =t providesthat a surety &ond, on"e a""epted &y the o&ligee&e"o%es valid and enfor"ea&le, irrespe"tive ofwhether or not the pre%iu% has &een paid &y theo&ligor- he private respondents, the o&ligeeshere, a""epted the &ond posted &y Radon8e"urity and issued &y the petitioner- Ien"e, the&ond is &oth valid and enfor"ea&le- ( ver&is legisnon est re"edendu% )fro% the language of thelaw there %ust &e no departure*-32

Hhen petitioner surety "o%pany "an"elled the

surety &ond &e"ause Radon 8e"urity failed to paythe pre%iu%s, it gave due noti"e to the latter &utnot to the /9RC- By its failure to give noti"e tothe /9RC, (=C failed to a"knowledge that the/9RC had @urisdi"tion not only over the appealed"ase, &ut also over the appeal &ond- hisoversight a%ounts to disrespe"t and "onte%pt fora Auasi+@udi"ial agen"y tasked &y law withresolving la&or disputes- >ntil the surety isfor%ally dis"harged, it re%ains su&@e"t to the

@urisdi"tion of the /9RC-

6ur ruling, an"hored on "on"ern for thee%ployee, however, does not in any way seek toderogate the rights and interests of the petitioneras against Radon 8e"urity- he for%er is notdevoid of re%edies against the latter- >nder8e"tion 133 of the =nsuran"e Code, the lia&ilityof petitioner and Radon 8e"urity is solidary innature- here is solidary lia&ility only when theo&ligation e:pressly so states, or when the law soprovides, or when the nature of the o&ligation soreAuires-34 8in"e the law provides that thelia&ility of the surety "o%pany and the o&ligor orprin"ipal is @oint and several, then either or &othof the% %ay &e pro"eeded against for the %oneyaward-

he 9a&or (r&iter dire"ted the /9RC 8heriF togarnish the surety &ond issued &y the petitioner-

he latter, as surety, is %andated to "o%ply withthe writ of garnish%ent, for as earlier pointed outthe &ond re%ains enfor"ea&le and under the

@urisdi"tion of the /9RC until it is dis"harged- =nturn, the petitioner %ay pro"eed to "olle"t the

a%ount it paid on the &ond, plus the pre%iu%sdue and de%anda&le, plus any interest owingfro% Radon 8e"urity- his is pursuant to theprin"iple of su&rogation enun"iated in (rti"le2035 of the Civil Code whi"h we apply to thesuretyship agree%ent &etween (=C andRadon 8e"urity, in a""ordan"e with 8e"tion 1'3of the =nsuran"e Code- inding no reversi&le error"o%%itted &y the Court of (ppeals in C(+-R- 8/o- 5'3, we sustain the "hallenged de"ision-

HI;R;6R;, the instant petition is !;/=;! forla"k of %erit- he assailed !e"ision dated (ugust

20, 2001 of the Court of (ppeals in C(+-R- 8/o- 5'3 and the Resolution dated !e"e%&er14, 2001, of the appellate "ourt denying theherein petitionerOs %otion for re"onsideration are(=R<;!- Costs against the petitioner-

SPO,SES VICY TAN TO) "#$ L,IS TO) vs.SOLID BAN CORPORATION' &IRSTB,SINESS PAPER CORPORATION' ENNET)NG LI "#$ %A. VICTORIA NG LI

R;86/!;/ 869=! B(/K C6R6R(=6/(R;;! 6 ;M;/! an o%ni&us line "redit

fa"ility worth 10 %illion in favor of respondentirst Business aper Corporation )BC*- heter%s and "onditions of the agree%ent as well asthe "he"klist of do"u%ents ne"essary to open the"redit line were stipulated in a letter+advise ofthe Bank dated 1 <ay 1773 addressed to BCand to its resident, respondent Kenneth /g 9i-1

he letter+advise2 was eFe"tive upon"o%plian"e with the do"u%entaryreAuire%ents-3

he do"u%ents essential for the "redit fa"ilityand su&%itted for this purpose were the )a* Board



Resolution or e:"erpts of the Board of !ire"tors<eeting, duly ratied &y a /otary u&li",authoriEing the loan and se"urity arrange%ent aswell as designating the o"ers to negotiate andsign for BC spe"i"ally stating authority to%ortgage, pledge andor assign the properties ofthe "orporationG )&* agree%ent to pur"hase!o%esti" BillsG and, )"* Continuing uaranty forany and all a%ounts signed &y petitioner+spouses9uis oh and .i"ky an oh, and respondent+spouses Kenneth and <a- .i"toria /g 9i-4 hespouses 9uis oh and .i"ky an oh were thenChair%an of the Board and .i"e+resident,respe"tively, of BC, while respondent+spousesKenneth /g 9i and <a- .i"toria /g 9i wereresident and eneral <anager, respe"tively, ofthe sa%e "orporation-5

=t is not disputed that the "redit fa"ility as well asits ter%s and "onditions was not "an"elled orter%inated, and that there was no prior noti"e ofsu"h fa"t as reAuired in the letter+advise, if anywas done-

6n 10 <ay 1773, %ore than thirty )30* days fro%date of the letter+advise, petitioner+spouses 9uis

oh and .i"ky an oh and respondent+spousesKenneth /g 9i and <a- .i"toria /g 9i signed thereAuired Continuing uaranty, whi"h wase%&odied in a pu&li" do"u%ent prepared solely&y respondent Bank- he ter%s of theinstru%ent dened the "ontra"t arising therefro%as a surety agree%ent and provided for thesolidary lia&ility of the signatories thereto for andin "onsideration of loans or advan"es and"redit in any other %anner to, or at the reAuest

or for the a""ount of BC-

he Continuing uaranty set forth no %a:i%u%li%it on the inde&tedness that respondent BC%ay in"ur and for whi"h the sureties %ay &elia&le, stating that the "redit fa"ility "overs anyand all e:isting inde&tedness of, and su"h otherloans and "redit fa"ilities whi"h %ay hereafter &egranted to =R8 B>8=/;88 (;RC6R6R(=6/- he surety also "ontained a defa"to a""eleration "lause if default &e %ade inthe pay%ent of any of the instru%ents,inde&tedness, or other o&ligation guaranteed &y

petitioners and respondents- 8o as to strengthenthis se"urity, the Continuing uaranty waivedrights of the sureties against delay or a&sen"e ofnoti"e or de%and on the part of respondent Bank,and gave future "onsent to the Bank[s a"tion toe:tend or "hange the ti%e pay%ent, andor the%anner, pla"e or ter%s of pay%ent, in"ludingrenewal, of the "redit fa"ility or any part thereofin su"h %anner and upon su"h ter%s as the Bank%ay dee% proper without noti"e to or furtherassent fro% the sureties-

he eFe"tivity of the Continuing uaranty wasnot "ontingent upon any event or "ause otherthan the written revo"ation thereof with noti"e tothe Bank that %ay &e e:e"uted &y the sureties-

6n 1 June 1773 respondent BC started to avaiof the "redit fa"ility and pro"ure letters of "redit-6n 1 /ove%&er 1773 BC opened thirteen )13*letters of "redit and o&tained loans totaling15,22,510-00-' (s the letters of "redit werese"ured, BC through its o"ers Kenneth /g 9i,<a- .i"toria /g 9i and Redentor adilla assignatories e:e"uted a series of trust re"eiptsover the goods allegedly pur"hased fro% thepro"eeds of the loans-7

6n 13 January 1774 respondent Bank re"eivedinfor%ation that respondent+spouses Kenneth /g9i and <a- .i"toria /g 9i had fraudulentlydeparted fro% their "on@ugal ho%e-10 6n 14

