Cred Trans Cases - 04 - Guaranty.docx

CIVIL LAW | C r e d i t T r a n s a c t i o n s

SECOND DIVISION [G.R. No. 84084. August 20, 1990.] FINMAN GENERAL ASSURANCE CORPORATION, Petitioner, v. ABDULGANI SALIK, BALABAGAN AMPILAN, ALI KUBA, GANDHI PUA, DAUD MALANAO, THE ADMINISTRATOR, PHILIPPINE OVERSEAS AND EMPLOYMENT ADMINISTRATION, THE SECRETARY OF LABOR AND EMPLOYMENT, Respondents. David I. Unay, Jr. for Petitioner. Kamid D. Abdul for Private Respondents.

SYLLABUS

1. LABOR LAW; LABOR CODE; RECRUITMENT; SECTION 4 RULE V BOOK I OF THE IMPLEMENTING RULES; LIABILITY OF THE SURETY THEREUNDER IS SOLIDARY WITH ITS PRINCIPAL; CASE AT BAR. — It remains uncontroverted that herein petitioner and Pan Pacific entered into a suretyship agreement, with the former agreeing that the bond is conditioned upon the true and faithful performance and observance of the bonded principal (Pan Pacific) of its duties and obligations. It was also understood that under the suretyship agreement, herein petitioner undertook itself to be jointly and severally liable for all claims arising from recruitment violation of Pan Pacific (Ibid., p. 23), in keeping with Section 4, Rule V, Book I of the Implementing Rules of the Labor Code. Accordingly, the nature of Finman’s obligation under the suretyship agreement makes it privy to the proceedings against its principal (Pan Pacific). As such Finman is bound, in the absence of collusion, by a judgment against its principal even though it was not a party to the proceedings (Leyson v. Rizal Surety and Insurance Co., 16 SCRA 551 (1966). Furthermore, in Government of the Philippines v. Tizon (20 SCRA 1182 [1967]), this Court ruled that where the surety bound itself solidarily with the principal obligor, the former is so dependent on the principal debtor "that the surety is considered in law as being the same party as the debtor in relation to whatever is adjudged touching the obligation of the latter." Applying the foregoing principles to the case at bar, it can be very well said that even if herein Finman was not impleaded in the instant case, still it (petitioner) can be held jointly and severally liable for all claims arising from recruitment violation of Pan Pacific. Moreover, as correctly stated by the Solicitor General, private respondents have a legal claim against Pan Pacific and its insurer for the placement and processing fees they paid, so much so that in order to provide a complete relief to private respondents, petitioner had to be impleaded in the case (Rollo, p. 87). 2. ID.; SECRETARY OF LABOR; JURISDICTION, LACK OF; ISSUE THEREON MUST BE RAISED AT THE LOWER PROCEEDINGS; CASE AT BAR. — While Finman contends that herein respondent Secretary of Labor cannot validly assume jurisdiction over the case at bar,

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the records of the case reveal that herein Finman filed a motion for reconsideration of the adverse decision dated March 18, 1988 of respondent Secretary of Labor. In the said motion for reconsideration, no jurisdictional challenge was made (Ibid., p. 22). It was only when it filed this petition that it assailed the jurisdiction of the respondent Secretary of Labor, and that of the POEA. But then, it was too late. Estoppel had barred herein petitioner from raising the issue, regardless of its merits (Akay Printing Press v. Minister of Labor and Employment, 140 SCRA 381 [1985]). 3. ID.; ID.; FACTUAL FINDINGS THEREOF GENERAL. ACCORDED GREAT WEIGHT ON APPEAL; CASE AT BAR. — Well-settled is the rule that findings of facts of the respondent Secretary are generally accorded great weight unless there was grave abuse of discretion or lack of jurisdiction in arriving at such findings (Asia world Publishing House, Inc. v. Ople, 152 SCRA 219 (1987). In the case at bar, it is undisputed that when the case was first set for hearing, only the private respondents appeared, despite summons having been served upon both herein petitioner and Pan Pacific. This, notwithstanding, both herein petitioner and Pan Pacific were again notified of the scheduled hearing, but, as aforestated they also failed to appear (Rollo, p. 15). Accordingly, owing to the absence of any controverting evidence, respondent Secretary of Labor admitted and considered private respondents’ testimonies and evidence as substantial. Under the circumstances, no justifiable reason can be found to justify disturbance of the findings of facts of the respondent Secretary of Labor, supported as they are by substantial evidence and in the absence of grave abuse of discretion (Asia world Publishing House, Inc. v. Ople, supra); and in line with the well established principle that the findings of administrative agencies which have acquired expertise because their jurisdiction is confined to specific matters are generally accorded not only respect but at times even finality. (National Federation of Labor Union (NAFLU) v. Ople, 143 SCRA 124 [1986])

DECISION

PARAS, J.:

This is a petition for certiorari seeking to annul 1 the Order dated March 28, 1988 of the Honorable Secretary of Labor and Employment in POEA, LRO/RRD Case No. 87-09-1022-DP entitled Abdulgani Salik, Et. Al. v. Pan Pacific Overseas and Recruiting Services and Finman General Assurance Corporation, which directed herein petitioner to pay jointly and severally with Pan Pacific the claims of herein private respondents amounting to P25,000.00 and 2) the Order dated June 7, 1988, which denied petitioner’s motion for reconsideration (Rollo, p. 2). The facts of the case are as follows:

cha nro b1es vi rtua l 1aw lib ra ry

Abdulgani Salik Et. Al., private respondents, allegedly applied with Pan Pacific Overseas Recruiting Services, Inc. (hereinafter referred to as Pan Pacific) on April 22, 1987 and were assured employment abroad by a certain Mrs. Normita Egil. In consideration thereof, they allegedly paid fees totalling P30,000.00. But despite numerous assurances of employment abroad given by Celia Arandia and Mrs. Egil, they were not employed (Ibid., p. 15).

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CIVIL LAW | C r e d i t T r a n s a c t i o n s Accordingly, they filed a joint complaint with the Philippine Overseas Employment Administration (herein referred to as POEA) against Pan Pacific for Violation of Articles 32 and 34(a) of the Labor Code, as amended, with claims for refund of a total amount of P30,000.00 (Ibid.). The POEA motu proprio impleaded and summoned herein petitioner surety Finman General Assurance Corporation (hereinafter referred to as Finman), in the latter’s capacity as Pan Pacific’s bonding company. Summons were served upon both Pan Pacific and Finman, but they failed to answer. On October 9, 1987, a hearing was called, but only the private respondents appeared. Despite being deemed in default for failing to answer, both Finman and Pan Pacific were still notified of the scheduled hearing. Again they failed to appear. Thus, ex-parte proceedings ensued. During the hearing, herein private respondents reiterated the allegations in their complaint that they first paid P20,000.00 thru Hadji Usop Kabagani for which a receipt was issued signed by Engineer Arandia and countersigned by Mrs. Egil and a certain Imelda who are allegedly employed by Pan Pacific; that they paid another P10,000.00 to Engr. Arandia who did not issue any receipt therefor; that the total payment of P30,000.00 allegedly represents payments for herein private respondents in the amount of P5,000.00 each, and Abdulnasser Ali, who did not file any complaint against Pan Pacific (Ibid., pp. 15-16).

4. Gandhi Dua 5,000.00 5. Daud Malanao 5,000.00 Based on the records of this Administration, respondent agency is presently serving a total period of suspension of seventeen (17) months imposed in three (3) separate orders issued on June 2, 1987, August 17, 1987 and September 23, 1987. Under the new schedule of penalties published on January 21, 1987 in the Philippine Inquirer, the penalty of cancellation shall be imposed when the offender has been previously penalized with suspension the total period of which is 12 months or more. Moreover, the penalty impossible in the case at bar is two (2) months suspension for each count of violation or a total period of suspension of ten (10) months as the acts were committed in April 1987. Thus, whether under the old schedule of penalties which required a total period of suspension of twenty-four (24) months for cancellation to be imposed or under the new schedule which provides for a twelve (12) month total suspension period, the penalty of cancellation may be properly imposed upon the herein respondent agency. chan roble s.com. ph :

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In view thereof, the license of Pan Pacific Overseas Recruiting Services is hereby cancelled, effective immediately. SO ORDERED. (Ibid., pp. 20-21). A motion for reconsideration having been denied (Ibid., p. 22), herein petitioner instituted the instant petition for certiorari, raising the following assigned errors: chan rob1e s virtual 1aw l ibra ry

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Herein private respondents presented as their witness, Hadji Usop Kabagani who they identified as the one who actually financed their application and who corroborated their testimonies on all material points including the non-issuance of a receipt for P10,000.00 by Engr. Arandia. Herein petitioner, Finman, in an answer which was not timely filed, alleged, among others, that herein private respondents do not have a valid cause of action against it; that Finman is not privy to any transaction undertaken by Pan Pacific with herein private respondents; that herein private respondents claims are barred by the statute of frauds and by the fact that they executed a waiver; that the receipts presented by herein private respondents are mere scraps of paper; that it is not liable for the acts of Mrs. Egil; that Finman has a cash bond of P75,000.00 only which is less than the required amount of P100,000.00; and that herein private respondents should proceed directly against the cash bond of Pan Pacific or against Mrs. Egil (Ibid., pp. 16-17). On March 18, 1988, the Honorable Franklin M. Drilon, then the Secretary of Labor and Employment, upon the recommendation of the POEA hearing officer, issued an Order, the dispositive portion of which reads:

I THE HONORABLE ADMINISTRATOR AND THE HONORABLE SECRETARY OF LABOR ACTED WITH GRAVE ABUSE OF DISCRETION AMOUNTING TO LACK OF JURISDICTION IN MOTU PROPRIO IMPLEADING FINMAN AS CO-RESPONDENT OF PAN PACIFIC IN POEA LRO/RRD CASE NO. 87-09-1022 DP WHICH WAS FILED BY ABDULGANI SALIK, ET AL.; II THE HONORABLE SECRETARY OF LABOR ACTED WITHOUT OR IN EXCESS OF JURISDICTION AND WITH GRAVE ABUSE OF DISCRETION AMOUNTING TO LACK OF JURISDICTION IN DIRECTING FINMAN TO PAY JOINTLY AND SEVERALLY WITH PAN PACIFIC THE CLAIMS OF PRIVATE RESPONDENTS ON THE BASIS OF THE SURETYSHIP AGREEMENT BETWEEN FINMAN AND PAN PACIFIC AND THE PHILIPPINE OVERSEAS EMPLOYMENT ADMINISTRATION (POEA FOR SHORT); AND III

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"WHEREFORE, premises considered, both respondents are hereby directed to pay jointly and severally the claims of complainants, as follows: c hanro b1es vi rtua l 1aw li bra ry

1. Abdulgani Salik P5,000.00

As required by this Court, herein public respondents filed their memorandum on July 28, 1989 (Ibid., p. 84); while that of petitioner and private respondents were

2. Balabagan Ampilan 5,000.00 3. Ali Kuba 5,000.00

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THE FINDINGS OF FACT MADE BY THE POEA AND UPON WHICH THE HONORABLE SECRETARY OF LABOR BASED ITS QUESTIONED ORDERS ARE NOT SUPPORTED BY SUBSTANTIAL EVIDENCE AND ARE CONTRARY TO LAW. (Ibid., p. 101)

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CIVIL LAW | C r e d i t T r a n s a c t i o n s filed on September 11, 1989 (Ibid., p. 89) and March 16, 1990 (Ibid., p. 120), respectively. cha nro bles vi rtua l lawli bra ry

The petition is devoid of merit. In its first and second assigned errors, petitioner maintains that POEA has no jurisdiction to directly enforce the suretyship undertaking of FINMAN (herein petitioner) under the surety bond (Ibid., p. 104). In the case at bar, it remains uncontroverted that herein petitioner and Pan Pacific entered into a suretyship agreement, with the former agreeing that the bond is conditioned upon the true and faithful performance and observance of the bonded principal (Pan Pacific) of its duties and obligations. It was also understood that under the suretyship agreement, herein petitioner undertook itself to be jointly and severally liable for all claims arising from recruitment violation of Pan Pacific (Ibid., p. 23), in keeping with Section 4, Rule V, Book I of the Implementing Rules of the Labor Code, which provides: jg c:chan roble s.com.p h

"Section 4. Upon approval of the application, the applicant shall pay to the Ministry (now Department) a license fee of P6,000.00, post a cash bond of P50,000.00 or negotiable bonds of equivalent amount convertible to cash issued by banking or financial institution duly endorsed to the Ministry (now Department) as well as a surety bond of P150,000.00 from an accredited bonding company to answer for valid and legal claims arising from violations of the conditions of the license or the contracts of employment and guarantee compliance with the provisions of the Code, its implementing rules and regulations and appropriate issuances of the Ministry (now Department)." (Emphasis Supplied) Accordingly, the nature of Finman’s obligation under the suretyship agreement makes it privy to the proceedings against its principal (Pan Pacific). As such Finman is bound, in the absence of collusion, by a judgment against its principal even though it was not a party to the proceedings (Leyson v. Rizal Surety and Insurance Co., 16 SCRA 551 (1966). Furthermore, in Government of the Philippines v. Tizon (20 SCRA 1182 [1967]), this Court ruled that where the surety bound itself solidarily with the principal obligor, the former is so dependent on the principal debtor "that the surety is considered in law as being the same party as the debtor in relation to whatever is adjudged touching the obligation of the latter." Applying the foregoing principles to the case at bar, it can be very well said that even if herein Finman was not impleaded in the instant case, still it (petitioner) can be held jointly and severally liable for all claims arising from recruitment violation of Pan Pacific. Moreover, as correctly stated by the Solicitor General, private respondents have a legal claim against Pan Pacific and its insurer for the placement and processing fees they paid, so much so that in order to provide a complete relief to private respondents, petitioner had to be impleaded in the case (Rollo, p. 87). Furthermore, Finman contends that herein respondent Secretary of Labor cannot validly assume jurisdiction over the case at bar; otherwise, proceedings will be railroaded resulting in the deprivation of the former of any remedial measures under the law.

challenge was made (Ibid., p. 22). It was only when it filed this petition that it assailed the jurisdiction of the respondent Secretary of Labor, and that of the POEA. But then, it was too late. Estoppel had barred herein petitioner from raising the issue, regardless of its merits (Akay Printing Press v. Minister of Labor and Employment, 140 SCRA 381 [1985]). Hence, Finman’s contention that POEA’s and respondent Secretary’s actions in impleading and directing herein petitioner to pay jointly and severally with Pan Pacific the claims of private respondents constitute a grave abuse of discretion amounting to lack of jurisdiction has no basis. (Ibid., p. 101.) As regards the third assigned error, herein petitioner maintains that the findings of fact made by the POEA upon which respondent Secretary of Labor based his questioned Orders are not supported by substantial evidence and are contrary to law, is likewise untenable. Herein petitioner, in raising this third issue, is, in effect, asking this Court to review the respondent Secretary’s findings of facts. Well-settled is the rule that findings of facts of the respondent Secretary are generally accorded great weight unless there was grave abuse of discretion or lack of jurisdiction in arriving at such findings (Asia world Publishing House, Inc. v. Ople, 152 SCRA 219 (1987). chan roble s virtual lawl ibra ry

In the case at bar, it is undisputed that when the case was first set for hearing, only the private respondents appeared, despite summons having been served upon both herein petitioner and Pan Pacific. This, notwithstanding, both herein petitioner and Pan Pacific were again notified of the scheduled hearing, but, as aforestated they also failed to appear (Rollo, p. 15). Accordingly, owing to the absence of any controverting evidence, respondent Secretary of Labor admitted and considered private respondents’ testimonies and evidence as substantial. Under the circumstances, no justifiable reason can be found to justify disturbance of the findings of facts of the respondent Secretary of Labor, supported as they are by substantial evidence and in the absence of grave abuse of discretion (Asia world Publishing House, Inc. v. Ople, supra); and in line with the well established principle that the findings of administrative agencies which have acquired expertise because their jurisdiction is confined to specific matters are generally accorded not only respect but at times even finality. (National Federation of Labor Union (NAFLU) v. Ople, 143 SCRA 124 [1986]) PREMISES CONSIDERED, the questioned Orders of respondent Secretary of Labor are hereby AFFIRMED in toto. SO ORDERED. Melencio-Herrera, Padilla and Regalado, JJ., concur. Sarmiento, J., on leave.

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The records of the case reveal that herein Finman filed a motion for reconsideration of the adverse decision dated March 18, 1988 of respondent Secretary of Labor. In the said motion for reconsideration, no jurisdictional

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CIVIL LAW | C r e d i t T r a n s a c t i o n s made a final demand for payment (Exhibit P) on July 7, 1988 upon appellee CIC but the latter ignored it. Thus, appellant RCBC filed the Complaint for a Sum of Money on September 19, 1988 against appellee CIC.4 The trial court rendered a decision dated March 5, 1993, the dispositive portion of which reads as follows:

SECOND DIVISION [G.R. No. 130886 : January 29, 2004] COMMONWEALTH INSURANCE CORPORATION, Petitioner, v. COURT OF APPEALS and RIZAL COMMERCIAL BANKING CORPORATION, Respondents. DECISION

WHEREFORE, premises considered, in the light of the above facts, arguments, discussion, and more important, the law and jurisprudence, the Court finds the defendants Commonwealth Insurance Co. and defaulted third party defendants Jigs Manufacturing Corporation, Elba Industries and Iluminada de Guzman solidarily liable to pay herein plaintiff Rizal Commercial Banking Corporation the sum of Two Million Four Hundred Sixty-Four Thousand One Hundred TwentyEight Pesos (P2,464,128.00), to pay the plaintiff attorneys fees of P10,000.00 and to pay the costs of suit. IT IS SO ORDERED.5

AUSTRIA-MARTINEZ, J.: Before us is a petition for review on certiorari assailing the Decision1 of the Court of Appeals (CA), promulgated on May 16, 1997 in CA-G.R. CV No. 444732, which modified the decision dated March 5, 1993 of the Regional Trial Court of Makati (Branch 64); and the Resolution3 dated September 25, 1997, denying petitioners motion for reconsideration.

Not satisfied with the trial courts decision, RCBC filed a motion for reconsideration praying that in addition to the principal sum of P2,464,128.00, defendant CIC be held liable to pay interests thereon from date of demand at the rate of 12% per annum until the same is fully paid. However, the trial court denied the motion. RCBC then appealed to the Court of Appeals.

The facts of the case as summarized by the Court of Appeals are as follows:

On May 16, 1997, the CA rendered the herein assailed decision, ruling thus:

In 1984, plaintiff-appellant Rizal Commercial Banking Corporation (RCBC) granted two export loan lines, one, for P2,500,000.00 to Jigs Manufacturing Corporation (JIGS) and, the other, for P1,000,000.00 to Elba Industries, Inc. (ELBA). JIGS and ELBA which are sister corporations both drew from their respective credit lines, the former in the amount of P2,499,992.00 and the latter for P998,033.37 plus P478,985.05 from the case-to-case basis and trust receipts. These loans were evidenced by promissory notes (Exhibits A to L, inclusive JIGS; Exhibits V to BB, inclusive ELBA) and secured by surety bonds (Exhibits M to Q inclusive JIGS; Exhibits CC to FF, inclusive ELBA) executed by defendant-appellee Commonwealth Insurance Company (CIC).

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Specifically, the surety bonds issued by appellee CIC in favor of appellant RCBC to secure the obligations of JIGS totaled P2,894,128.00 while that securing ELBAs obligation was P1,570,000.00. Hence, the total face value of the surety bonds issued by appellee CIC was P4,464,128.00. JIGS and ELBA defaulted in the payment of their respective loans. On October 30, 1984, appellant RCBC made a written demand (Exhibit N) on appellee CIC to pay JIGs account to the full extend (sic) of the suretyship. A similar demand (Exhibit O) was made on December 17, 1984 for appellee CIC to pay ELBAs account to the full extend (sic) of the suretyship. In response to those demands, appellee CIC made several payments from February 25, 1985 to February 10, 1988 in the total amount of P2,000,000.00. There having been a substantial balance unpaid, appellant RCBC

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Being solidarily bound, a suretys obligation is primary so that according to Art. 1216 of the Civil Code, he can be sued alone for the entire obligation. However, one very important characteristic of this contract is the fact that a suretys liability shall be limited to the amount of the bond (Sec. 176, Insurance Code). This does not mean however that even if he defaults in the performance of his obligation, the extend (sic) of his liability remains to be the amount of the bond. If he pays his obligation at maturity upon demand, then, he cannot be made to pay more than the amount of the bond. But if he fails or refuses without justifiable cause to pay his obligation upon a valid demand so that he is in mora solvendi (Art. 1169, CC), then he must pay damages or interest in consequence thereof according to Art. 1170. Even if this interest is in excess of the amount of the bond, the defaulting surety is liable according to settled jurisprudence. .. . Appellant RCBC contends that when appellee CIC failed to pay the obligation upon extrajudicial demand, it incurred in delay in consequence of which it became liable to pay legal interest. The obligation to pay such interest does not arise from the contract of suretyship but from law as a result of delay or mora. Such an interest is not, therefore, covered by the limitation of appellees liability expressed in the contract. Appellee CIC refutes this argument stating that since the surety bonds expressly state that its liability shall in no case exceed the amount stated

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CIVIL LAW | C r e d i t T r a n s a c t i o n s therein, then that stipulation controls. Therefore, it cannot be made to assume an obligation more than what it secured to pay.

The sole issue is whether or not petitioner should be held liable to pay legal interest over and above its principal obligation under the surety bonds issued by it.

The contention of appellant RCBC is correct because it is supported by Arts. 1169 and 1170 of the Civil Code and the case of Asia Surety & Insurance Co., Inc. and Manila Surety & Fidelity Co. supra. On the other hand, the position of appellee CIC which upholds the appealed decision is untenable. The best way to show the untenability of this argument is to give this hypothetical case situation: Surety issued a bond for P1 million to secure a Debtors obligation of P1 million to Creditor. Debtor defaults and Creditor demands payment from Surety. If the theory of appellee and the lower court is correct, then the Surety may just as well not pay and use the P1 million in the meantime. It can choose to pay only after several years after all, his liability can never exceed P1 million. That would be absurd and the law could not have intended it.6 (Emphasis supplied)

Petitioner argues that it should not be made to pay interest because its issuance of the surety bonds was made on the condition that its liability shall in no case exceed the amount of the said bonds.

and disposed of the case as follows: WHEREFORE, the appealed Decision is MODIFIED in the manner following: The appellee Commonwealth Insurance Company shall pay the appellant Rizal Commercial Banking Corporation: 1. On the account of JIGS, P2,894,128.00 ONLY with 12% legal interest per annum from October 30, 1984 minus payments made by the latter to the former after that date; and on the account of ELBA, P1,570,000.00 ONLY with 12% legal interest per annum from December 17, 1984 minus payments made by the latter to the former after that day; respecting in both accounts the applications of payment made by appellant RCBC on appellee CICs payments; 2. Defendant-appellee Commonwealth Insurance Company shall pay plaintiff-appellant RIZAL COMMERCIAL BANKING CORP. and (sic) attorneys fee of P10,000.00 and cost of this suit; 3. The third-party defendants JIGS MANUFACTURING CORPORATION, ELBA INDUSTRIES and ILUMINADA N. DE GUZMAN shall respectively indemnify COMMONWEALTH INSURANCE CORPORATION for whatever it had paid and shall pay to RIZAL COMMERCIAL BANKING CORPORATION of their respective individual obligations pursuant to this decision. SO ORDERED.7 CIC filed a motion for reconsideration but the CA denied the same. Hence, herein petition by CIC raising a single assignment of error, to wit: Respondent Court of Appeals grievously erred in ordering petitioner to pay respondent RCBC the amount of the surety bonds plus legal interest of 12% per annum minus payments made by the petitioner.8

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We are not persuaded. Petitioners argument is misplaced. Jurisprudence is clear on this matter. As early as Tagawa vs. Aldanese and Union Gurantee Co.9 and reiterated in Plaridel Surety & Insurance Co., Inc. vs. P.L. Galang Machinery Co., Inc.10, and more recently, in Republic vs. Court of Appeals and R & B Surety and Insurance Company, Inc. 11, we have sustained the principle that if a surety upon demand fails to pay, he can be held liable for interest, even if in thus paying, its liability becomes more than the principal obligation. The increased liability is not because of the contract but because of the default and the necessity of judicial collection.12 Petitioners liability under the suretyship contract is different from its liability under the law. There is no question that as a surety, petitioner should not be made to pay more than its assumed obligation under the surety bonds.13 However, it is clear from the above-cited jurisprudence that petitioners liability for the payment of interest is not by reason of the suretyship agreement itself but because of the delay in the payment of its obligation under the said agreement. Petitioner admits having incurred in delay. Nonetheless, it insists that mere delay does not warrant the payment of interest. Citing Section 244 of the Insurance Code,14 petitioner submits that under the said provision of law, interest shall accrue only when the delay or refusal to pay is unreasonable; that the delay in the payment of its obligation is not unreasonable because such delay was brought about by negotiations being made with RCBC for the amicable settlement of the case. We are not convinced. It is not disputed that out of the principal sum of P4,464,128.00 petitioner was only able to pay P2,000,000.00. Letters demanding the payment of the respective obligations of JIGS and ELBA were initially sent by RCBC to petitioner on October 30, 198415 and December 17, 1984.16 Petitioner made payments on an installment basis spanning a period of almost three years, i.e., from February 25, 1985 until February 10, 1988. On July 7, 1988, or after a period of almost five months from its last payment, RCBC, thru its legal counsel, sent a final letter of demand asking petitioner to pay the remaining balance of its obligation including interest.17 Petitioner failed to pay. As of the date of the filing of the complaint on September 19, 1988, petitioner was even unable to pay the remaining balance of P2,464,128.00 out of the principal amount it owes RCBC. Petitioners contention that what prevented it from paying its obligation to RCBC is the fact that the latter insisted on imposing interest and penalties over and above the principal sum it seeks to recover is not

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CIVIL LAW | C r e d i t T r a n s a c t i o n s plausible. Considering that petitioner admits its obligation to pay the principal amount, then it should have paid the remaining balance of P2,464,128.00, notwithstanding any disagreements with RCBC regarding the payment of interest. The fact that the negotiations for the settlement of petitioners obligation did not push through does not excuse it from paying the principal sum due to RCBC. The issue of petitioners payment of interest is a matter that is totally different from its obligation to pay the principal amount covered by the surety bonds it issued. Petitioner offered no valid excuse for not paying the balance of its principal obligation when demanded by RCBC. Its failure to pay is, therefore, unreasonable. Thus, we find no error in the appellate courts ruling that petitioner is liable to pay interest. As to the rate of interest, we do not agree with petitioners contention that the rate should be 6% per annum. The appellate court is correct in imposing 12% interest. It is in accordance with our ruling in Eastern Shipping Lines, Inc. vs. Court of Appeals,18 wherein we have established certain guidelines in awarding interest in the concept of actual and compensatory damages, to wit: I.When an obligation, regardless of its source, i.e., law, contracts, quasi-contracts, delicts or quasi-delicts is breached, the contravenor can be held liable for damages. The provisions under Title XVIII on Damages of the Civil Code govern in determining the measure of recoverable damages. II.With regard particularly to an award of interest in the concept of actual and compensatory damages, the rate of interest, as well as the accrual thereof, is imposed, as follows 1.When the obligation is breached, and it consists in the payment of a sum of money, i.e., a loan or forbearance of money, the interest due should be that which may have been stipulated in writing. Furthermore, the interest due shall itself earn legal interest from the time it is judicially demanded. In the absence of stipulation, the rate of interest shall be 12% per annum to be computed from default, i.e. from judicial or extrajudicial demand under and subject to the provisions of Article 1169 of the Civil Code. 2.When an obligation, not constituting a loan or forbearance of money, is breached, an interest on the amount of damages awarded may be imposed at the discretion of the court at the rate of 6% per annum. No interest, however, shall be adjudged on unliquidated claims or damages except when or until the demand can be established with reasonable certainty. Accordingly, where the demand is established with reasonable certainty, the interest shall begin to run from the time the claim is made judicially or extrajudicially (Art. 1169, Civil Code) but when such certainty cannot be reasonably established at the time the demand is made, the interest shall begin to run only from the date the judgment of the court is made (at which time the quantification of damages may be deemed to have been reasonably ascertained). The actual base for the computation of legal interest shall, in any case, be on the amount finally adjudged.