January 1774 the Bank served a de%and letterupon BC and petitioner 9uis oh invoking thea""eleration "lause11 in the trust re"eipts of

BC and "lai%ed pay%ent for 10,537,5'-' asunpaid overdue a""ounts on the letters of "reditplus interests and penalties within twenty+four)24* hours fro% re"eipt thereof-12 he Bank alsoinvoked the Continuing uaranty e:e"uted &ypetitioner+spouses 9uis oh and .i"ky an oh whowere the only parties known to &e within national

@urisdi"tion to answer as sureties for the "reditfa"ility of BC-13

6n 1 January 1774 respondent Bank led a"o%plaint for su% of %oney with e: parteappli"ation for a writ of preli%inary atta"h%ent

against BC, spouses Kenneth /g 9i and <a-.i"toria /g 9i, and spouses 9uis oh and .i"ky an oh, do"keted as Civil Case /o- 404 of RC+Br-11, asig City-14 (lias su%%onses were servedupon BC and spouses 9uis oh and .i"ky an

oh &ut not upon Kenneth /g 9i and <a- .i"toria/g 9i who had apparently a&s"onded-15

<eanwhile, with the i%ple%entation of the writ ofpreli%inary atta"h%ent resulting in thei%pounding of purported properties of BC, thetrial "ourt was deluged with third+party "lai%s"ontesting the propriety of the atta"h%ent-1 =n

the end, the Bank relinAuished possession of allthe atta"hed properties to the third+party"lai%ants e:"ept for two )2* insigni"ant ite%s asit allegedly "ould &arely "ope with the yearlypre%iu%s on the atta"h%ent &onds-1

etitioner+spouses 9uis oh and .i"ky an oh leda @oint answer to the "o%plaint where theyad%itted &eing part of BC fro% itsin"orporation on 27 (ugust 1771, whi"h was thenknown as </9 aper, =n"-, until its "orporatena%e was "hanged to irst Business aperCorporation-1' hey also a"knowledged that on



assigns of the undersigned, and shall inure to the&enet of, and &e enfor"ea&le &y you, yoursu""essors, transferees and assigns, and thattheir "o%%it%ent shall re%ain in full for"e andeFe"t until written noti"e shall have &eenre"eived &y #the Bank$ that it has &een revoked&y the undersigned- .erily, if petitionersintended not to &e "harged as sureties after theirwithdrawal fro% BC, they "ould have si%plyter%inated the agree%ent &y serving thereAuired noti"e of revo"ation upon the Bank ase:pressly allowed therein-4 =n ar"ia v- Court of(ppeals#4'$ we ruled S

Regarding the petitioner[s "lai% that he is lia&leonly as a "orporate o"er of H<C, the suretyagree%ent shows that he signed the sa%e not inrepresentation of H<C or as its president &ut inhis personal "apa"ity- Ie is therefore personally&ound- here is no law that prohi&its a "orporateo"er fro% &inding hi%self personally to answerfor a "orporate de&t- Hhile the li%ited lia&ilitydo"trine is intended to prote"t the sto"kholder &y

i%%uniEing hi% fro% personal lia&ility for the"orporate de&ts, he %ay nevertheless divesthi%self of this prote"tion &y voluntarily &indinghi%self to the pay%ent of the "orporate de&ts-

he petitioner "annot therefore take refuge in thisdo"trine that he has &y his own a"ts eFe"tivelywaived-

But as we &ind the spouses 9uis oh and .i"ky an oh to the surety agree%ent they signed so %ustwe also hold respondent Bank to itsrepresentations in the letter+advise of 1 <ay1773- arti"ularly, as to the e:tension of the due

dates of the letters of "redit, we "annot e:"ludefro% the Continuing uaranty the pre"onditionsof the Bank that were plainly stipulated in theletter+advise- airness and @usti"e di"tate ourdoing so, for the Bank itself li&erally applies theprovisions of "ognate agree%ents whenever"onvenient to enfor"e its "ontra"tual rights, su"has, when it harnessed a provision in the trustre"eipts e:e"uted &y respondent BC to de"lareits entire inde&tedness as due and de%anda&leand thereafter to e:a"t pay%ent thereof fro%petitioners as sureties-47 =n the sa%e %anner,we "annot disregard the provisions of the letter+

advise in siEing up the panoply of "o%%er"ialo&ligations &etween the parties herein-

=nsofar as petitioners stipulate in the Continuinguaranty that respondent Bank %ay at any ti%e,or fro% ti%e to ti%e, in #its$ dis"retion : : :e:tend or "hange the ti%e pay%ent, thisprovision even if understood as a waiver is"onned per se to the grant of an e:tension anddoes not surrender the prereAuisites therefor as%andated in the letter+advise- =n other words,the authority of the Bank to defer "olle"tion

"onte%plates only authoriEed e:tensions, that is,those that %eet the ter%s of the letter+advise-

Certainly, while the Bank %ay e:tend the duedate at its dis"retion pursuant to the Continuinguaranty, it should nonetheless "o%ply with thereAuire%ents that do%esti" letters of "redit &esupported &y fteen per"ent )15D* %arginaldeposit e:tendi&le three )3* ti%es for a period ofthirty )30* days for ea"h e:tension, su&@e"t totwenty+ve per"ent )25D* partial pay%ent pere:tension- his reading of the Continuinguaranty is "onsistent with hilippine /ationalBank v- Court of (ppeals50 that any dou&t on theter%s and "onditions of the surety agree%entshould &e resolved in favor of the surety-

urther%ore, the assuran"e of the sureties in theContinuing uaranty that #n$o a"t or o%ission ofany kind on #the Bank[s$ part in the pre%isesshall in any event aFe"t or i%pair thisguaranty51 %ust also &e read stri"tissi%i @urisfor the reason that petitioners are only

a""o%%odation sureties, i-e-, they re"eivednothing out of the se"urity "ontra"t theysigned-52 hus said, the a"ts or o%issions of theBank "on"eded &y petitioners as not aFe"ting nori%pairing the surety "ontra"t refer only to thoseo""urring in the pre%ises, or those that have&een the su&@e"t of the waiver in the Continuinguaranty, and stret"h to no other- 8tatedotherwise, an e:tension of the period forenfor"ing the inde&tedness does not &y itself&ring a&out the dis"harge of the sureties unlessthe e:tra ti%e is not per%itted within the ter%sof the waiver, i-e-, where there is no pay%ent or

there is de"ient settle%ent of the %arginaldeposit and the twenty+ve per"ent )25D*"onsideration, in whi"h "ase the illi"it e:tensionreleases the sureties- >nder (rt- 2055 of the CivilCode, the lia&ility of a surety is %easured &y theter%s of his "ontra"t, and while he is lia&le to thefull e:tent thereof, his a""ounta&ility is stri"tlyli%ited to that assu%ed &y its ter%s-

=t is ad%itted in the Co%plaint of respondentBank &efore the trial "ourt that several letters of"redit were irrevo"a&ly e:tended for ninety )70*days with alar%ingly Xawed and inadeAuate

"onsideration + the indispensa&le %arginaldeposit of fteen per"ent )15D* and the twenty+ve per"ent )25D* prereAuisite for ea"he:tension of thirty )30* days- =t &ears stressingthat the reAuisite %arginal deposit and se"urityfor every thirty )30* + day e:tension spe"ied inthe letter+advise were not set aside ora&rogated nor was there any prior noti"e of su"hfa"t, if any was done-

<oreover, these irregular e:tensions were"andidly ad%itted &y .i"tor Ru&en 9- uaEon, an



a""ount o"er and %anager of respondent Bankand its lone witness in the "ivil "ase S