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3.When the judgment of the court awarding a sum of money becomes final and executory, the rate of legal interest, whether the case falls under paragraph 1 or paragraph 2, above, shall be 12% per annum from such finality until its satisfaction, this interim period being deemed to be by then an equivalent to a forbearance of credit.19 (Emphasis supplied) In the present case, there is no dispute that petitioners obligation consists of a loan or forbearance of money. No interest has been agreed upon in writing between petitioner and respondent. Applying the above-quoted rule to the present case, the Court of Appeals correctly imposed the rate of interest at 12% per annum to be computed from the time the extra-judicial demand was made. This is in accordance with the provisions of Article 116920 of the Civil Code and of the settled rule that where there has been an extra-judicial demand before action for performance was filed, interest on the amount due begins to run not from the date of the filing of the complaint but from the date of such extra-judicial demand.21 RCBCs extra-judicial demand for the payment of JIGS obligation was made on October 30, 1984; while the extra-judicial demand for the payment of ELBAs obligation was made on December 17, 1984. On the other hand, the complaint for a sum of money was filed by RCBC with the trial court only on September 19, 1988. WHEREFORE, the instant petition is DENIED and the assailed Decision and Resolution of the Court of Appeals are AFFIRMED in toto. SO ORDERED. Puno, (Chairman), Quisumbing, Callejo, Sr., and Tinga, JJ., concur.

Endnotes: Penned by Justice Hilarion L. Aquino, concurred in by Justices Eubulo G. Verzola and Portia AlioHormachuelos. 1

Entitled, Rizal Commercial Banking Corporation, plaintiff-appellant, v. Commonwealth Insurance Company, defendant-Appellee, Commonwealth, third-party plaintiff, v.Jigs Manufacturing Corp., et al., third-party defendants. 2

3

CA Rollo, p. 135.

4

CA Rollo, pp. 100-101.

5

Original Records, p. 334.

6

CA Rollo, pp. 99-103.

7

CA Rollo, pp. 103-104.

8

Rollo, p. 13.

9

43 Phil. 852, 859 (1922).

10

100 Phil. 679, 681-682 (1957).

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CIVIL LAW | C r e d i t T r a n s a c t i o n s 11

354 SCRA 285, 289 (2001).

12

Ibid.

13

Section 176, Insurance Code.

Sec. 244. In case of any litigation for the enforcement of any policy or contract of insurance, it shall be the duty of the Commissioner or the Court, as the case may be, to make a finding as to whether the payment of the claim of the insured has been unreasonably denied or withheld; and in the affirmative case, the insurance company shall be adjudged to pay damages which shall consist of attorneys fees and other expenses incurred by the insured person by reason of such unreasonable denial or withholding of payment plus interest of twice the ceiling prescribed by the Monetary Board of the amount of the claim due the insured, from the date following the time prescribed in section two hundred forty-two or in section two hundred forty-three, as the case may be, until the claim is fully satisfied; Provided, That the failure to pay any such claim within the time prescribed in said sections shall be considered prima facie evidence of unreasonable delay in payment. 14

15

Exhibit N, Original Records, p. 33.

16

Exhibit O, Original Records, p. 34.

17

Exhibit P, Original Records, p. 35.

18

234 SCRA 78 (1994).

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Id., pp. 95-97.

Article 1169. Those obliged to deliver or to do something incur in delay from the time the obligee judicially or extrajudicially demands from them the fulfillment of their obligation. 20

.. . Tolentino, Commentaries and Jurisprudence on the Civil Code of the Philippines, 1991 Reprint, Vol. IV, p. 103; Padilla, Civil Code Annotated, 1987 Edition, Vol. IV, p. 61. 21

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CIVIL LAW | C r e d i t T r a n s a c t i o n s discovered that the CCA entered into by respondentspouses and Aegean contained an arbitration clause.21 Hence, they filed separate Motions to Dismiss22 on the grounds of lack of cause of action and lack of jurisdiction. ςrνl 1

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Ruling of the Regional Trial Court SECOND DIVISION [G.R. No. 179628, January 16, 2013]

On May 5, 2006, the RTC denied both motions.23 Petitioner and Intra Strata separately moved for reconsideration but their motions were denied by the RTC in its subsequent Order24 dated September 11, 2006. ςrνl 1

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THE MANILA INSURANCE COMPANY, INC., Petitioner. v. SPOUSES ROBERTO AND AIDA AMURAO,Respondents.

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Aggrieved, petitioner elevated the case to the CA by way of special civil action for certiorari.25 ς rν l1

DECISION

Ruling of the Court of Appeals DEL CASTILLO, J.:

On June 7, 2007, the CA rendered a Decision26 dismissing the petition. The CA ruled that the presence of an arbitration clause in the CCA does not merit a dismissal of the case because under the CCA, it is only when there are differences in the interpretation of Article I of the construction agreement that the parties can resort to arbitration.27 The CA also found no grave abuse of discretion on the part of the RTC when it disregarded the fact that the CCA was not yet signed at the time petitioner issued the performance bond on February 29, 2000.28 The CA explained that the performance bond was intended to be coterminous with the construction of the building.29 It pointed out that "if the delivery of the original contract is contemporaneous with the delivery of the surety's obligation, each contract becomes completed at the same time, and the consideration which supports the principal contract likewise supports the subsidiary one.―30 The CA likewise said that, although the contract of surety is only an accessory to the principal contract, the surety's liability is direct, primary and absolute.31 Thus: ς rνl1

The jurisdiction of the Construction Industry Arbitration Commission (CIAC) is conferred by law. Section 41 of Executive Order (E.O.) No. I 008, otherwise known as the Construction Industry Arbitration Law, "is broad enough to cover any dispute arising from, or connected with construction contracts, whether these involve mere contractual money claims or execution of the works."2 ςrν l1

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This Petition for Review on Certiorari3 under Rule 45 of the Rules of Court assails the Decision4 dated June 7, 2007 and the Resolution5 dated September 7, 2007 of the Court of Appeals (CA) in CA-G.R. SP No. 96815. ςrνl 1

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Factual Antecedents On March 7, 2000, respondent-spouses Roberto and Aida Amurao entered into a Construction Contract Agreement (CCA)6 with Aegean Construction and Development Corporation (Aegean) for the construction of a six-storey commercial building in Tomas Morato corner E. Rodriguez Avenue, Quezon City.7 To guarantee its full and faithful compliance with the terms and conditions of the CCA, Aegean posted performance bonds secured by petitioner The Manila Insurance Company, Inc.8 (petitioner) and Intra Strata Assurance Corporation (Intra Strata).9 ςrνl1

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WHEREFORE, we resolve to DISMISS the petition as we find that no grave abuse of discretion attended the issuance of the order of the public respondent denying the petitioner's motion to dismiss. cralawli bra ry

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IT IS SO ORDERED.32

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On November 15, 2001, due to the failure of Aegean to complete the project, respondent spouses filed with the Regional Trial Court (RTC) of Quezon City, Branch 217, a Complaint,10 docketed as Civil Case No. Q-01-45573, against petitioner and Intra Strata to collect on the performance bonds they issued in the amounts of P2,760,000.00 and P4,440,000.00, respectively.11

Petitioner moved for reconsideration but the CA denied the same in a Resolution33 dated September 7, 2007. ςrνl 1

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Intra Strata, for its part, filed an Answer12 and later, a Motion to Admit Third Party Complaint,13 with attached Third Party Complaint14 against Aegean, Ronald D. Nicdao, and Arnel A. Mariano.

Issues Hence, this petition raising the following issues:

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A.

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Petitioner, on the other hand, filed a Motion to Dismiss15 on the grounds that the Complaint states no cause of action16 and that the filing of the Complaint is premature due to the failure of respondent-spouses to implead the principal contractor, Aegean.17 The RTC, however, denied the motion in an Order18 dated May 8, 2002. Thus, petitioner filed an Answer with Counterclaim and Cross-claim,19 followed by a Third Party Complaint20 against Aegean and spouses Ronald and Susana Nicdao. ς rνl1

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THE HONORABLE [CA] ERRED WHEN IT HELD THAT IT IS ONLY WHEN THERE ARE DIFFERENCES IN THE INTERPRETATION OF ARTICLE I OF THE CONSTRUCTION AGREEMENT THAT THE PARTIES MAY RESORT TO ARBITRATION BY THE CIAC. cralawlibra ry

B.

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THE HONORABLE [CA] ERRED IN TREATING [PETITIONER] AS A SOLIDARY DEBTOR INSTEAD OF A SOLIDARY GUARANTOR. cralawlib rary

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C.

During the pre-trial, petitioner and Intra Strata

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CIVIL LAW | C r e d i t T r a n s a c t i o n s THE HONORABLE [CA] OVERLOOKED AND FAILED TO CONSIDER THE FACT THAT THERE WAS NO ACTUAL AND EXISTING CONSTRUCTION AGREEMENT AT THE TIME THE MANILA INSURANCE BOND NO. G (13) 2082 WAS ISSUED ON FEBRUARY 29, 2000.34 ςrνl 1

bond, and determined strictly by the terms of contract of suretyship in relation to the principal contract between the obligor and the obligee.51 It bears stressing, however, that although the contract of suretyship is secondary to the principal contract, the surety's liability to the obligee is nevertheless direct, primary, and absolute.52 ς rνl1

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Petitioner's Arguments Petitioner contends that the CA erred in ruling that the parties may resort to arbitration only when there is difference in the interpretation of the contract documents stated in Article I of the CCA.35 Petitioner insists that under Section 4 of E.O. No. 1008, it is the CIAC that has original and exclusive jurisdiction over construction disputes, such as the instant case.36 ςrνl1

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Petitioner likewise imputes error on the part of the CA in treating petitioner as a solidary debtor instead of a solidary guarantor.37 Petitioner argues that while a surety is bound solidarily with the obligor, this does not make the surety a solidary co-debtor.38 A surety or guarantor is liable only if the debtor is himself liable.39 In this case, since respondent-spouses and Aegean agreed to submit any dispute for arbitration before the CIAC, it is imperative that the dispute between respondent- spouses and Aegean must first be referred to arbitration in order to establish the liability of Aegean.40 In other words, unless the liability of Aegean is determined, the filing of the instant case is premature.41 ςrνl 1

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In this case, respondent-spouses (obligee) filed with the RTC a Complaint against petitioner (surety) to collect on the performance bond it issued. Petitioner, however, seeks the dismissal of the Complaint on the grounds of lack of cause of action and lack of jurisdiction. cralaw lib rary

The respondent-spouses have cause of action against the petitioner; the performance bond is coterminous with the CCA Petitioner claims that respondent-spouses have no cause of action against it because at the time it issued the performance bond, the CCA was not yet signed by respondent-spouses and Aegean. cralawlib rary

We do not agree.

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A careful reading of the Performance Bond reveals that the "bond is coterminous with the final acceptance of the project.―53 Thus, the fact that it was issued prior to the execution of the CCA does not affect its validity or effectivity. ςrν l1

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Finally, petitioner puts in issue the fact that the performance bond was issued prior to the execution of the CCA.42 Petitioner claims that since there was no existing contract at the time the performance bond was executed, respondent- spouses have no cause of action against petitioner.43 Thus, the complaint should be dismissed.44

But while there is a cause of action against petitioner, the complaint must still be dismissed for lack of jurisdiction. cralaw lib rary

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The CIAC has jurisdiction over the case Section 4 of E.O. No. 1008 provides that:

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Respondent spouses' Arguments Respondent-spouses, on the other hand, maintain that the CIAC has no jurisdiction over the case because there is no ambiguity in the provisions of the CCA.45 Besides, petitioner is not a party to the CCA.46 Hence, it cannot invoke Article XVII of the CCA, which provides for arbitration proceedings.47 ςrν l1

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Respondent-spouses also insist that petitioner as a surety is directly and equally bound with the principal.48 The fact that the performance bond was issued prior to the execution of the CCA also does not affect the latter's validity because the performance bond is coterminous with the construction of the building.49 ςrν l1

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SEC. 4. Jurisdiction. - The CIAC shall have original and exclusive jurisdiction over disputes arising from, or connected with, contracts entered into by parties involved in construction in the Philippines, whether the dispute arises before or after the completion of the contract, or after the abandonment or breach thereof. These disputes may involve government or private contracts. For the Board to acquire jurisdiction, the parties to a dispute must agree to submit the same to voluntary arbitration. cralawlib rary

The jurisdiction of the CIAC may include but is not limited to violation of specifications for materials and workmanship, violation of the terms of agreement, interpretation and/or application of contractual time and delays, maintenance and defects, payment, default of employer or contractor, and changes in contract cost. cralawlibra ry

Our Ruling The petition has merit.

Excluded from the coverage of the law are disputes arising from employer-employee relationships which shall continue to be covered by the Labor Code of the Philippines.

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Nature of the liability of the surety A contract of suretyship is defined as "an agreement whereby a party, called the surety, guarantees the performance by another party, called the principal or obligor, of an obligation or undertaking in favor of a third party, called the obligee. It includes official recognizances, stipulations, bonds or undertakings issued by any company by virtue of and under the provisions of Act No. 536, as amended by Act No. 2206.―50 We have consistently held that a surety's liability is joint and several, limited to the amount of the ςrνl1

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Based on the foregoing, in order for the CIAC to acquire jurisdiction two requisites must concur: "first, the dispute must be somehow connected to a construction contract; and second, the parties must have agreed to submit the dispute to arbitration proceedings.―54 ς rν l1

In this case, both requisites are present.

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The parties agreed to submit to arbitration proceedings "[a]ny dispute arising in the course of the execution and

Guaranty

CIVIL LAW | C r e d i t T r a n s a c t i o n s performance of [the CCA] by reason of difference in interpretation of the Contract Documents x x x which [the parties] are unable to resolve amicably between themselves.―55 Article XVII of the CCA reads: ςrνl 1

Decision dated June 7, 2007 and the Resolution dated September 7, 2007 of the Court of Appeals in CA-G.R. SP No. 96815 are hereby ANNULLED and SET ASIDE. The Presiding Judge of the Regional Trial Court of Quezon City, Branch 217 ts DIRECTED to dismiss Civil Case No. Q-01-45573 for lack of jurisdiction.

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ARTICLE XVII - ARBITRATION

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17.1 Any dispute arising in the course of the execution and performance of this Agreement by reason of difference in interpretation of the Contract Documents set forth in Article I which the OWNER and the CONTRACTOR are unable to resolve amicably between themselves shall be submitted by either party to a board of arbitrators composed of Three (3) members chosen as follows: One (1) member shall be chosen by the CONTRACTOR AND One (1) member shall be chosen by the OWNER. The said Two (2) members, in turn, shall select a third member acceptable to both of them. The decision of the Board of Arbitrators shall be rendered within Ten (10) days from the first meeting of the board, which decision when reached through the affirmative vote of at least Two (2) members of the board shall be final and binding upon the OWNER and CONTRACTOR. cralawlib rary

17.2 Matters not otherwise provided for in this Contract or by Special Agreement of the parties shall be governed by the provisions of the Arbitration Law, Executive Order No. 1008.56 ς rνl1

In William Golangco Construction Corporation v. Ray Burton Development Corporation,57 we declared that monetary claims under a construction contract are disputes arising from "differences in interpretation of the contract" because "the matter of ascertaining the duties and obligations of the parties under their contract all involve interpretation of the provisions of the contract.―58 Following our reasoning in that case, we find that the issue of whether respondent-spouses are entitled to collect on the performance bond issued by petitioner is a "dispute arising in the course of the execution and performance of [the CCA] by reason of difference in the interpretation of the contract documents.― ςrνl1

SO ORDERED. Carpio, (Chairperson), Leonardo-De Castro,* Perez, and Leonen,** JJ., concur. ςrνl 1

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Endnotes:

Per raffle dated January 14. 2013.

* ςrν l1

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Per Special Order No. 1408 dated January 15, 2013. **

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SEC. 4. Jurisdiction– The CIAC shall have original and exclusive jurisdiction over disputes arising from. or connected with. contracts entered into by parties involved in construction in the Philippines. whether the dispute arises before or after the completion of the contract, or after the abandonment or breach thereof. These disputes may involve government or private contracts. For the Board to acquire jurisdiction. the parties to a dispute must agree to submit the same to voluntary arbitration. 1

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The jurisdiction of the CIAC may include but is not limited to violation of specifications tor materials and workmanship. violation of the terms of agreement, interpretation and/or application of contractual time and delays. maintenance and defects, payment. default of employer or contractor, and changes in contract cost. cralawlibra ry

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Excluded from the coverage of this law are disputes arising from employer-employee relationships which shall continue to be covered the Labor Code of the Philippines. cralaw lib rary

LICOMCEN, lncorporated v. Foundation Specialists, Inc., G.R. Nos. 167022 and 169678, April 4. 2011, 647 SCRA 83, 97. 2

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The fact that petitioner is not a party to the CCA cannot remove the dispute from the jurisdiction of the CIAC because the issue of whether respondent- spouses are entitled to collect on the performance bond, as we have said, is a dispute arising from or connected to the CCA. cralawlibra ry

In fact, in Prudential Guarantee and Assurance, Inc. v. Anscor Land, lnc.,59 we rejected the argument that the jurisdiction of CIAC is limited to the construction industry, and thus, cannot extend to surety contracts. In that case, we declared that "[a]lthough not the construction contract itself, the performance bond is deemed as an associate of the main construction contract that it cannot be separated or severed fi ·om its principal. The Performance Bond is significantly and substantially connected to the construction contract that there can be no doubt it is the CIAC, under Section 4 of E.O. No. 1008, which has jurisdiction over any dispute arising from or connected with it."60

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Rollo, pp. 13-37.

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Id. at 39-47; penned by Associate Justice Apolinario D. Bruselas, Jr. and concurred in by Associate Justices Bienvenido L. Reyes (now a member of this Court) and Aurora Santiago-Lagman. 4

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Id. at 49.

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Id. at 72-85.

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Id. at 68-69.

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Id. at 70-71.

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In view of the foregoing, we agree with the petitioner that jurisdiction over the instant case lies with the CIAC, and not with the RTC. Thus, the Complaint filed by respondent-spouses with the RTC must be dismissed.

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Id. at 63-67. Id. at 66.

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Records, Volume I, pp. 29-32.

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13

WHEREFORE, the petition is hereby GRANTED. The

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Id. at 38-39.

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CIVIL LAW | C r e d i t T r a n s a c t i o n s 14 ς rν l1

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Id. at 40-42. Id. at 26-28.

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INSURANCE CODE, Section 175.

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Intra-Strata Assurance Corporation v. Republic, G.R. No. 156571, July 9, 2008, 557 SCRA 363, 369. 51

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Id. at 26.

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Prudential Guarantee and Assurance, Inc. v. Equinox Land Corporation, G.R. Nos. 152505-06, September 13, 2007, 533 SCRA 257, 268. 52

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Id. at 27.

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Id. at 49-50; penned by Judge Lydia Querubin Layosa. 18

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Records, Volume II, pp. 544-546.

Id. at 42-44. Id. at 45-46.

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Id.

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G.R. No. 163582, August 9, 2010, 627 SCRA 74. Id. at 85.

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Supra note 54 at 373-379.

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Id. at 377.

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Id. at 46-47. Id. at 49.

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Id. at 168-169. Id. at 169. Id. at 171. Id. at 174. Id. at 175.

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Id. at 180. Id. at 182. Id. at 183. Id. at 185. Id. at 186.

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Id. at 192-193. Id. at 193. Id.

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Id. at 45.

Id.

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CA rollo, pp. 2-22.

Id.

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Rollo, pp. 39-47.

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Prudential Guarantee and Assurance, Inc. v. Anscor Land, Inc., G.R. No. 177240, September 8, 2010, 630 SCRA 368, 376.

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Id. at 589.

Rollo, p. 86.

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Id. at 117-124 and 110-116.

Id. at 46.

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Id. at 195. Id. at 196.

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CIVIL LAW | C r e d i t T r a n s a c t i o n s bank, signed only by Go in his personal capacity and in behalf of DAICOR, to cover a loan of P100,000.00 obtained from petitioner by DAICOR. The surety agreement is an accessory obligation, it being dependent upon a principal one which, in this case is the loan obtained by DAICOR as evidenced by a promissory note.

SECOND DIVISION [G.R. No. L-49401. July 30, 1982.] RIZAL COMMERCIAL BANKING CORPORATION, Petitioner, v. HON. JOSE P. ARRO, Judge of the Court of First Instance of Davao, and RESIDORO CHUA, Respondents. Laurente C. Ilagan for Petitioner.

2. ID.; ID.; ID.; GUARANTY TO SECURE FUTURE DEBTS, ALLOWABLE UNDER THE CIVIL CODE: CASE AT BAR. — By terms that are unequivocal, it can be clearly seen that the surety agreement was executed to guarantee future debts which DAICOR may incur with petitioner, as is legally allowable under Article 2053 of the Civil Code.

DECISION

Victor A. Clapano for Respondents. DE CASTRO, J.:

SYNOPSIS Residoro Chua and Enrique Go, Sr. jointly executed a comprehensive surety agreement to guaranty any existing or future obligation of Davao Agricultural Industries Corporation (DAICOR) with petitioner bank. Thereafter, a promissory note in the amount of P100,000.00 was issued in favor of petitioner bank which was signed solely by Enrique Go, Sr. in his personal capacity and in behalf of DAICOR. When despite repeated demands the note was not fully paid, petitioner bank filed a complaint against Daicor, respondent Chua and Enrique Go, Sr. The trial court, sustaining the private respondent, dismissed the complaint on the ground that it states no cause of action as against him since he did not sign the subject promissory note, which is a necessary corollary to the comprehensive surety agreement as evidence of indebtedness, and without which the said agreement served no purpose. Hence, this petition. The Supreme Court held that DAICOR being liable on the promissory note, private respondent was likewise liable thereon even if he did not sign it, since under the subsisting comprehensive surety agreement, he jointly bound himself to guaranty existing and future obligations of DAICOR subject only to the condition that their obligation will not at any one time exceed the aggregate principal sum of P100,000.00. Petition granted. Assailed decision set aside and case remanded to the court of origin with instruction to set aside the motion to dismiss and to require Residoro Chua to answer the complaint.

Petition for certiorari to annul the orders of respondent judge dated October 6, 1978 and November 7, 1978 in Civil Case No. 11-154 of the Court of First Instance of Davao, which granted the motion filed by private respondent to dismiss the complaint of petitioner for a sum of money, on the ground that the complaint states no cause of action as against private Respondent. After the petition had been filed, Petitioner, on December 14, 1978 mailed a manifestation and motion requesting the special civil action for certiorari be treated as a petition for review. 1 Said manifestation and motion was noted in the resolution of January 10, 1979. 2 It appears that on October 19, 1976 Residoro Chua and Enrique Go, Sr. executed a comprehensive surety agreement 3 to guaranty among others, any existing indebtedness of Davao Agricultural Industries Corporation (referred to therein as Borrower, and as Daicor in this decision), and/or induce the bank at any time or from time to time thereafter, to make loans or advances or to extend credit in other manner to, or at the request, or for the account of the Borrower, either with or without security, and or to purchase on discount, or to make any loans or advances evidenced or secured by any notes, bills, receivables, drafts, acceptances, checks or other evidences of indebtedness (all hereinafter called "instruments") upon which the Borrower is or may become liable, provided that the liability shall not exceed at any one time the aggregate principal sum of P100,000.00. chanro bles lawl ibra ry : red nad

SYLLABUS

1. CIVIL LAW; GUARANTY; EFFECTS OF GUARANTY; PRIVATE RESPONDENT IN CASE AT BAR LIABLE UNDER COMPREHENSIVE SURETY AGREEMENT, ALTHOUGH NOT A SIGNATORY TO PROMISSORY NOTE. — Where the comprehensive surety agreement was jointly executed by Residoro Chua and Enrique Go, Sr., President and General Manager, respectively of DAICOR, on October 19, 1976 to cover existing as well as future obligation which DAICOR may incur with the petitioner bank, subject only to the proviso that their liability shall not exceed at any one time the aggregate principal sum of P100,000.00, respondent Chua is liable on a P100,000.00 promissory note in favor of petitioner

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On April 29, 1977 a promissory note 4 in the amount of P100,000.00 was issued in favor of petitioner payable on June 13, 1977. Said note was signed by Enrique Go, Sr. in his personal capacity and in behalf of Daicor. The promissory note was not fully paid despite repeated demands; hence, on June 30, 1978, petitioner filed a complaint for a sum of money against Daicor, Enrique Go, Sr. and Residoro Chua. A motion to dismiss dated September 23, 1978 was filed by respondent Residoro Chua on the ground that the complaint states no cause of action as against him. 5 It was alleged in the motion that he can not be held liable under the promissory note because it was only Enrique Go, Sr. who signed the same in behalf of Daicor and in his own personal capacity. In an opposition dated September 26, 1978 6 petitioner

Guaranty

CIVIL LAW | C r e d i t T r a n s a c t i o n s alleged that by virtue of the execution of the comprehensive surety agreement, private respondent is liable because said agreement covers not merely the promissory note subject of the complaint, but is continuing; and it encompasses every other indebtedness the Borrower may, from time to time incur with petitioner bank. On October 6, 1978 respondent court rendered a decision granting private respondent’s motion to dismiss the complaint. 7 Petitioner filed a motion for reconsideration dated October 12, 1978 and on November 7, 1978 respondent court issued an order denying the said motion. 8 The sole issue resolved by respondent court was the interpretation of the comprehensive surety agreement, particularly in reference to the indebtedness evidenced by the promissory note involved in the instant case, said comprehensive surety agreement having been signed by Enrique Go, Sr. and private respondent, binding themselves as solidary debtors of said corporation not only to existing obligations but to future ones. Respondent court said that corollary to that agreement must be another instrument evidencing the obligation in a form of a promissory note or any other evidence of indebtedness without which the said agreement serves no purpose; that since the promissory notes, which is primarily the basis of the cause of action of petitioner, is not signed by private respondent, the latter can not be liable thereon. Contesting the aforecited decision and order of respondent judge, the present petition was filed before this Court assigning the following as errors committed by respondent court:

"For and in consideration of any existing indebtedness to you of Davao Agricultural Industries Corporation with principal place of business and postal address at 530 J. P. Cabaguio Ave., Davao City (hereinafter called the "Borrower), and/or in order to induce, you in your discretion, at any time or from time to time hereafter, to make loans or advances or to extend credit in any other manner to, or at the request or for the account of the Borrower, either with or without security, and/or to purchase or discount or to make any loans or advances evidenced or secured by any notes, bills, receivables, drafts, acceptances, checks or other instruments or evidences of indebtedness (all hereinafter called "instruments") upon which the Borrower is or may become liable as maker, endorser, acceptor, or otherwise) the undersigned agrees to guarantee, and does hereby guarantee in joint and several capacity, the punctual payment at maturity to you of any and all such instruments, loans, advances, credits and/or other obligations herein before referred to, and also any and all other indebtedness of every kind which is now or may hereafter become due or owing to you by the Borrower, together with any and all expenses which may be incurred by you in covecting all such instruments or other indebtedness or obligations hereinbefore referred to . . ., provided, however, that the liability of the undersigned shall not exceed at any one time the aggregate principal sum of P100,000.00 . . ." cralaw virt ua1aw lib ra ry

The agreement was executed obviously to induce petitioner to grant any application for a loan Daicor may desire to obtain from petitioner bank. The guaranty is a continuing one which shall remain in full force and effect until the bank is notified of its termination. chanrob lesvi rtua lawlib rary

chan roble s.com:c ralaw:red

"1. That the respondent court erred in dismissing the complaint against Chua simply on the reasons that ‘Chua is not a signatory to the promissory note’ of April 29, 1977, or that Chua could not be held liable on the note under the provisions of the comprehensive surety agreement of October 29, 1976; and/or "2. That the respondent court erred in interpreting the provisions of the Comprehensive Surety Agreement towards the conclusion that respondent Chua is not liable on the promissory note because said note is not comfortable to the Comprehensive Surety Agreement; and/or "3. That the respondent court erred in ordering that there is no cause of action against respondent Chua in the petitioner’s complaint." cra law virt ua 1aw libra ry