Y Lou e:tended it even if there was no%arginal depositW

( Les-

Y (nd even if partial pay%ent is less than25DW

( Les : : : :

Y Lou have repeatedly e:tended despite theinsu"ien"y partial pay%ent reAuire%entW

( = would say yes-53

he foregoing e:tensions of the letters of "redit%ade &y respondent Bank without o&serving therigid restri"tions for e:er"ising the privilege arenot "overed &y the waiver stipulated in theContinuing uaranty- ;vidently, they "onstituteilli"it e:tensions prohi&ited under (rt- 207 of theCivil Code, #a$n e:tension granted to the de&tor&y the "reditor without the "onsent of theguarantor e:tinguishes the guaranty- his a"t ofthe Bank is not %ere failure or delay on its part tode%and pay%ent after the de&t has &e"o%e due,as was the "ase in unpaid ve )5* letters of "reditwhi"h the Bank did not e:tend, defer or put oF,54&ut "o%prises "ons"ious, separate and &indingagree%ents to e:tend the due date, as wasad%itted &y the Bank itself S

Y Iow %u"h was supposed to &e paid on 148epte%&er 1773, the original 9C of

1,55,5-13W

( >nder 9C 73+001 rst %atured on 148epte%&er 1773- He rolled it over, e:tended it to!e"e%&er 13, 1773 &ut they %ade partialpay%ent that is why we e:tended it-

Y he Auestion to you now is how %u"hwas paidW Iow %u"h is supposed to &e paid on8epte%&er 14, 1773 on the &asis of the originala%ount of 1,55,5-13W

( Hhenever this o&ligation &e"o%es due

and de%anda&le e:"ept when you roll it over sothere is novation there on the originalo&ligations55 )unders"oring supplied*-

(s a result of these illi"it e:tensions, petitioner+spouses 9uis oh and .i"ky an oh are relieved of their o&ligations as sureties of respondent BCunder (rt- 207 of the Civil Code-

urther, we note several suspi"ious"ir"u%stan"es that %ilitate against theenfor"e%ent of the Continuing uaranty againstthe a""o%%odation sureties- irstly, the guaranty

was e:e"uted %ore than thirty )30* days fro% theoriginal a""eptan"e period as reAuired in theletter+advise- hereafter, &arely two )2* daysafter the Continuing uaranty was signed,"orporate agents of BC were repla"ed on 12<ay 1773 and other ad@ust%ents in the "orporatestru"ture of BC ensued in the %onth of June1773, whi"h the Bank did not investigatealthough su"h were %ade known to it-

By the sa%e token, there is no e:planation onre"ord for the utter worthlessness of the trustre"eipts in favor of the Bank when thesedo"u%ents ought to have added %ore se"urity tothe inde&tedness of BC- he Bank has in fa"tno infor%ation whether the trust re"eipts wereindeed used for the purpose for whi"h they wereo&tained-5 o &e sure, the goods su&@e"t of thetrust re"eipts were not entirely lost sin"e these"urity o"er of respondent Bank who"ondu"ted surveillan"e of BC even had the"han"e to inter"ept the surreptitious transfer ofthe ite%s under trust He saw two )2* delivery

vans with lates /os- I 25 and (Z 72'"o%ing out of the "o%pound : : : #whi"h were$taking out the last supplies stored in the"o%pound-5 =n addition, the atta"hedproperties of BC, e:"ept for two )2* of the%,were perfun"torily a&andoned &y respondentBank although the &onds therefor were"onsidera&ly redu"ed &y the trial "ourt-5'

he "onseAuen"e of these o%issions is todis"harge the surety, petitioners herein, under(rt- 20'0 of the Civil Code,57 or at the very least,%itigate the lia&ility of the surety up to the value

of the property or lien released S

=f the "reditor : : : has a"Auired a lien upon theproperty of a prin"ipal, the "reditor at on"e&e"o%es "harged with the duty of retaining su"hse"urity, or %aintaining su"h lien in the interestof the surety, and any release or i%pair%ent ofthis se"urity as a pri%ary resour"e for thepay%ent of a de&t, will dis"harge the surety tothe e:tent of the value of the property or lienreleased : : : : #for$ there i%%ediately arises atrust relation &etween the parties, and the"reditor as trustee is &ound to a""ount to the

surety for the value of the se"urity in hishands-0

or the sa%e reason, the gra"e period granted &yrespondent Bank represents un"ere%oniousa&andon%ent and forfeiture of the fteen per"ent)15D* %arginal deposit and the twenty+veper"ent )25D* partial pay%ent as :ed in theletter+advise- hese pay%ents are un%istaka&lyadditional se"urities intended to prote"t &othrespondent Bank and the sureties in the eventthat the prin"ipal de&tor BC &e"o%es insolventduring the e:tension period- Co%plian"e with



these reAuisites was not waived &y petitioners inthe Continuing uaranty- or this unwarrantede:er"ise of dis"retion, respondent Bank &ears thelossG due to its unauthoriEed e:tensions to paygranted to BC, petitioner+spouses 9uis oh and.i"ky an oh are dis"harged as sureties underthe Continuing uaranty-

inally, the foregoing o%ission or negligen"e ofrespondent Bank in failing to safe+keep these"urity provided &y the %arginal deposit and thetwenty+ve per"ent )25D* reAuire%ent results inthe %aterial alteration of the prin"ipal "ontra"t,i-e-, the letter+advise, and "onseAuentlyreleases the surety-1 his inferen"e wasad%itted &y the Bank through the testi%ony of itslone witness that #w$henever this o&ligation&e"o%es due and de%anda&le, e:"ept when youroll it over, )so* there is novation there on theoriginal o&ligations- (s has &een said, if thesuretyship "ontra"t was %ade upon the "onditionthat the prin"ipal shall furnish the "reditoradditional se"urity, and the se"urity &eing

furnished under these "onditions is afterwardsreleased &y the "reditor, the surety is whollydis"harged, without regard to the value of these"urities released, for su"h a transa"tiona%ounts to an alteration of the %ain "ontra"t-2

HI;R;6R;, the instant etition for Review isR(/;!- he !e"ision of the Court of (ppealsdated 12 !e"e%&er 2001 in C(+-R- C. /o-5575, 8olid Bank Corporation v- irst Businessaper Corporation, Kenneth /g 9i, <a- .i"toria /g9i, 9uis oh and .i"ky an oh, holding petitioner+spouses 9uis oh and .i"ky an oh solidarily

lia&le with irst Business aper Corporation to pay8olid Bank Corporation the a%ount of10,537,5'-' as prin"ipal with twelve per"ent)12D* interest per annu% until fully paid, and itsResolution of 2 July 2002 denying re"onsiderationthereof are R;.;R8;! and 8; (8=!;-

he !e"ision dated 1 <ay 177 of RC+Br- 11 of asig City in Civil Case /o- 404, 8olid BankCorporation v- irst Business aper Corporation,Kenneth /g 9i, <a- .i"toria /g 9i, 9uis oh and.i"ky an oh, nding irst Business aperCorporation lia&le to pay respondent 8olid Bank

Corporation the prin"ipal of 10,537,5'-' plustwelve per"ent )12D* interest per annu% untilfully paid, &ut a&solving petitioner+spouses 9uis

oh and .i"ky an oh of any lia&ility torespondent 8olid Bank Corporation is R;=/8(;!and (=R<;!- /o "osts-

(N DEVELOP%ENT CORPORATION' "#$ SPS.RODRIGO "#$ LEONOR STA. ANA ' vs.P)ILIPPINE E0PORT AND &OREIGN LOANG,ARANTEE CORPORATION'NARCISO V.CR,* vs.P)ILIPPINE E0PORT "#$ &OREIGNLOAN G,ARANTEE CORPORATION

Before us are "onsolidated petitions Auestioningthe !e"ision1 of the Court of (ppeals )C(* in C(+-R- C. /o- 131', entitled hilippine ;:port andoreign 9oan uarantee Corporation v- J/!evelop%ent Corporation, et al-, whi"h reversedthe !e"ision of the Regional rial Court )RC* of<akati, Bran"h 0-

6n 13 !e"e%&er 177, petitioner J/!evelop%ent Corporation )J/* and radersRoyal Bank )RB* entered into an agree%entwhere&y RB would e:tend to J/ an ;:porta"king Credit 9ine for wo <illion esos)2,000,000-00*- he loan was "overed &y severase"urities, in"luding a real estate %ortgage2 anda letter of guarantee fro% respondent hilippine;:port and oreign 9oan uarantee Corporation)hiluarantee*, now rade and =nvest%ent!evelop%ent Corporation of the hilippines,"overing seventy per"ent )0D* of the "reditline-3 Hith hiluarantee issuing a guarantee infavor of RB,4 J/, petitioner spouses Rodrigo and9eonor 8ta- (na5 and petitioner /ar"iso CruE

e:e"uted a !eed of >ndertaking )>ndertaking*to assure repay%ent to hiluarantee-

=t appears that J/ failed to pay the loan to RBupon its %aturityG thus, on ' 6"to&er 17'0 RBreAuested hiluarantee to %ake good itsguarantee-' hiluarantee infor%ed J/ a&out the"all %ade &y RB, and inAuired a&out the a"tionof J/ to settle the loan-7 Iaving re"eived noresponse fro% J/, on 10 <ar"h 17'1hiluarantee paid RB /ine Iundred hirty our

housand ;ight Iundred wenty our esos and hirty our Centavos )734,'24-34*-10

8u&seAuently, hiluarantee %ade severalde%ands on J/, &ut the latter failed to pay- 6n 30<ay 17'3, J/, through Rodrigo 8ta- (na, proposedto settle the o&ligation &y way of develop%entand sale of the %ortgaged property-11hiluarantee, however, re@e"ted the proposal-

hiluarantee thus led a Co%plaint12 for"olle"tion of %oney and da%ages against hereinpetitioners-

=n its !e"ision dated 20 (ugust 177', the RCdis%issed hiluaranteeOs Co%plaint as well as

the "ounter"lai% of petitioners- =t ruled thatpetitioners are not lia&le to rei%&ursehiluarantee what it had paid to RB- Cru"ial tothis holding was the "ourtOs nding that RB wasa&le to fore"lose the real estate %ortgagee:e"uted &y J/, thus e:tinguishing petitionersOo&ligation-13 <oreover, there was no showingthat after the said fore"losure, RB hadde%anded fro% J/ any de"ien"y or the pay%entof the diFeren"e &etween the pro"eeds of thefore"losure sale and the a"tual loan-14 =naddition, the RC held that sin"e hiluaranteeOsguarantee was good for only one year fro% 1



!e"e%&er 177, or until 1 !e"e%&er 17'0, andsin"e it was not renewed after the e:piry of saidperiod, hiluarantee had no %ore legal duty topay RB on 10 <ar"h 17'1-15 he RC likewiseruled that CruE "annot &e held lia&le under the>ndertaking sin"e he was not the one who signedthe do"u%ent, in line with its nding that hissignature found in the re"ords is totally diFerentfro% the signature on the >ndertaking-1

(""ording to the RC, the failure of RB to sue J/for the re"overy of the loan pre"ludeshiluarantee fro% seeking re"oup%ent fro% thespouses 8ta- (na and CruE what it paid to RB-

hus, hiluaranteeOs pay%ent to RB a%ountsto a waiver of its right under (rt- 205' of the CivilCode-1

(ggrieved &y the RC !e"ision, hiluaranteeappealed to the C(- e appellate "ourt reversedthe RC and ordered petitioners to payhiluarantee /ine Iundred hirty our

housand 8i: Iundred wenty our esos and

hirty our Centavos )734,24-34*, plus servi"e"harge and interest-1'

=n rea"hing its denoue%ent, the C( held that theRCOs nding that the loan was e:tinguished &yvirtue of the fore"losure sale of the %ortgagedproperty had no fa"tual support,17 and that su"hnding is negated &y Rodrigo 8ta- (naOstesti%ony that J/ did not re"eive any noti"e offore"losure fro% hiluarantee or fro% RB- 20<oreover, 8ta- (na even oFered the sa%e%ortgaged property to hiluarantee to settle itso&ligations with the latter-21

he C( also ruled that J/Os o&ligation had &e"o%edue and de%anda&le within the one+year periodof eFe"tivity of the guaranteeG thus,hiluaranteeOs pay%ent to RB "onfor%ed withits guarantee, although the pay%ent itself waseFe"ted one year after the %aturity date of theloan-22 Contrary to the trial "ourtOs nding, theC( ruled that the "ontra"t of guarantee was note:tinguished &y the alleged la"k of eviden"e onhiluaranteeOs "onsent to the e:tensionsgranted &y RB to J/-23 =nterpreting (rt- 205' ofthe Civil Code,24 the appellate "ourt e:plained

that while the provision states that the guarantor"annot &e "o%pelled to pay unless the propertiesof the de&tor are e:hausted, the guarantor is notpre"luded fro% waiving the &enet of e:"ussionand paying the o&ligation altogether-25

inally, the C( found that /ar"iso CruE wasuna&le to prove the alleged forgery of hissignature in the >ndertaking, the eviden"epresented not &eing su"ient to over"o%e thepresu%ption of regularity of the >ndertakingwhi"h is a notariEed do"u%ent- 2

etitioners sought re"onsideration of the !e"isionand prayed for the ad%ission of do"u%entseviden"ing the fore"losure of the real estate%ortgage, &ut the %otion for re"onsideration wasdenied &y the C( for la"k of %erit- he C( ruledthat the do"u%entary eviden"e presented &ypetitioners "annot &e "onsidered as newlydis"overed eviden"e, it &eing already in e:isten"ewhile the "ase was pending &efore the trial "ourt,the very foru% &efore whi"h it should have &eenpresented- Besides, a fore"losure sale per se isnot proof of petitionersO pay%ent of the loan tohiluarantee, the C( added-2

8o now &efore the Court are the separatepetitions for review of the C( !e"ision- J/ and thespouses 8ta- (na, petitioners in -R- /o- 15100,posit that the C( erred in interpreting (rti"les207, 205', and 2057 of the Civil Code in its!e"ision-2' <eanwhile, petitioner /ar"iso CruE in-R- /o- 151311 "lai%s that the C( erred when itheld that petitioners are lia&le to hiluaranteedespite its pay%ent after the e:piration of its

"ontra"t of guarantee and the la"k ofhiluaranteeOs "onsent to the e:tensionsgranted &y RB to J/- <oreover, CruE Auestionsthe reversal of the ruling of the trial "ourt anenthis lia&ility as a signatory to the >ndertaking-27

6n the other hand, hiluarantee %aintains thatthe date of default, not the a"tual date ofpay%ent, deter%ines the lia&ility of the guarantoand that having paid RB when the loan &e"a%edue, it should &e inde%nied &y petitioners-30 =targues that, "ontrary to petitionersO "lai%, there"ould &e no waiver of its right to e:"ussion %ore

e:pli"it than its a"t of pay%ent to RB verydire"tly-31 Besides, the right to e:"ussion is forthe &enet of the guarantor and is not a defensefor the de&tor to raise and use to evadelia&ility-32 inally, hiluarantee %aintains thatthere is no su"ient eviden"e proving the allegedforgery of CruEOs signature on the >ndertaking,whi"h is a notariEed do"u%ent and as su"h %ust&e a""orded the presu%ption of regularity-33

he Court nds for hiluarantee-

>nder a "ontra"t of guarantee, the guarantor

&inds hi%self to the "reditor to fulll theo&ligation of the prin"ipal de&tor in "ase thelatter should fail to do so-34 he guarantor whopays for a de&tor, in turn, %ust &e inde%nied &ythe latter-35 Iowever, the guarantor "annot &e"o%pelled to pay the "reditor unless the latterhas e:hausted all the property of the de&tor andresorted to all the legal re%edies against thede&tor-3 his is what is otherwise known as the&enet of e:"ussion-