The main issue involved in this case is whether private respondent is liable to pay the obligation evidence by the promissory note dated April 29, 1977 which he did not sign, in the light of the provisions of the comprehensive surety agreement which petitioner and private respondent had earlier executed on October 19, 1976. We find for the petitioner. The comprehensive surety agreement was jointly executed by Residoro Chua and Enrique Go, Sr., President and General Manager, respectively of Daicor, on October 19, 1976 to cover existing as well as future obligations which Daicor may incur with the petitioner bank, subject only to the proviso that their liability shall not exceed at any one time the aggregate principal sum of P100,000.00. Thus, paragraph 1 of the agreement provides: jgc:c hanro bles. com.ph

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"This is a continuing guaranty and shall remain in full force and effect until written notice shall have been received by you that it has been revoked by the undersigned, . . ." 9 At the time the loan of P100,000.00 was obtained from petitioner by Daicor, for the purpose of having an additional capital for buying and selling coco-shell charcoal and importation of activated carbon, 10 the comprehensive surety agreement was admittedly in full force and effect. The loan was, therefore, covered by the said agreement, and private respondent, even if he did not sign the promisory note, is liable by virtue of the surety agreement. The only condition that would make him liable thereunder is that the Borrower "is or may become liable as maker, endorser, acceptor or otherwise." There is no doubt that Daicor is liable on the promissory note evidencing the indebtedness. The surety agreement which was earlier signed by Enrique Go, Sr. and private respondent, is an accessory obligation, it being dependent upon a principal one which, in this case is the loan obtained by Daicor as evidenced by a promissory note. What obviously induced petitioner bank to grant the loan was the surety agreement whereby Go and Chua bound themselves solidarily to guaranty the punctual payment of the loan at maturity. By terms that are unequivocal, it can be clearly seen that the surety agreement was executed to guarantee future debts which Daicor may incur with petitioner, as is legally allowable under the Civil Code. Thus — "Article 2053. — A guaranty may also be given as security for future debts, the amount of which is not yet known; there can be no claim against the guarantor until the debt is liquidated. A conditional obligation may

Guaranty

CIVIL LAW | C r e d i t T r a n s a c t i o n s also be secured."

cralaw virtua1aw l ibra ry

In view of the foregoing, the decision (which should have been a mere "order"), dismissing the complaint is reversed and set side. The case is remanded to the court of origin with instructions to set aside the motion to dismiss, and to require defendant Residoro Chua to answer the complaint, after which the case shall proceed as provided by the Rules of Court. No costs. SO ORDERED. Barredo (Chairman), Aquino, Concepcion Jr., Guerrero, Abad Santos and Escolin, JJ., concur. Endnotes:

1. p. 45, Rollo. 2. p. 54, Rollo. 3. p. 67, Rollo. 4. p. 68, Rollo. 5. Annex B, Petition, p. 17, Rollo. 6. Annex C, Petition, p. 19, Rollo. 7. Annex E, Petition, p. 23, Rollo. 8. Annex H, Petition, p. 39, Rollo. 9. Par. 6, Comprehensive Surety Agreement, p. 67, Rollo. 10. p. 68, Rollo.

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Guaranty

CIVIL LAW | C r e d i t T r a n s a c t i o n s guaranty may be constituted to guarantee the performance of a voidable or an unenforceable contract. It may also guarantee a natural obligation." cralaw vi rtua 1aw lib rary

THIRD DIVISION [G.R. No. 89775. November 26, 1992.] JACINTO UY DIÑO and NORBERTO UY, Petitioners, v. HON. COURT OF APPEALS and METROPOLITAN BANK AND TRUST COMPANY, Respondents. Guillermo B. Ilagan, for Petitioners. Jorge, Perez & Associates for Private Respondent.

SYLLABUS

1. CIVIL LAW; GUARANTY; CONTINUING GUARANTY; DEFINED; BASIS AND NATURE THEREOF; WHEN GUARANTY CONSTRUED AS CONTINUING; CASE AT BAR. — Under the Civil Code, a guaranty may be given to secure even future debts, the amount of which may not be known at the time the guaranty is executed. This is the basis for contracts denominated as a continuing guaranty or suretyship. A continuing guaranty is one which is not limited to a single transaction, but which contemplates a future course of dealing, covering a series of transactions, generally for an indefinite time or until revoked. It s prospective in its operation and is generally intended to provide security with respect to future transactions within certain limits, and contemplates a succession of liabilities, for which, as they accrue, the guarantor becomes liable. Otherwise stated, a continuing guaranty is one which covers all transactions, including those arising in the future, which are within the description or contemplation of the contract of guaranty, until the expiration or termination thereof. A guaranty shall be construed as continuing when by the terms thereof it is evident that the object is to give a standing credit to the principal debtor to be used from time to time either indefinitely or until a certain period, especially if the right to recall the guaranty is expressly reserved. Hence, where the contract of guaranty states that the same is to secure advances to be made "from time to time" the guaranty will be construed to be a continuing one. In other jurisdictions, it has been held that the use of particular words and expressions such as payment of "any debt," "any indebtedness," "any deficiency," or "any sum," or the guaranty of "any transaction" or money to be furnished the principal debtor "at any time," or "on such time" that the principal debtor may require, have been construed to indicate a continuing guaranty. . . . Petitioners maintain, however, that their Continuing Suretyship Agreements cannot be made applicable to the 1979 obligation because the latter was not yet in existence when the agreements were executed in 1977; under Article 2052 of the Civil Code, a guaranty "cannot exist without a valid obligation." We cannot agree. First of all, the succeeding article provides that" [a] guaranty may also be given as security for future debts, the amount of which is not yet known." Secondly. Article 2052 speaks about a valid obligations, as distinguished from a void obligation, and not an existing or current obligation. This distinction is made clearer in the second paragraph of Article 2052 which reads: "Nevertheless, a

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2. ID.; ID.; GUARANTOR MAY BIND HIMSELF FOR LESS, BUT NOT FOR MORE THAN PRINCIPAL DEBTOR; CASE AT BAR. — The limit of the petitioners’ respective liabilities must be determined from the suretyship agreement each had signed. It is undoubtedly true that the law looks upon the contract of suretyship with a jealous eye, and the rule is settled that the obligation of the surety cannot be extended by implication beyond its specified limits. To the extent, and in the manner, and under the circumstances pointed out in his obligation, he is bound, and no farther. Indeed, the Continuing Suretyship Agreements signed by petitioner Diño — and petitioner Uy fix the aggregate amount of their liability, at any given time, at P800,000.00 and P300,000.00, respectively. The law is clear that a guarantor may bind himself for less, but not for more than the principal debtor, both as regards the amount and the onerous nature of the conditions. 3. ID.; ID.; GUARANTOR’S LIABILITY FOR PRINCIPAL OBLIGATION, ITS ACCESSORIES AND ATTORNEY’S FEES; BASIS AND RATIONALE; ITEMS INCLUDED IN TERM "ACCESSORIES" ; CASE AT BAR. — by express mandate of the Continuing Suretyship Agreements which they had signed, petitioners separately bound themselves to pay interests, expenses, attorney’s fees and costs. The last two items are pegged at not less than ten percent (10%) of the amount due. Even without such stipulations, the petitioners would, nevertheless, be liable for the interest and judicial costs. Article 2055 of the Civil Code provides: "ART. 2055. A guaranty is not presumed; it must be express and cannot extend to more than what is stipulated therein. If it be simple or indefinite, it shall comprise not only the principal obligation, but also all its accessories, including the judicial costs, provided with respect to the latter, that the guarantor shall only be liable for those costs incurred after he has been judicially required to pay." Interests and damages are included in the term accessories. However, such interest should run only from the date when the complaint was filed in court. Even attorney’s fees may be imposed whenever appropriate, pursuant to Article 2208 of the Civil Code. Thus; in Plaridel Surety & Insurance Co., Inc. v. P.L. Galang Machinery Co., Inc., this Court held: "Petitioner objects to the payment of interest and attorney’s fees because: (1) they were not mentioned in the bond; and (2) the surety would become liable for more than the amount stated in the contract of suretyship. . . . The objection has to be overruled, because as far back as the year 1922 this Court held in Tagawa v. Aldanese, 43 Phil. 852, that creditors suing on a suretyship bond may recover from the surety as part of their damages, interest at the legal rate even if the surety would thereby become liable to pay more than the total amount stipulated in the bond.’The theory is that interest is allowed only by way of damages for delay upon the part of the sureties in making payment after they should have done so. In some states, the interest has been charged from the date of the judgment of the appellate court. In this jurisdiction, we rather prefer to follow the general practice, which is to order that interest begin to run from the date when the complaint was filed in court, . . . .’ Such theory aligned with sec. 510 of the Code of Civil Procedure which was subsequently recognized in the Rules of Court (Rule 53, section 6) and with Article 1108 of the Civil Code (now Art. 2209 of the New Civil Code). In other words the surety is made to pay interest, not by reason of the

Guaranty

CIVIL LAW | C r e d i t T r a n s a c t i o n s contract, but by reason of its failure to pay when demanded and for having compelled the plaintiff to resort to the courts to obtain payment. It should be observed that interest does not run from the time the obligation became due, but from the filing of the complaint. As to attorney’s fees. Before the enactment of the New Civil Code, successful litigants could not recover attorney’s fees as part of the damages they suffered by reason of the litigation. Even if the party paid thousands of pesos to his lawyers, he could not charge the amount to his opponent (Tan Ti v. Alvear, 26 Phil. 566). However the New Civil Code permits recovery of attorney’s fees in eleven cases enumerated in Article 2208, among them, ‘where the court deems it just and equitable that attorney’s (sic) fees and expenses of litigation should be recovered’ or ‘when the defendant acted in gross and evident bad faith in refusing to satisfy the plaintiff’s plainly valid, just and demandable claim’. This gives the courts discretion in apportioning attorney’s fees."

DECISION

DAVIDE, JR., J.:

Continuing Suretyship Agreements signed by the petitioners set off this present controversy. Petitioners assail the 22 June 1989 Decision of the Court of Appeals in CA-G.R. CV No. 17729 1 which reversed the 2 December 1987 Decision of Branch 45 of the Regional Trial Court (RTC) of Manila in a collection suit entitled "Metropolitan Bank and Trust Company v. Uy Tiam doing business under the name of ‘UY TIAM ENTERPRISES & FREIGHT SERVICES,’ Jacinto Uy Diño and Norberto Uy" and docketed as Civil Case No. 829303. They likewise challenge public respondent’s Resolution of 21 August 1989 2 denying their motion for the reconsideration of the former. The impugned decision of the respondent Court summarizes the antecedent facts as follows: jgc:chan roble s.com.p h

"It appears that in 1977, Uy Tiam Enterprises and Freight Services (hereinafter referred to as UTEFS), thru its representative Uy Tiam, applied for and obtained credit accommodations (letter of credit and trust receipt accommodations) from the Metropolitan Bank and Trust Company (hereinafter referred to as METROBANK) in the sum of P700,000.00 (Original Records, p. 333). To secure the aforementioned credit accommodations, Norberto Uy and Jacinto Uy Diño executed separate Continuing Suretyships (Exhibits "E" and "F" respectively), dated 25 February 1977, in favor of the latter. Under the aforesaid agreements, Norberto Uy agreed to pay METROBANK any indebtedness of UTEFS up to the aggregate sum of P300,000.00 while Jacinto Uy Diño agreed to be bound up to the aggregate sum of P800,000.00.

March 30, 1979, in the sum of P815,600.00, covered UTEFS’ purchase of ‘8,000 Bags Planters Urea and 4,000 Bags Planters 21-0-0.’ It was applied for and obtained by UTEFS without the participation of Norberto Uy and Jacinto Uy Diño as they did not sign the document denominated as ‘Commercial Letter of Credit and Application.’ Also, they were not asked to execute any suretyship to guarantee its payment. Neither did METROBANK nor UTEFS inform them that the 1979 Letter of Credit has been opened and that the Continuing Suretyships separately executed in February, 1977 shall guarantee its payment (Appellees’ brief, pp. 2-3; Rollo, p. 28). The 1979 letter of credit (Exhibit "B") was negotiated. METROBANK paid Planters Products the amount of P815,600.00 which payment was covered by a Bill of Exchange (Exhibit "C"), dated 4 June 1979, in favor of the former, drawn on and accepted by UTEFS (Original Records, p. 331). Pursuant to the above commercial transaction, UTEFS executed and delivered to METROBANK a Trust Receipt (Exh. "D"), dated 4 June 1979, whereby the former acknowledged receipt in trust from the latter of the aforementioned goods from Planters Products which amounted to P815,600.00. Being the entrustee, the former agreed to deliver to METROBANK the entrusted goods in the event of non-sale or, if sold, the proceeds of the sale thereof, on or before September 2, 1979. However, UTEFS did not acquiesce to the obligatory stipulations in the trust receipt. As a consequence, METROBANK sent letters to the said principal obligor and its sureties, Norberto Uy and Jacinto Uy Diño, demanding payment of the amount due. Informed of the amount due, UTEFS made partial payments to the Bank which were accepted by the latter. Answering one of the demand letters, Diño, thru counsel, denied his liability for the amount demanded and requested METROBANK to send him copies of documents showing the source of his liability. In its reply, the bank informed him that the source of his liability is the Continuing Suretyship which he executed on February 25, 1977. As a rejoinder, Diño maintained that he cannot be held liable for the 1979 credit accommodation because it is a new obligation contracted without his participation. Besides, the 1977 credit accommodation which he guaranteed has been fully paid. Having sent the last demand letter to UTEFS, Diño and Uy and finding resort to extrajudicial remedies to be futile, METROBANK filed a complaint for collection of a sum of money (P613,339.32, as of January 31, 1982, inclusive of interest, commission penalty and bank charges) with a prayer for the issuance of a writ of preliminary attachment, against Uy Tiam, representative of UTEFS and impleaded Diño and Uy as partiesdefendants.

chanroble s virtualawl ibra ry cha nrob les.co m:chan roble s.com.p h

Having paid the obligation under the above letter of credit in 1977, UTEFS, through Uy Tiam, obtained another credit accommodation from METROBANK in 1978, which credit accommodation was fully settled before an irrevocable letter of credit was applied for and obtained by the abovementioned business entity in 1979 (September 8, 1987, tsn, pp. 14- 15). The Irrevocable Letter of Credit No. SN-Loc-309, dated

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The court issued an order, dated 29 July 1983, granting the attachment writ, which writ was returned unserved and unsatisfied as defendant Uy Tiam was nowhere to be found at his given address and his commercial enterprise was already non-operational (Original Records, p. 37). On April 11, 1984, Norberto Uy and Jacinto Uy Diño (sureties-defendants herein) filed a motion to dismiss the complaint on the ground of lack of cause of action.