=t is "lear that e:"ussion %ay only &e invokedafter legal re%edies against the prin"ipal de&tor



have &een e:panded- hus, it was held that the"reditor %ust rst o&tain a @udg%ent against theprin"ipal de&tor &efore assu%ing to run after thealleged guarantor, for o&viously the Ue:haustionof the prin"ipalOs propertyO "annot even &egin totake pla"e &efore @udg%ent has &eeno&tained-3 he law i%poses "onditionspre"edent for the invo"ation of the defense- hus,in order that the guarantor %ay %ake use of the&enet of e:"ussion, he %ust set it up against the"reditor upon the latterOs de%and for pay%entand point out to the "reditor availa&le property of the de&tor within the hilippines su"ient to"over the a%ount of the de&t-3'

Hhile a guarantor en@oys the &enet of e:"ussion,nothing prevents hi% fro% paying the o&ligationon"e de%and is %ade on hi%- ;:"ussion, afterall, is a right granted to hi% &y law and as su"hhe %ay opt to %ake use of it or waive it-hiluaranteeOs waiver of the right of e:"ussion"annot prevent it fro% de%andingrei%&urse%ent fro% petitioners- he law "learly

reAuires the de&tor to inde%nify the guarantorwhat the latter has paid-37

etitionersO "lai% that hiluarantee had no %oreo&ligation to pay RB &e"ause of the allegede:piration of the "ontra"t of guarantee isuntena&le- he guarantee, dated1 !e"e%&er177, states

=n the event of default &y J/!C and as a"onseAuen"e thereof, I=9>(R(/;; is %ade topay its o&ligation arising under the aforesaidguarantee I=9>(R(/;; shall pay the B(/K

the a%ount of 1-4 %illion or 0D of the totalo&ligation unpaid_

- - - -

his guarantee shall &e valid for a period of one)1* year fro% date hereof &ut %ay &e renewedupon pay%ent &y J/!C of the guarantee fee atthe sa%e rate of 1-5D per annu%-40

he guarantee was only up to 1 !e"e%&er17'0- J/Os o&ligation with RB fell due on 30 June17'0, and de%and on hiluarantee was %ade&y RB on 0' 6"to&er 17'0- hat pay%ent wasa"tually %ade only on 10 <ar"h 17'1 does nottake it out of the ter%s of the guarantee- Hhat is"ontrolling is that default and de%and onhiluarantee had taken pla"e while theguarantee was still in for"e-

here is likewise no %erit in petitionersO "lai%that hiluaranteeOs failure to give its e:press"onsent to the alleged e:tensions granted &y RBto J/ had e:tinguished the guarantee- hereAuire%ent that the guarantor should "onsent toany e:tension granted &y the "reditor to the

de&tor under (rt- 207 is for the &enet of theguarantor- (s su"h, it is likewise waiva&le &y theguarantor- hus, even assu%ing that e:tensionswere indeed granted &y RB to J/, hiluarantee"ould have opted to waive the need for "onsentto su"h e:tensions- =ndeed, a guarantor is notpre"luded fro% waiving his right to &e notied ofor to give his "onsent to e:tensions o&tained &ythe de&tor- 8u"h waiver is not "ontrary to pu&li"poli"y as it is purely personal and does not aFe"tpu&li" interest-41 =n the instant "ase,hiluaranteeOs waiver "an &e inferred fro% itsa"tual pay%ent to RB after the latterOs de%and,despite J/Os failure to pay the renewalguaranteefee as indi"ated in the guarantee-42

or the a&ove reasons, there is no &asis forpetitionerOs "lai% that hiluarantee was a %erevolunteer payor and had no legal o&ligation topay RB- he law does not prohi&it the pay%ent&y a guarantor on his own volition, heedless ofthe &enet of e:"ussion- =n fa"t, it re"ogniEes theright of a guarantor to re"over what it has paid,

even if pay%ent was %ade &efore the de&t&e"o%es due,43 or if %ade without noti"e to thede&tor,44 su&@e"t of "ourse to so%e "onditions-

etitionersO invo"ation of our ruling in Hille:lasti" =ndustries, Corp- v- Court of (ppeals45 is%ispla"ed, if not irrelevant- =n the said "ase, theguarantor "lai%ed that it "ould not &e pro"eededagainst without rst e:hausting all of theproperties of the de&tor- he Court, nding thatthere was an e:press renun"iation of the &enetof e:"ussion in the "ontra"t of guarantee, ruledagainst the guarantor-

he "ited "ase nds no appli"ation in the "ase aAuo- hiluarantee is not invoking the &enet ofe:"ussion- =t "annot &e overe%phasiEed thate:"ussion is a right granted to the guarantor and,therefore, only he %ay invoke it at his dis"retion-

he &enet of e:"ussion, as well as thereAuire%ent of "onsent to e:tensions of pay%ent,is a prote"tive devi"e pertaining to and "onferredon the guarantor- hese %ay &e invoked &y theguarantor against the "reditor as defenses to &arthe unwarranted enfor"e%ent of the guarantee-

Iowever, hiluarantee did not avail of thesedefenses when it paid its o&ligation a""ording tothe tenor of the guarantee on"e de%and was%ade on it- Hhat is pe"uliar in the instant "ase isthat petitioners, the prin"ipal de&tors the%selvesare %uddling the issues and raising the sa%edefenses against the guarantor, whi"h only theguarantor %ay invoke against the "reditor, toavoid pay%ent of their own o&ligation to theguarantor- he Court "annot "ountenan"e theirself+seeking desire to &e e:onerated fro% theduty to rei%&urse hiluarantee after it had paid



RB on their &ehalf and to un@ustly enri"hthe%selves at the e:pense of hiluarantee-

etitioners assert that RBOs alleged fore"losureof the real estate %ortgage over the lande:e"uted as se"urity for the loan agree%ent hade:tinguished hiluaranteeOs o&ligationG thus,hiluaranteeOs re"ourse should &e dire"tedagainst RB, as per the pari+passu provision4 inthe "ontra"t of guarantee-4 He disagree-

he fore"losure was %ade on 2 (ugust 1773,after the "ase was su&%itted for de"ision in1772 and &efore the issuan"e of the de"ision ofthe "ourt a Auo in 177'-4' hus, fore"losure wasresorted to &y RB against J/ when they &oth had&e"o%e aware that hiluarantee had alreadypaid RB and that there was a pending "ase led&y hiluarantee against petitioners- his %atterwas not raised and proved in the trial "ourt, norin the appeal &efore the C(, &ut raised for therst ti%e in petitionersO %otion forre"onsideration in the C(- =n their appellantsO

Brief, petitioners "lai%ed that there was no needfor the defendant+appellee J/!C to present anyeviden"e &efore the lower "ourt to show thatindeed fore"losure of the R;< took pla"e-47 (sproperly held &y the C(,

_ irstly, the do"u%ents eviden"ing fore"losureof %ortgage "annot &e "onsidered as newlydis"overed eviden"e- he said do"u%ents werealready su&sisting and should have &eenpresented during the trial of the "ase- he allegedfore"losure sale was %ade on (ugust 23, 1773 _while the de"ision was rendered &y the trial "ourt

on (ugust 20, 177' a&out ve )5* yearsthereafter- hese do"u%ents were likewise notsu&%itted &y the defendants+appellees whenthey su&%itted their appelleesO Brief to thisCourt- hus, these "annot &e "onsidered as newlydis"overed eviden"e &ut are %ore "orre"tlyas"ri&ed as suppressed forgotten eviden"e_8e"ondly, the alleged fore"losure sale is not proof of pay%ent of the loan &y defendant+appellees tothe plaintiFs+appellants-50

Besides, the "o%plaint a Auo was led &yhiluarantee as guarantor for J/, and its "ause

of a"tion was pre%ised on its pay%ent of J/Oso&ligation after the latterOs default- hiluaranteewas well within its rights to de%andrei%&urse%ent for su"h pay%ent %ade,regardless of whether the "reditor, RB, wassu&seAuently a&le to o&tain pay%ent fro% J/- =fdou&le pay%ent was indeed %ade, then it is J/whi"h should go after RB, and nothiluarantee- etitioners have no one to &la%e&ut the%selves, having allowed the fore"losure of the property for the full value of the loan despiteknowledge of hiluaranteeOs pay%ent to RB-Iaving &een aware of su"h pay%ent, they should

have opposed the fore"losure, or at the veryleast, led a supple%ental pleading with the trial"ourt infor%ing the sa%e of the fore"losure sale-

9ikewise, petitioners "annot invoke the pari+passu"lause in the guarantee, not &eing parties to thesaid agree%ent- he "lause is "learly for the&enet of the guarantor and no other-

he Court notes the letter51 of Rodrigo 8ta- (na

oFering, &y way of settle%ent of J/Os o&ligationsto hiluarantee, the very sa%e par"el of land%ortgaged as se"urity for the loan agree%ent-

his further weakens the position of petitioners,sin"e it &e"o%es o&vious that they a"knowledgedthe pay%ent %ade &y hiluarantee on their&ehalf and that they were in fa"t willing tonegotiate with hiluarantee for the settle%entof the said o&ligation &efore the ling of the"o%plaint a Auo-

(nent the issue of forgery, the C( is "orre"t inreversing the de"ision of the trial "ourt- 8ave for

the denial of /ar"iso CruE that it was not hissignature in the >ndertaking and the perfun"tory"o%parison of the signatures, nothing in there"ords would support the "lai% of forgery-orgery "annot &e presu%ed and %ust &e proved&y "lear, positive and "onvin"ing eviden"e andthe &urden of proof lies on the party allegingforgery-52 <ere denial will not su"e toover"o%e the positive value of the >ndertaking,whi"h is a notariEed do"u%ent, has in its favorthe presu%ption of regularity, and "arries theevidentiary weight "onferred upon it with respe"tto its due e:e"ution-53 ;ven in "ases where the

alleged forged signature was "o%pared tosa%ples of genuine signatures to show itsvarian"e therefro%, this Court still found su"heviden"e insu"ient-54 <ere varian"e of thesignatures "annot &e "onsidered as "on"lusiveproof that the sa%e were forged-55

HI;R;6R;, the "onsolidated petitions are!;/=;!- he !e"ision of the Court of (ppeals inC(+-R- C. /o- 131' is (=R<;!-

TRADE AND INVEST%ENT DEVELOP%ENTCORPORATION O& T)E P)ILIPPINES&ormerl1 P)ILIPPINE E0PORT AND &OREIGNLOAN G,ARANTEE CORPORATION./ vs.ASIAPACES CORPORATION' PACES IND,STRIALCORPORATION' NICOLAS C. BALDERRA%A'SIDDCOR INS,RANCE CORPORATION #o2%EGA PACI&IC INS,RANCE CORPORATION/'P)ILIPPINE P)OENI0 S,RETY ANDINS,RANCE' INC.' PARA%O,NT INS,RANCECORPORATION'3 AND &ORT,NE LI&E ANDGENERAL INS,RANCE CO%PANY'

(ssailed in this petition for review on "ertiorari1are the !e"ision2 dated (pril 30, 200' and



Resolution3 dated <ar"h 2, 2007 of the Court of(ppeals )C(* in C(+-R- C. /o- '55' whi"har%ed the !e"ision4 dated (pril 27, 2005 of theRegional rial Court of <akati, Bran"h 132 )RC*in Civil Case /o- 75+1'12- he C( upheld theRCOs nding that the lia&ilities of ara%ount=nsuran"e Corporation )ara%ount*, andrespondents hilippine hoeni: 8urety and=nsuran"e, =n"- )hoeni:*, <ega a"i" =nsuran"eCorporation5 )<ega a"i"*, and ortune 9ife andeneral =nsuran"e Co%pany )ortune* on theirrespe"tive "ounter+surety &onds have &eene:tinguished due to the e:tension of the prin"ipalo&ligations these &onds "overed, to whi"h saidrespondents did not give their "onsent-

he a"ts

6n January 17, 17'1, respondents (sia a"esCorporation )(8(C* and a"es =ndustrialCorporation )=C6* entered into a su&+"ontra"tingagree%ent, deno%inated as 200 K.

rans%ission 9ines Contra"t /o- 20+'0+== Civil

Horks ;le"tri"al ;re"tion, with the ;le"tri"alro@e"ts Co%pany of 9i&ya );9C6*, as %ain"ontra"tor, for the "onstru"tion and ere"tion of adou&le "ir"uit &undle phase "ondu"tortrans%ission line in the "ountry of 9i&ya- onan"e its working "apital reAuire%ents, (8(Co&tained loans fro% foreign &anks BanAue=ndosueE and C= Capital )Iong Kong* 9i%ited)C= Capital* whi"h, upon the latterOs reAuest,were se"ured &y several 9etters of uaranteeissued &y petitioner rade and =nvest%ent!evelop%ent Corporation of the hilippines)=!C6R*, then hilippine ;:port and oreign

9oan uarantee Corp-, a govern%ent owned and"ontrolled "orporation "reated for the pri%arypurpose of, a%ong others, guarantee#ing$, withthe prior "on"urren"e of the <onetary Board,su&@e"t to the rules and regulations that the<onetary Board %ay pres"ri&e, approved foreignloans, in whole or in part, granted to any entity,enterprise or "orporation organiEed or li"ensed toengage in &usiness in the hilippines- >nderthe 9etters of uarantee, =!C6R irrevo"a&lyand un"onditionally guaranteed full pay%ent of(8(COs loan o&ligations to BanAue =ndosueE andC= Capital in the event of default &y the latter-'

he deno%inations of these letters, in"luding theloan agree%ents se"ured &y ea"h, are detailed asfollows7

(s a "ondition pre"edent to the issuan"e &y =!C6R of the 9etters of uarantee, (8(C,=C6, and (8(COs resident, respondent /i"olasC- Balderra%a )Balderra%a* had to e:e"uteseveral !eeds of >ndertaking,10 &indingthe%selves to @ointly and severally pay =!C6Rfor whatever da%ages or lia&ilities it %ay in"urunder the afore%entioned letters- =n the sa%elight, (8(C, as prin"ipal de&tor, entered into

surety agree%ents )8urety Bonds* withara%ount, hoeni:, <ega a"i" and ortune)&onding "o%panies*, as sureties, also holdingthe%selves solidarily lia&le to =!C6R, as"reditor, for whatever da%ages or lia&ilities thelatter %ay in"ur under the 9etters ofuarantee-11 he details of said &onds, in"ludingtheir respe"tive "overage a%ounts and e:pirationdates, a%ong others, are as follows