Guaranty

CIVIL LAW | C r e d i t T r a n s a c t i o n s They maintained that the obligation which they guaranteed in 1977 has been extinguished since it has already been paid in the same year. Accordingly, the Continuing Suretyships executed in 1977 cannot be availed of to secure Uy Tiam’s Letter of Credit obtained in 1979 because a guaranty cannot exist without a valid obligation. It was further argued that they can not be held liable for the obligation contracted in 1979 because they are not privies thereto as it was contracted without their participation (Records, pp. 42-46). On April 24, 1984, METROBANK filed its opposition to the motion to dismiss. Invoking the terms and conditions embodied in the comprehensive suretyships separately executed by sureties-defendants, the bank argued that sureties-movants bound themselves as solidary obligors of defendant Uy Tiam to both existing obligations and future ones. It relied on Article 2053 of the new Civil Code which provides: ‘A guaranty may also be given as security for future debts, the amount of which is not yet known; . . . .’ It was further asserted that the agreement was in full force and effect at the time the letter of credit was obtained in 1979 as sureties-defendants did not exercise their right to revoke it by giving notice to the bank. (Ibid., pp. 5154). Meanwhile, the resolution of the aforecited motion to dismiss was held in abeyance pending the introduction of evidence by the parties as per order dated February 21, 1986 (Ibid., p. 71). Having been granted a period of fifteen (15) days from receipt of the order dated March 7, 1986 within which to file the answer, sureties-defendants filed their responsive pleading which merely rehashed the arguments in their motion to dismiss and maintained that they are entitled to the benefit of excussion (Original Records, pp. 88-93). On February 23, 1987, plaintiff filed a motion to dismiss the complaint against defendant Uy Tiam on the ground that it has no information as to the heirs or legal representatives of the latter who died sometime in December, 1986, which motion was granted on the following day (Ibid., pp 180-182). After trial, . . . the court a quo, on December 2, 1987, rendered its judgment, a portion of which reads: chan rob1es v irt ual 1aw l ibra ry

‘The evidence and the pleadings, thus, pose the querry (sic):

apart and distinct from the obligation created in the other — as evidenced by the fact that Uy Tiam had to apply anew for the 1979 transaction (Exh. A). And Diño and Uy, being strangers thereto, cannot be answerable thereunder. ‘c) The plaintiff did not serve notice to the defendants Diño and Uy when it extended to Uy Tiam the 1979 Letter of Credit — at least to inform them that the continuing suretyships they executed on February 25, 1977 will be considered by the plaintiff to secure the 1979 transaction of Uy Tiam. ‘d) There is no sufficient and credible showing that Diño and Uy were fully informed of the import of the Continuing Suretyships when they affixed their signatures thereon — that they are thereby securing all future obligations which Uy Tiam may contract with the plaintiff. On the contrary, Diño and Uy categorically testified that they signed the blank forms in the office of Uy Tiam at 623 Asuncion Street, Binondo, Manila, in obedience to the instruction of Uy Tiam, their former employer. They denied having gone to the office of the plaintiff to subscribe to the documents (October 1, 1987, tsn, pp. 5-7, 14; October 15, 1987, tsn, pp. 3-8, 13-16). (Records, pp. 333-334).’" 3 x

x

x

In its Decision, the trial court decreed as follows:

jgc:c han robles. com.ph

"PREMISES CONSIDERED, judgment is hereby rendered: chan rob1e s virtual 1aw l ibrary

‘a) dismissing the COMPLAINT against JACINTO UY DIÑO and NORBERTO UY; ‘b) ordering the plaintiff to pay to Diño and Uy the amount of P6,000.00 as attorney’s fees and expenses of litigation; and ‘c) denying all other claims of the parties for want of legal and/or factual basis.’ chanrobles law lib rary

‘SO ORDERED’. (Records, p. 336)." 4 From the said Decision, the private respondent appealed to the Court of Appeals. The case was docketed as CAG.R. CV No. 17724. In support thereof, it made the following assignment of errors in its Brief: jgc:c han robles. com.ph

cha nrob 1es vi rtua l 1aw lib rary

‘Are the defendants Jacinto Uy Diño and Norberto Uy liable for the obligation contracted by Uy Tiam under the Letter of Credit (Exh. B) issued on March 30, 1979 by virtue of the Continuing Suretyships they executed on February 25, 1977? ‘Under the admitted proven facts, the Court finds that they are not. ‘a) When Uy and Diño executed the continuing suretyships, exhibits E and F, on February 25, 1977, Uy Tiam was obligated to the plaintiff in the amount of P700,000.00 — and this was the obligation which both defendants guaranteed to pay. Uy Tiam paid this 1977 obligation — and such payment extinguished the obligation they assumed as guarantors/sureties. ‘b) The 1979 Letter of Credit (Exh. B) is different from the 1977 Letter of Credit which covered the 1977 account of Uy Tiam. Thus, the obligation under either is

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"I. THE LOWER COURT SERIOUSLY ERRED IN NOT FINDING AND HOLDING THAT DEFENDANTS-APPELLEES JACINTO UY DIÑO AND NORBERTO UY ARE SOLIDARILY LIABLE TO PLAINTIFF-APPELLANT FOR THE OBLIGATION OF DEFENDANT UY TIAM UNDER THE LETTER OF CREDIT ISSUED ON MARCH 30, 1979 BY VIRTUE OF THE CONTINUING SURETYSHIPS THEY EXECUTED ON FEBRUARY 25, 1977. II. THE LOWER COURT ERRED IN HOLDING THAT PLAINTIFF-APPELLANT IS ANSWERABLE TO DEFENDANTS-APPELLEES JACINTO UY DIÑO AND NORBERTO UY FOR ATTORNEY’S FEES AND EXPENSES OF LITIGATION." 5 On 22 June 1989, public respondent promulgated the assailed Decision the dispositive portion of which reads: jgc:chan roble s.com.p h

"WHEREFORE, premises considered, the judgment

Guaranty

CIVIL LAW | C r e d i t T r a n s a c t i o n s appealed from is hereby REVERSED and SET ASIDE. In lieu thereof, another one is rendered: chan rob1e s virtual 1aw l ibrary

1) Ordering sureties-appellees Jacinto Uy Diño and Norberto Uy to pay, jointly and severally, to appellant METROBANK the amount of P2,397,883.68 which represents the amount due as of July 17, 1987 inclusive of principal, interest and charges; 2) Ordering sureties-appellees Jacinto Uy Diño and Norberto Uy to pay, jointly and severally, appellant METROBANK the accruing interest, fees and charges thereon from July 18, 1987 until the whole monetary obligation is paid; and

stand as security for the 1979 obligation. Moreover, it is posited that to extend the application of such agreements to the 1979 obligation would amount to a violation of Article 2052 of the Civil Code which expressly provides that a guaranty cannot exist without a valid obligation. Petitioners further argue that even granting, for the sake of argument, that the Continuing Suretyship Agreements still subsisted and thereby also secured the 1979 obligations incurred by Uy Tiam, they cannot be held liable for more than what they guaranteed to pay because it is axiomatic that the obligations of a surety cannot extend beyond what is stipulated in the agreement. On 12 February 1990, this Court resolved to give due course to the petition after considering the allegations, issues and arguments adduced therein, the Comment thereon by the private respondent and the Reply thereto by the petitioners; the parties were required to submit their respective Memoranda.

3) Ordering sureties-appellees Jacinto Uy Diño and Norberto Uy to pay, jointly and severally, to plaintiff P20,000.00 as attorney’s fees. With costs against appellees. SO ORDERED." 6

The issues presented for determination are quite simple: chan rob1es v irt ual 1aw l ibra ry

In ruling for the herein private respondent (hereinafter METROBANK), public respondent held that the Continuing Suretyship Agreements separately executed by the petitioners in 1977 were intended to guarantee payment of Uy Tiam’s outstanding as well as future obligations; each suretyship arrangement was intended to remain in full force and effect until METROBANK would have been notified of its revocation. Since no such notice was given by the petitioners, the suretyships are deemed outstanding and hence, cover even the 1979 letter of credit issued by METROBANK in favor of Uy Tiam. Petitioners filed a motion to reconsider the foregoing Decision. They questioned the public respondent’s construction of the suretyship agreements and its ruling with respect to the extent of their liability thereunder. They argued that even if the agreements were in full force and effect when METROBANK granted Uy Tiam’s application for a letter of credit in 1979, the public respondent nonetheless seriously erred in holding them liable for an amount over and above their respective face values. In its Resolution of 21 August 1989, public respondent denied the motion: jgc:c han robles. com.ph

". . . considering that the issues raised were substantially the same grounds utilized by the lower court in rendering judgment for defendants-appellees which We upon appeal found and resolved to be untenable, thereby reversing and setting aside said judgment and rendering another in favor of plaintiff, and no new or fresh issues have been posited to justify reversal of Our decision herein, . . . ." 7 Hence, the instant petition which hinges on the issue of whether or not the petitioners may be held liable as sureties for the obligation contracted by Uy Tiam with METROBANK on 30 May 1979 under and by virtue of the Continuing Suretyship Agreements signed on 26 February 1977. cralawnad

Petitioners vehemently deny such liability on the ground that the Continuing Suretyship Agreements were automatically extinguished upon payment of the principal obligation secured thereby, i.e., this letter of credit obtained by Uy Tiam in 1977. They further claim that they were not advised by either METROBANK or Uy Tiam that the Continuing Suretyship Agreements would

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1. Whether petitioners are liable as sureties for the 1979 obligations of Uy Tiam to METROBANK by virtue of the Continuing Suretyship Agreements they separately signed in 1977; and 2. On the assumption that they are, what is the extent of their liabilities for said 1979 obligations. Under the Civil Code, a guaranty may be given to secure even future debts, the amount of which may not be known at the time the guaranty is executed. 8 This is the basis for contracts denominated as a continuing guaranty or suretyship. A continuing guaranty is one which is not limited to a single transaction, but which contemplates a future course of dealing, covering a series of transactions, generally for an indefinite time or until revoked. It s prospective in its operation and is generally intended to provide security with respect to future transactions within certain limits, and contemplates a succession of liabilities, for which, as they accrue, the guarantor becomes liable. 9 Otherwise stated, a continuing guaranty is one which covers all transactions, including those arising in the future, which are within the description or contemplation of the contract of guaranty, until the expiration or termination thereof. 10 A guaranty shall be construed as continuing when by the terms thereof it is evident that the object is to give a standing credit to the principal debtor to be used from time to time either indefinitely or until a certain period, especially if the right to recall the guaranty is expressly reserved. Hence, where the contract of guaranty states that the same is to secure advances to be made "from time to time" the guaranty will be construed to be a continuing one. 11 In other jurisdictions, it has been held that the use of particular words and expressions such as payment of "any debt," "any indebtedness," "any deficiency," or "any sum," or the guaranty of "any transaction" or money to be furnished the principal debtor "at any time," or "on such time" that the principal debtor may require, have been construed to indicate a continuing guaranty. 12 In the case at bar, the pertinent portion of paragraph I of the suretyship agreement executed by petitioner Uy provides thus: jgc:cha nrob les.co m.ph

"I. For and in consideration of any existing indebtedness

Guaranty

CIVIL LAW | C r e d i t T r a n s a c t i o n s to the BANK of UY TIAM (hereinafter called the ‘Borrower’), for the payment of which the SURETY is now obligated to the BANK, either as guarantor or otherwise, and/or in order to induce the BANK, in its discretion, at any time or from time to time hereafter, to make loans or advances or to extend credit in any other manner to, or at the request, of for the account of the Borrower, either with or without security, and/or to purchase or discount, or to make any loans or advances evidenced or secured by any notes, bills, receivables, drafts, acceptances, checks, or other instruments or evidences of indebtedness (all hereinafter called ‘instruments’) upon which the Borrower is or may become liable as maker, endorser, acceptor, or otherwise, the SURETY agrees to guarantee, and does hereby guarantee, the punctual payment at maturity to the BANK of any and all such instruments, loans, advances credits and/or other obligations hereinbefore referred to, and also any and all other indebtedness of every kind which is now or may hereafter become due or owing to the BANK by the Borrower, together with any and all expenses which may be incurred by the BANK in collecting all or any such instruments or other indebtedness or obligations hereinbefore referred to, and/or in enforcing any rights hereunder, and the SURETY also agrees that the BANK may make or cause any and all such payments to be made strictly in accordance with the terms and provisions of any agreement(s) express or implied, which has (have) been or may hereafter be made or entered into by the Borrower in reference thereto, regardless of any law, regulation or decree, unless the same is mandatory and non-waivable in character, nor or hereafter in effect, which might in any manner affect any of the terms or provisions of any such agreement(s) or the BANK’s rights with respect thereto as against the Borrower, or cause or permit to be invoked any alteration in the time, amount or manner of payment by the Borrower of any such instruments, obligations or indebtedness; provided, however, that the liability of the SURETY hereunder shall not exceed at any one time the aggregate principal sum of PESOS: THREE HUNDRED THOUSAND ONLY (P300,000.00) (irrespective of the currency(ies) in which the obligations hereby guaranteed are payable), and such interest as may accrue thereon either before or after any maturity(ies) thereof and such expenses as may be incurred by the BANK as referred to above." 13 Paragraph I of the Continuing Suretyship Agreement executed by petitioner Diño contains identical provisions except with respect to the guaranteed aggregate principal amount which is EIGHT HUNDRED THOUSAND PESOS (P800,000.00). 14 Paragraph IV of both agreements stipulate that:

chanroble s law lib rary : red

"VI. This is a continuing guaranty and shall remain in full force and effect until written notice shall have been received by the BANK that it has been revoked by the SURETY, but any such notice shall not release the SURETY from any liability as to any instruments, loans, advances or other obligations hereby guaranteed, which may be held by the BANK, or in which the BANK may have any interest at the time of the recept (sic) of such notice. No act or omission of any kind on the BANK’s part in the premises shall in any event affect or impair this guaranty, nor shall same (sic) be affected by any change which may arise by reason of the death of the SURETY, or of any partner(s) of the SURETY, or of the Borrower, or of the accession to any such partnership of any one or more new partners." 15