(8(C eventually defaulted on its loan o&ligationsto BanAue =ndosueE and C= Capital, pro%ptingthe% to de%and pay%ent fro% =!C6R underthe 9etters of uarantee- he de%and letter ofBanAue =ndosueE was sent to =!C6R on <ar"h5, 17'4,23 while that of C= Capital was sent one&ruary 21, 17'5-24 =n turn, =!C6R de%andedpay%ent fro% ara%ount,25 hoeni:,2 <egaa"i",2 and ortune2' under the 8urety Bonds-

=!C6ROs de%and letters to the &onding"o%panies were sent on <ay 2', 17'5, or &eforethe nal e:piration dates of all the 8urety Bonds,&ut to no avail-27

aking into a""ount the %oratoriu% reAuest30issued &y the <inister of inan"e of the Repu&li"of the hilippines )where&y %e%&ers of theinternational &anking "o%%unity were reAuestedto grant govern%ent nan"ial institutions,31 su"has =!C6R, a%ong others, a 70+day roll overfro% their foreign de&ts &eginning 6"to&er 1,17'3*, =!C6R and its various "reditor &anks,su"h as BanAue =ndosueE and C= Capital, forgeda Restru"turing (gree%ent32 on (pril 1, 17',e:tending the %aturity dates of the 9etters ofuarantee-33 he &onding "o%panies were not

privy to the Restru"turing (gree%ent and, hen"e,did not give their "onsent to the pay%ente:tensions granted &y BanAue =ndosueE and C=Capital, a%ong others, in favor of =!C6R-/evertheless, following new pay%ents"hedules,34 =!C6R fully settled its o&ligationsunder the 9etters of uarantee to &oth BanAue=ndosueE and C= Capital on !e"e%&er 1, 1772,and (pril 17 and June 4, 1771, respe"tively-358eeking pay%ent for the da%ages and lia&ilitiesit had in"urred under the 9etters of uaranteeand with its previous de%ands therefor leftunheeded, ==!C6R led a "olle"tion "ase3

against )a* (8(C, =C6, and Balderra%a ona""ount of their o&ligations under the deeds ofundertakingG and )&* the &onding "o%panies ona""ount of their o&ligations under the 8uretyBonds-

he RC Ruling

=n a !e"ision3 dated (pril 27, 2005, the RCpartially granted =!C6ROs "o%plaint andthere&y found (8(C, =C6, and Balderra%a

@ointly and severally lia&le to =!C6R in the su%of 2,'71,357- pursuant to the ter%s of the



!eeds of >ndertaking, &ut a&solved the &onding"o%panies fro% lia&ility on the ground that the%oratoriu% reAuest and the "onseAuent pay%ente:tensions granted &y BanAue =ndosueE and C=Capital in =!C6ROs favor without their "onsente:tinguished their o&ligations under the 8uretyBonds- (s &asis, the RC "ited (rti"le 207 of theCivil Code whi"h provides that an e:tensiongranted to the de&tor &y the "reditor without the"onsent of the guarantorsurety e:tinguishes theguarantysuretyship, and, in this relation, addedthat the &onding "o%panies should not &e heldlia&le as sureties for the e:tended period-3'

!issatised, =!C6R and Balderra%a ledseparate appeals &efore the C(-37 or its part,

=!C6R averred, a%ong others, that (rti"le207 of the Civil Code is only li%ited to "ontra"tsof guaranty, and, hen"e, should not apply to"ontra"ts of suretyship- <eanwhile, Balderra%atheoriEed that the %ain "ontra"torOs )i-e-, ;9C6*failure to pay (8(C due to the warpoliti"alupheaval in 9i&ya whi"h further resulted in the

latterOs ina&ility to pay BanAue =ndosueE and C=Capital had the eFe"t of releasing hi% fro% hiso&ligations under the !eeds of >ndertaking-

he C( Ruling

=n a !e"ision40 dated (pril 30, 200', the C(upheld the RCOs ruling that the %oratoriu%reAuest had the eFe"t of an e:tension grantedto a de&tor, whi"h e:tension was without the"onsent of the guarantor, and thus released thesurety "o%panies fro% their respe"tive lia&ilitiesunder the issued surety &onds pursuant to

(rti"le 207 of the Civil Code-41 o this end, itnoted that the %aturity of the foreign loans wase:tended to !e"e%&er 31, 17'7 or up to!e"e%&er 31, 1774 as provided under 8e"tion4-01 of the Restru"turing (gree%ent, and thatsaid e:tension is &eyond the e:piry date#s$ ofthe surety &onds : : : and the %aturity date ofthe prin"ipal o&ligations it purportedly se"ured,whi"h e:tension was without #the &onding"o%paniesO$ "onsent,42 =t further dis"redited

=!C6ROs "ontention that (rti"le 207 of theCivil Code is only li%ited to "ontra"ts of guaranty&y "iting the CourtOs pronoun"e%ent on the

provisionOs appli"a&ility to suretyships in the "aseof 8e"urity Bank and rust Co-, =n"- v- Cuen"a43)8e"urity Bank*- (s for Balderra%a, the C(de&unked his assign%ent of error, ratio"inatingthat #h$is undertaking to pay is not dependentupon the pay%ent to &e %ade &y ;9C6 to(8(C-44 he C(, however, %odied the RCde"ision to the e:tent of holding (8(C, =C6,and Balderra%a lia&le to =!C6R for attorneyOsfees in the reasona&le a%ount of 2,000,000-00sin"e the pay%ent of attorneyOs fees wasstipulated &y the parties in the !eed of>ndertaking dated (pril 2, 17'2-45

(ggrieved, =!C6R and Balderra%a ledseparate %otions for re"onsideration,4 whi"hwere, however, denied in a Resolution4 dated<ar"h 2, 2007- 6nly =!C6R elevated the%atter to the Court on appeal- ending resolutionthereof, or on 6"to&er , 2010, =!C6R led a<otion for artial Hithdrawal4' of its "lai%against ara%ount in view of their Co%pro%ise(gree%ent47 dated June 24, 2010 whi"h wasapproved50 &y the C( in C(+-R- C. /o- 72'1',entitled rade =nvest%ent Corporation of thehils-, et al- v- Ro&let =ndustrial Constru"tion Corp-and ara%ount =nsuran"e Corp-, et al-51

he =ssue Before the Court

he essential issue raised for the CourtOsresolution is whether or not the C( erred inholding that the &onding "o%paniesO lia&ilities to

=!C6R under the 8urety Bonds have &eene:tinguished &y the pay%ent e:tensions granted&y BanAue =ndosueE and C= Capital to =!C6Runder the Restru"turing (gree%ent-

he CourtOs Ruling

he petition is granted

( surety is "onsidered in law as &eing the sa%eparty as the de&tor in relation to whatever isad@udged tou"hing the o&ligation of the latter,and their lia&ilities are interwoven as to &einsepara&le- (lthough the "ontra"t of a surety isin essen"e se"ondary only to a valid prin"ipalo&ligation, his lia&ility to the "reditor is dire"t,pri%ary and a&soluteG he &e"o%es lia&le for the

de&t and duty of another although he possessesno dire"t or personal interest over the o&ligationsnor does he re"eive any &enet therefro%-52 hefunda%ental reason therefor is that a "ontra"t ofsuretyship eFe"tively &inds the surety as asolidary de&tor- his is provided under (rti"le204 of the Civil Code whi"h states

(rti"le 204- By guaranty a person, "alled theguarantor, &inds hi%self to the "reditor to fulllthe o&ligation of the prin"ipal de&tor in "ase thelatter should fail to do so-