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The foregoing stipulations unequivocally reveal that the suretyship agreements in the case at bar are continuing in nature. Petitioners do not deny this; in fact, they candidly admitted it. Neither have they denied the fact that they had not revoked the suretyship agreements. Accordingly, as correctly held by the public respondent: jgc:cha nrob les.co m.ph

"Undoubtedly, the purpose of the execution of the Continuing Suretyships was to induce appellant to grant any application for credit accommodation (letter of credit/trust receipt) UTEFS may desire to obtain from appellant bank. By its terms, each suretyship is a continuing one which shall remain in full force and effect until the bank is notified of its revocation. x

x

x

When the Irrevocable Letter of Credit No. SN-Loc-309 was obtained from appellant bank, for the purpose of obtaining goods (covered by a trust receipt) from Planters Products, the continuing suretyships were in full force and effect. Hence, even if sureties-appellees did not sign the ‘Commercial Letter of Credit and Application, they are still liable as the credit accommodation (letter of credit/trust receipt) was covered by the said suretyships. What makes them liable thereunder is the condition which provides that the Borrower ‘is or may become liable as maker, endorser, acceptor or otherwise.’ And since UTEFS which (sic) was liable as principal obligor for having failed to fulfill the obligatory stipulations in the trust receipt, they as insurers of its obligation, are liable thereunder." 16 Petitioners maintain, however, that their Continuing Suretyship Agreements cannot be made applicable to the 1979 obligation because the latter was not yet in existence when the agreements were executed in 1977; under Article 2052 of the Civil Code, a guaranty "cannot exist without a valid obligation." We cannot agree. First of all, the succeeding article provides that" [a] guaranty may also be given as security for future debts, the amount of which is not yet known." Secondly. Article 2052 speaks about a valid obligations, as distinguished from a void obligation, and not an existing or current obligation. This distinction is made clearer in the second paragraph of Article 2052 which reads: jgc:chan roble s.com.p h

"Nevertheless, a guaranty may be constituted to guarantee the performance of a voidable or an unenforceable contract. It may also guarantee a natural obligation." cralaw vi rtua 1aw lib rary

As to the amount of their liability under the Continuing Suretyship Agreements, petitioners contend that the public respondent gravely erred in finding them liable for more than the amount specified in their respective agreements, to wit: (a) P800,000.00 for petitioner Diño and (b) P300,000.00 for petitioner Uy. The limit of the petitioners’ respective liabilities must be determined from the suretyship agreement each had signed. It is undoubtedly true that the law looks upon the contract of suretyship with a jealous eye, and the rule is settled that the obligation of the surety cannot be extended by implication beyond its specified limits. To the extent, and in the manner, and under the circumstances pointed out in his obligation, he is bound, and no farther. 17

Guaranty

CIVIL LAW | C r e d i t T r a n s a c t i o n s Indeed, the Continuing Suretyship Agreements signed by petitioner Diño — and petitioner Uy fix the aggregate amount of their liability, at any given time, at P800,000.00 and P300,000.00, respectively. The law is clear that a guarantor may bind himself for less, but not for more than the principal debtor, both as regards the amount and the onerous nature of the conditions. 18 In the case at bar, both agreements provide for liability for interest and expenses, to wit:

amount stipulated in the bond.’The theory is that interest is allowed only by way of damages for delay upon the part of the sureties in making payment after they should have done so. In some states, the interest has been charged from the date of the judgment of the appellate court. In this jurisdiction, we rather prefer to follow the general practice, which is to order that interest begin to run from the date when the complaint was filed in court, . . . .’

". . . and such interest as may accrue thereon either before or after any maturity(ies) thereof and such expenses as may be incurred by the BANK referred to above." 19

Such theory aligned with sec. 510 of the Code of Civil Procedure which was subsequently recognized in the Rules of Court (Rule 53, section 6) and with Article 1108 of the Civil Code (now Art. 2209 of the New Civil Code).

They further provide that:

In other words the surety is made to pay interest, not by reason of the contract, but by reason of its failure to pay when demanded and for having compelled the plaintiff to resort to the courts to obtain payment. It should be observed that interest does not run from the time the obligation became due, but from the filing of the complaint.

jgc:chan roble s.com.p h

jgc:chan robles. com.p h

"In the event of judicial proceedings being instituted by the BANK against the SURETY to enforce any of the terms and conditions of this undertaking, the SURETY further agrees to pay the BANK a reasonable compensation for and as attorney’s fees and costs of collection, which shall not in any event be less than ten per cent (10%) of the amount due (the same to be due and payable irrespective of whether the case is settled judicially or extrajudicially)." 20 Thus, by express mandate of the Continuing Suretyship Agreements which they had signed, petitioners separately bound themselves to pay interests, expenses, attorney’s fees and costs. The last two items are pegged at not less than ten percent (10%) of the amount due. Even without such stipulations, the petitioners would, nevertheless, be liable for the interest and judicial costs. Article 2055 of the Civil Code provides: 21 "ARTICLE 2055. A guaranty is not presumed; it must be express and cannot extend to more than what is stipulated therein. If it be simple or indefinite, it shall comprise not only the principal obligation, but also all its accessories, including the judicial costs, provided with respect to the latter, that the guarantor shall only be liable for those costs incurred after he has been judicially required to pay." cralaw virtua1aw lib rary

Interests and damages are included in the term accessories. However, such interest should run only from the date when the complaint was filed in court. Even attorney’s fees may be imposed whenever appropriate, pursuant to Article 2208 of the Civil Code. Thus; in Plaridel Surety & Insurance Co., Inc. v. P.L. Galang Machinery Co., Inc., 22 this Court held: chan robles v irt ual lawl ibra ry

"Petitioner objects to the payment of interest and attorney’s fees because: (1) they were not mentioned in the bond; and (2) the surety would become liable for more than the amount stated in the contract of suretyship.

As to attorney’s fees. Before the enactment of the New Civil Code, successful litigants could not recover attorney’s fees as part of the damages they suffered by reason of the litigation. Even if the party paid thousands of pesos to his lawyers, he could not charge the amount to his opponent (Tan Ti v. Alvear, 26 Phil. 566). However the New Civil Code permits recovery of attorney’s fees in eleven cases enumerated in Article 2208, among them, ‘where the court deems it just and equitable that attorney’s (sic) fees and expenses of litigation should be recovered’ or ‘when the defendant acted in gross and evident bad faith in refusing to satisfy the plaintiff’s plainly valid, just and demandable claim’. This gives the courts discretion in apportioning attorney’s fees." cralaw virtua1aw l ib rary

The records do not reveal the exact amount of the unpaid portion of the principal obligation of Uy Tiam to METROBANK under Irrevocable Letter of Credit No. SNLoc-309 dated 30 March 1979. In referring to the last demand letter to Mr. Uy Tiam and the complaint filed in Civil Case No. 82-9303, the public respondent mentions the amount of "P613,339.32, as of January 31, 1982, inclusive of interest commission penalty and bank charges." 23 This is the same amount stated by METROBANK in its Memorandum. 24 However, in summarizing Uy Tiam’s outstanding obligation as of 17 July 1987, public respondent states: jgc:chanrob les.co m.ph

"Hence, they are jointly and severally liable to appellant METROBANK of UTEFS’ outstanding obligation in the sum of P2,397,883.68 (as of July 17, 1987) — P651,092.82 representing the principal amount, P825,133.54, for past due interest (5-31-82 to 7-17-87) and P921,657.32, for penalty charges at 12% per annum (5-31-82 to 7-17-87) as shown in the Statement of Account (Exhibit I)."25 cralaw:red

x

x

x

The objection has to be overruled, because as far back as the year 1922 this Court held in Tagawa v. Aldanese, 43 Phil. 852, that creditors suing on a suretyship bond may recover from the surety as part of their damages, interest at the legal rate even if the surety would thereby become liable to pay more than the total

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Since the complaint was filed on 18 May 1982, it is obvious that on that date, the outstanding principal obligation of Uy Tiam, secured by the petitioners’ Continuing Suretyship Agreements, was less than P613,339.32. Such amount may be fully covered by the Continuing Suretyship Agreement executed by petitioner Diño which stipulates an aggregate principal sum of not exceeding P800,000.00, and partly covered by that of petitioner Uy which pegs his maximum liability at

Guaranty

CIVIL LAW | C r e d i t T r a n s a c t i o n s P300,000.00. Consequently, the judgment of the public respondent shall have to be modified to conform to the foregoing exposition, to which extent the instant petition is impressed with partial merit. WHEREFORE, the petition is partly GRANTED, but only insofar as the challenged decision has to be modified with respect to the extent of petitioners’ liability. As modified, petitioners JACINTO UY DIÑO and NORBERTO UY are hereby declared liable for and are ordered to pay, up to the maximum limit only of their respective Continuing Suretyship Agreement, the remaining unpaid balance of the principal obligation of UY TIAM or UY TIAM ENTERPRISES & FREIGHT SERVICES under Irrevocable Letter of Credit No. SN-Loc-309, dated 30 March 1979, together with the interest due thereon at the legal rate commencing from the date of the filing of the complaint in Civil Case No. 82-9303 with Branch 45 of the Regional Trial Court of Manila, as well as the adjudged attorney’s fees and costs. All other dispositions in the dispositive portion of the challenged decision not inconsistent with the above are affirmed.

[1914], and Miller v. Stewart, 9 Wheat., 680; 6 L. ed., 189. See also Magdalena Estates, Inc. v. Rodriguez, 18 SCRA 967 [1966]; Republic v. Umali, 22 SCRA 922 [1968]; Zenith Insurance Corp. v. Court of Appeals, 119 SCRA 485 [1982]; Philippine Commercial and Industrial Bank v. Court of Appeals, 159 SCRA 24 [1988]; Umali v. Court of Appeals, 189 SCRA 529 [1990]. 18. Article 2054, Civil Code. 19. Rollo, 69. 20. Id., 40. 21. See National Marketing Corp. v. Marquez, 26 SCRA 722 [1969] explaining the provisions; Republic v. PalFox Lumber Co., Inc., 43 SCRA 365 [1972]. 22. 100 Phil. 679, 681-682 [1957]; Philippine National Bank v. Luzon Surety Co., Inc. 68 SCRA 207 [1975]. 23. Rollo, 48. 24. Id., 128. 25. Rollo, 55.

SO ORDERED. Gutierrez, Jr., Bidin, Romero and Melo, JJ., concur. Endnotes:

1. Rollo, 46-56; per Associate Justice Segundino G. Chua, ponente, concurred in by Associate Justices Serafin E. Camilon and Justo P. Torres, Jr. 2. Id., 60. 3. Rollo, 46-50. 4. Id., 50. 5. Rollo, 51. 6. Rollo, 55-56. 7. Rollo, 60. 8. Article 2053, Civil Code; see Rizal Commercial Banking Corp. v. Arro, 115 SCRA 777 [1982]. 9. 38 C.J.S. 1142. 10. 38 C.J.S. 1206. 11. Id., 1209. 12. Id. 13. Rollo, 68-69; Emphasis supplied. 14. Rollo, 69. 15. Id., 70-71; Emphasis supplied. 16. Rollo, 52-53. 17. La Insular v. Machuca Go-Tauco, 39 Phil. 567, 57071 [1919], citing Uy Aloc v. Cho Jan Ling, 27 Phil. 427

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Guaranty

CIVIL LAW | C r e d i t T r a n s a c t i o n s payments made by the principal debtor should be applied precisely to the portion guaranteed. The legal rules of imputation of payments presuppose that the debtor owes several distinct debts of the same nature; and does not distinguish between portions of the same debt. EN BANC [G.R. No. L-9073. November 17, 1958.] TRADERS INSURANCE & SURETY COMPANY, Plaintiff-Appellant, v. DY ENG GIOK, PEDRO LOPEZ DEE and PEDRO E. DYLIACCO, Defendants-Appellees. Sycip, Salazar, Atienza, Luna & Caparas for Appellant.

6. ID.; ID.; APPLICATION OF PAYMENT BY THE CREDITOR; WHEN VALID AND LAWFUL. — Where the debtor has not expressly elected any particular obligation to which the payment should be applied, the application by the creditor, in order to be valid and lawful, depends: (1) upon his expressing such application in the corresponding receipt and (2) upon the debtor’s assent, shown by his acceptance of the receipt without protest. Ultimately, therefore, the application by a creditor depends upon the debtor’s acquiescene thereto.

Emigdio V. Arcilla for appellee, Dy Eng Giok. DECISION

Cezar Miraflor for appellee Pedro Lopez Dee. Pascual G. Mier for appellee Pedro E. Dy-Liacco.