=f a person &inds hi%self solidarily with the

prin"ipal de&tor, the provisions of 8e"tion 4,Chapter 3, itle = of this Book shall &e o&served-=n su"h "ase the "ontra"t is "alled a suretyship-);%phasis and unders"oring supplied*

hus, sin"e the surety is a solidary de&tor, it isnot ne"essary that the original de&tor rst failedto pay &efore the surety "ould &e %ade lia&leG itis enough that a de%and for pay%ent is %ade &ythe "reditor for the suretyOs lia&ility to atta"h-53

(rti"le 121 of the Civil Code provides that



(rti"le 121- he "reditor %ay pro"eed againstany one of the solidary de&tors or so%e or all ofthe% si%ultaneously- he de%and %ade againstone of the% shall not &e an o&sta"le to thosewhi"h %ay su&seAuently &e dire"ted against theothers, so long as the de&t has not &een fully"olle"ted-

Co%paring a suretyOs o&ligations with that of aguarantor, the Court, in the "ase of al%ares v-C(,54 illu%ined that a surety is responsi&le forthe de&tOs pay%ent at on"e if the prin"ipal de&tor%akes default, whereas a guarantor pays only ifthe prin"ipal de&tor is una&le to pay, viE-55

( surety is an insurer of the de&t, whereas aguarantor is an insurer of the solven"y of thede&tor-1\wphi1 ( suretyship is an undertakingthat the de&t shall &e paidG a guaranty, anundertaking that the de&tor shall pay- 8tateddiFerently, a surety pro%ises to pay theprin"ipalOs de&t if the prin"ipal will not pay, whilea guarantor agrees that the "reditor, after

pro"eeding against the prin"ipal, %ay pro"eedagainst the guarantor if the prin"ipal is una&le topay- ( surety &inds hi%self to perfor% if theprin"ipal does not, without regard to his a&ility todo so- ( guarantor, on the other hand, does not"ontra"t that the prin"ipal will pay, &ut si%plythat he is a&le to do so- =n other words, a suretyundertakes dire"tly for the pay%ent and is soresponsi&le at on"e if the prin"ipal de&tor %akesdefault, while a guarantor "ontra"ts to pay if, &ythe use of due diligen"e, the de&t "annot &e%ade out of the prin"ipal de&tor-

);%phases and unders"oring suppliedG "itationso%itted*

!espite these distin"tions, the Court inCo"hingyan, Jr- v- RB 8urety =nsuran"e Co-,=n"-,5 and later in the "ase of 8e"urity Bank,held that (rti"le 207 of the Civil Code, whi"hpertinently provides that #a$n e:tension grantedto the de&tor &y the "reditor without the "onsentof the guarantor e:tinguishes the guaranty,eAually applies to &oth "ontra"ts of guaranty andsuretyship- he rationale therefor was e:plained&y the Court as follows5

he theory &ehind (rti"le 207 is that ane:tension of ti%e given to the prin"ipal de&tor &ythe "reditor without the suretyOs "onsent woulddeprive the surety of his right to pay the "reditorand to &e i%%ediately su&rogated to the"reditorOs re%edies against the prin"ipal de&torupon the %aturity date- he surety is said to &eentitled to prote"t hi%self against the"ontingen"y of the prin"ipal de&tor or theinde%nitors &e"o%ing insolvent during thee:tended period- );%phasis and unders"oringsuppliedG "itations o%itted*

(pplying these prin"iples, the Court nds that thepay%ent e:tensions granted &y BanAue =ndosueEand C= Capital to =!C6R under theRestru"turing (gree%ent did not have the eFe"tof e:tinguishing the &onding "o%paniesOo&ligations to =!C6R under the 8urety Bonds,notwithstanding the fa"t that said e:tensionswere %ade without their "onsent- his is &e"ause(rti"le 207 of the Civil Code refers to a pay%ente:tension granted &y the "reditor to the prin"ipalde&tor without the "onsent of the guarantor orsurety- =n this "ase, the 8urety Bonds aresuretyship "ontra"ts whi"h se"ure the de&t of(8(C, the prin"ipal de&tor, under the !eeds of>ndertaking to pay =!C6R, the "reditor, theda%ages and lia&ilities it %ay in"ur under the9etters of uarantee, within the &ounds of the&ondsO respe"tive "overage periods and a%ounts/o pay%ent e:tension was, however, granted &y

=!C6R in favor of (8(C in this regardG hen"e,(rti"le 207 of the Civil Code should not &eapplied with respe"t to the &onding "o%paniesOlia&ilities to =!C6R under the 8urety Bonds-

he pay%ent e:tensions granted &y BanAue=ndosueE and C= Capital pertain to =!C6ROsown de&t under the 9etters of uarantee whereinit )=!C6R* irrevo"a&ly and un"onditionallyguaranteed full pay%ent of (8(COs loano&ligations to the &anks in the event of its)(8(C* default- =n other words, the 9etters ofuarantee se"ured (8(COs loan agree%ents tothe &anks- >nder this arrange%ent, =!C6Rtherefore a"ted5' as a guarantor,57 with (8(Cas the prin"ipal de&tor, and the &anks as"reditors-

ro"eeding fro% the foregoing dis"ussion, it isAuite "lear that there are two sets of transa"tionsthat should &e treated separately and distin"tlyfro% one another following the "ivil law prin"ipleof relativity of "ontra"ts whi"h provides that"ontra"ts "an only &ind the parties who enteredinto it, and it "annot favor or pre@udi"e a thirdperson, even if he is aware of su"h "ontra"t andhas a"ted with knowledge thereof-0 .erily, asthe 8urety Bonds "on"ern (8(COs de&t to

=!C6R and not =!C6ROs de&t to the &anks,the pay%ents e:tensions )whi"h "onversely

"on"ern =!C6ROs de&t to the &anks and not(8(COs de&t to =!C6R* would not deprive the&onding "o%panies of their right to pay their"reditor )=!C6R* and to &e i%%ediatelysu&rogated to the latterOs re%edies against theprin"ipal de&tor )(8(C* upon the %aturity date-=t %ust &e stressed that these pay%ente:tensions did not %odify the ter%s of the 9ettersof uarantee &ut only provided for a newpay%ent s"he%e "overing =!C6ROs lia&ility tothe &anks- =n ne, "onsidering the inopera&ility of(rti"le 207 of the Civil Code in this "ase, the&onding "o%paniesO lia&ilities to =!C6R under



the 8urety Bonds S e:"ept those issued &yara%ount and "overed &y its Co%pro%ise(gree%ent with =!C6R S have not &eene:tinguished- 8in"e these o&ligations arose andhave &een duly de%anded within the "overageperiods of all the 8urety Bonds,1 =!C6ROs"lai% is here&y granted and the C(Os ruling onthis s"ore "onseAuently reversed- /evertheless,given that no appeal has &een led onBalderra%aOs ad@udged lia&ility or on the award of attorney[s fees, the C([s dispositions on these%atters are now dee%ed as nal and e:e"utory-

HI;R;6R;, the petition is R(/;!- he!e"ision dated (pril 30, 200' and Resolution

dated <ar"h 2, 2007 of the Court of (ppeals inC(+-R- C. /o- '55' are <6!==;! in thatrespondents hilippine hoeni: 8urety and=nsuran"e, =n"-, <ega a"i" =nsuran"eCorporation, ortune 9ife and eneral =nsuran"eCo%pany are 6R!;R;! to fulll their respe"tiveo&ligations to petitioner rade and =nvest%ent!evelop%ent Corporation of the hilippines)=!C6R* under the 8urety Bonds su&@e"t of this"ase, dis"ounting the o&ligations arising fro% the8urety Bonds issued &y ara%ount =nsuran"eCorporation and "overed &y its Co%pro%ise(gree%ent with =!C6R-

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