SYLLABUS

1. SURETYSHIP; DEBTS COVERED BY GUARANTY; WHEN SURETY LIABLE FOR DEBTS INCURRED OUTSIDE THE GUARANTEED PERIOD. — In the absence of express stipulation, a guaranty or suretyship secures only the debts contracted after the guaranty takes effect (El Vencedor v. Canlas, 44 Phil. 699). To apply the payments made by the principal debtor to the obligations he contracted prior to the guaranty is, in effect, to make the surety answer for debts incurred outside of the guaranteed period, and this can not be done without the express consent of the guarantor. 2. ID.; INCONTESTABILITY OF PAYMENTS MADE BY SURETY; AGREEMENT VOID AS AGAINST PUBLIC POLICY. — The provision in the indemnity agreement that any payment made by the surety company on account of the bond shall be final and incontestable, is void and unenforceable as against public policy. 3. OBLIGATIONS AND CONTRACTS; ONEROUS OBLIGATIONS; DEBTS DEEMED ONEROUS. — Debts covered by a guaranty are deemed more onerous to the debtor than the simple obligations because, in their case, the debtor may be subjected to action not only by the creditor, but also by the guarantor, and this even before the guaranteed debt is paid by the guarantor (Art. 2071, New Civil Code). 4. ID.; APPLICATION OF PAYMENT; PRIORITY OF ONEROUS OBLIGATIONS. — In the absence of express application by the debtor, or of any receipt issued by the creditor specifying a particular imputation of the payment (New Civil Code, Art. 1252), any partial payments made by him should be imputed or applied to the debts that were guaranteed, since they are regarded as the more onerous debts from the standpoint of the debtor (New Civil Code, Art. 1254). 5. ID.; ID.; ONE SINGLE DEBT OF WHICH ONLY A PORTION IS GUARANTEED; PARTIAL PAYMENTS HOW APPLIED. — Where the debtor owed the creditor one single debt of which only a portion was guaranteed, the guarantor had no right to demand that the partial

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REYES, J.B.L., J.:

Appeal interposed against that part of the decision of the Court of First Instance of Manila (in its civil case No. 20305) absolving Pedro Lopez Dee and Pedro E. DyLiacco from the obligation to reimburse the plaintiff Traders Insurance and Surety Co. From the stipulation of facts made by the parties in the court below, it appears that from 1948 to 1952 the corporation "Destileria Lim Tuaco & Co., Inc." had one Dy Eng Giok as its provincial sales agent, with the duty of turning over the proceeds of his sales to the principal, the distillery company. As of August 3, 1951, the agent Dy Eng Giok had an outstanding running account in favor of his principal in the sum of P12,898.61. On August 4, 1951, a surety bond (Annex A, complaint) was executed by Dy Eng Giok, as principal, and appellant Traders Insurance and Surety Co., as solidary guarantor, whereby they bound themselves, jointly and severally, in the sum of P10,000.00 in favor of the Destilleria Lim Tuaco & Co., Inc., under the following terms: chan rob1e s virtual 1aw l ibra ry

‘THE CONDITION OF THIS OBLIGATION IS SUCH THAT: Whereas, the above bounden principal has entered in to a contract with the aforementioned Company to act as their provincial sales agent and to receive goods or their products under the said Principal’s credit account. The proceeds of the sales are to be turned over to the Company. WHEREAS, the contract requires the above bounden principal to give a good and sufficient bond in the above stated sum to secure the full and faithful fulfillment on its part of said contract; namely, to guarantee the full payment of the Principal’s obligation not to exceed the above stated sum. NOW, THEREFORE, if the above bounden principal shall in all respects duly and fully observe and perform all and singular the aforesaid covenants, conditions, and agreements to the true intent and meaning thereof, then this obligation shall be null and void; otherwise, to remain in full force and effect. LIABILITY of surety on this bond will expire on August 4,

Guaranty

CIVIL LAW | C r e d i t T r a n s a c t i o n s 1952 and said bond will be cancelled TEN DAYS after its expiration, unless surety is notified in writing of any existing obligations thereunder or otherwise extended by the surety in writing." (Rec. App., pp. 7-8) (Emphasis supplied) On the same date, by Eng Giok, as principal, with Pedro Lopez Dee and Pedro Dy-Liacco, as counterboundsmen, subscribed an indemnity agreement (Annex B. of the complaint) in favor of appellant Surety Company, whereby, in consideration of its surety bond (Annex A), the three agreed to be obligated to the surety company — "INDEMNITY: — To indemnify the COMPANY for any damages, prejudice, loss, costs, payments, advances and expenses of whatever kind and nature, including counsel or attorney’s fees, which the Company may, at any time, sustain or incur, as a consequence of having executed the abovementioned bond, its renewals, extensions or substitutions, and said attorney’s fee shall not be less than (15%) per cent of the amount claimed by the Company in each action, the same to be due and payable, irrespective of whether the case is settled judicially or extrajudicially." (Rec. App. pp. 9-10) From August 4, 1951 to August 3, 1952, agent Dy Eng Giok contracted obligations in favor of the Destilleria Lim Tuaco & Co., in the total amount of P41,449.93; and during the same period, he made remittances amounting to P41,864.49. The distillery company, however, applied said remittances first to Dy Eng Giok’s outstanding balance prior to August 4, 1951 (before the suretyship agreement was executed) in the sum of P12,898.61; and the balance of P28,965.88 to Dy’s obligations between August 4, 1951 and August 3, 1952. It then demanded payment of the remainder (P12,484.05) from the agent, and later, from the appellant Surety Company. The latter paid P10,000.00 (the maximum of its bond) on July 17, 1953, apparently, without questioning the demand; and then sought reimbursement from Dy Eng Giok and his counter guarantors, appellees herein. Upon their failure to pay, it began the present action to enforce collection. After trial, the Court of First Instance of Manila absolved the counter-guarantors Pedro Lopez Dee and Pedro DyLiacco, on the theory that in so far as they are concerned, the payments made by Dy Eng Giok from August 4, 1951 to August 3, 1952, in the sum of P41,864.49, should have been applied to his obligations during that period, which were the ones covered by the surety bond and the counter-guaranty; and as these obligations only amounted to P41,449.93, so that the payments exceeded the obligations, the court concluded that the Surety Company incurred no liability and the counterbondsmen in turn had nothing to answer for. The trial court, however, sentenced Dy Eng Giok to repay to the Surety Company P10,000 with interest at 12% per annum, plus P1,500 attorneys’ fee and the costs of the suit. Not satisfied with the decision, the Traders Insurance & Surety Company appealed to this Court on points of law. We find the decision appealed from to be correct. There are two reasons why the remittances by Dy Eng Giok in the sum of P41,864.49 should be applied to the obligation of P41,449.93 contracted by him during the period covered by the suretyship agreement, Annex A. The first is that, in the absence of express stipulation, a

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guaranty or suretyship operates prospectively and not retroactively; that is to say, it secures only the debts contracted after the guaranty takes effect (El Vencedor v. Canlas, 44 Phil. 699). This rule is a consequence of the statutory directive that a guaranty is not presumed, but must be express, and can not extend to more than what is stipulated. (New Civil Code, Art. 2055). To apply the payments made by the principal debtor to the obligations he contracted prior to the guaranty is, in effect, to make the surety answer for debts incurred outside of the guaranteed period, and this can not be done without the express consent of the guarantor. Note that the suretyship agreement, Annex A, did not guarantee the payment of any outstanding balance due from the principal debtor, Dy Eng Giok; but only that he would turn over the proceeds of the sales to the "Destileria Lim Tuaco & Co., Inc.", and this he has done, since his remittances during the period of the guaranty exceed the value of his sales. There is no evidence that these remittances did not come from his sales. A similar situation was dealt with in our decision in the case of Municipality of Lemery v. Mendoza, 48 Phil. 415, wherein we said (pp. 422-423): jgc:chan rob les.com. ph

"As we have previously stated Mendoza has paid to the municipality the full sum of P23,000. In our opinion this discharged the sureties from all further liability. The circumstance that the sum of P23,000 which Mendoza paid may have been applied by the municipality to Mendoza’s indebtedness for the first year of the lease is without significance as against the sureties, since the sureties were not parties to the contract of lease (Exhibit D) and are liable only upon the contract of suretyship (Exhibit E), which calls for the payments of only P23,000 by the principal. It is a just rule of jurisprudence, recognized in article 1827 of the Civil Code, that the obligation of a surety must be express and cannot be extended by implication beyond its specified limits. We do not overlook the fact that the obligating clause in Exhibit E binds the sureties in the amount of P46,000, but, as in all bonds, that obligation was intended as an assurance of the performance of the principal obligation and when the principal obligation was discharged, the larger obligation expressed in the contract of suretyship ceased to have any vitality." cralaw virtua 1aw lib rary

The second reason is that, since the obligations of Dy Eng Giok between August 4, 1951 to August 4, 1952, were guaranteed, while his indebtedness prior to that period was not secured, then in the absence of express application by the debtor, or of any receipt issued by the creditor specifying a particular imputation of the payment (New Civil Code, Art. 1252), any partial payments made by him should be imputed or applied to the debts that were guaranteed, since they are regarded as the more onerous debts from the standpoint of the debtor (New Civil Code, Art. 1254). "ART. 1254. When the payment cannot be applied in accordance with the preceding rules, or if application can not be inferred from other circumstances, the debt which is most onerous to the debtor, among those due, shall be deemed to have been satisfied. If the debts due are of the same nature and burden, the payment shall be applied to all of them proportionately." cralaw vi rtua 1aw lib rary

Debts covered by a guaranty are deemed more onerous to the debtor than the simple obligations because, in

Guaranty

CIVIL LAW | C r e d i t T r a n s a c t i o n s their case, the debtor may be subjected to action not only by the creditor, but also by the guarantor, and this even before the guaranteed debt is paid by the guarantor (Art. 2071, New Civil Code); hence, the payment of the guaranteed debt liberates the debtor from liability to the creditor as well as to the guarantor, while payment of the unsecured obligation only discharges him from possible action by only one party, the unsecured creditor. The rule that guaranteed debts are to be deemed more onerous to the debtor than those not guaranteed, and entitled to priority in the application of the debtor’s payments, was already recognized in the Roman Law (Ulpian, fr. ad Sabinum, Digest, Lib. 46, Tit 3, Law 4, in fine), and has passed to us through the Spanish Civil Code. Manresa in his Commentaries to Art. 1174 of that Code (8 Manresa, Vol. I, 5th Ed., p. 603) expressly says: jgc:chanrob les.com .ph

"Atendiendo al gravamen, la deuda garantida es mas onerosa que la simple." cralaw vi rtua1aw l ib rary

And this is also the rule in Civil law countries, like France (Dalloz, Jurisprudence Générale Vo. obligation, sec. 2033; Planiol, Traité Elem. (2d Ed). Vol. 2, No. 454) and Louisiana (Caltex Oil & Gas, Co. v. Smith, 175 La. 678, 144 So. 243; Everett v. Graye, 3 La. App. 136): also Italy (7 Giorgi, Teoria delle Obbl. p. 167). It is thus clear that the payment voluntarily made by appellant was improper since it was not liable under its bond; consequently, it can not demand reimbursement from the counterbondsmen but only from Dy Eng Giok, who was anyway benefited pro tanto by the Surety Company’s payment. The present case is to be clearly distinguished from Hongkong Shanghai Bank v. Aldanese, 48 Phil., 990, and Commonwealth v. Far Eastern Surety & Insurance Co., 83 Phil., 305, 46 Off. Gaz. 4879 and similar rulings, wherein the debtor in each case owned the creditor one single debt of which only a portion was guaranteed. In those cases, we have ruled that the guarantors had no right to demand that the partial payments made by the principal debtor should be applied precisely to the portion guaranteed. The reason is apparent: the legal rules of imputation of payments presuppose that the debtor owes several distinct debts of the same nature; and does not distinguish between portions of the same debt. Hence, where the debtor only owes one debt, all partial payments must necessarily be applied to that debt, and the guarantor answers for any unpaid balance, provided it does not exceed the limits of the guaranty. Any other solution would defeat the purpose of the security. In the case before us, however, the guaranty secured the performance by the debtor of his obligation to remit to the distillery company the proceeds of his sales during the period of the guaranty (August 4, 1951 to August 4, 1952). This obligation is entirely distinct and separate from his obligation to remit the proceeds of his sales during a different period, say before August 4, 1951. The debtor, therefore, actually owed two distinct debts: for the value of his sales before August 4, 1951 and for the import of the sales between that date and August 4, 1952. There being two debts, his partial payments had necessarily to be applied (in the absence of express imputation) first to the obligation that was more onerous for him, which was the one secured by the guaranty.

the debtor has not expressly elected any particular obligation to which the payment should be applied, the application by the creditor, in order to be valid and lawful, depends: (1) upon his expressing such application in the corresponding receipt and (2) upon the debtor’s assent, shown by his acceptance of the receipt without protest. This is the import of paragraph 2 of Art. 1252 of the New Civil Code: jgc:cha nro bles. com.ph

"If the debtor accepts from the creditor a receipt in which an application of the payment is made, the former cannot complain of the same, unless there is a cause for invalidating the contract." cralaw virtua1aw lib rary

Ultimately, therefore, the application by a creditor depends upon the debtor acquiescence thereto. In the present case, as already noted, there is no evidence that the receipts for payment expressed any imputation, or that the debtor agreed to the same. The appellant Surety Company avers that the counterbondsmen can not question the payment made by it to Destileria Lim Tuaco on the debt of Dy Eng Giok, because their counterbond or indemnity agreement (Annex B, par. 7) provided that: jgc:chanrob les.com .ph

"INCONTESTABILITY OF PAYMENTS MADE BY THE COMPANY: Any payment of disbursement made by the COMPANY on account of the abovementioned Bond, its renewals, extensions or substitutions, either in the belief that the Company was obligated to make such payment or in the belief that said payment was necessary in order to avoid greater losses or obligations for which the Company might be liable by virtue of the terms of the abovementioned Bond, its renewals, extensions or substitutions shall be final and will not be disputed by the undersigned who jointly and severally bind themselves to indemnify the COMPANY for any and all such payments as stated in the preceding clauses." (Rec. App., p. 11) We agree with the appellee that this kind of clauses are void and unenforceable, as against public policy, "because they enlarge the field for fraud, because in these instruments the promissor bargains away his right to a day in court and because the effect of the instrument is to strike down the right of appeal accorded by the statute." (see National Bank v. Manila Oil Refining Co., 43 Phil. 467) Finding no error in the judgment appealed from, the same is affirmed. Costs against appellant. So ordered. Paras, C.J., Bengzon, Padilla, Montemayor, Bautista Angelo, Labrador and Concepcion, JJ., concur.

It is legally unimportant that the creditor should have applied the payment to the prior indebtedness. Where

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CIVIL LAW | C r e d i t T r a n s a c t i o n s

THIRD DIVISION [G.R. No. 109941. August 17, 1999.] PACIONARIA C. BAYLON, Petitioner, v. THE HONORABLE COURT OF APPEALS (Former Ninth Division) and LEONILA TOMACRUZ, Respondents.

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After trial on the merits, the lower court ruled in favor of private Respondent. In its Decision dated June 14, 1990, it stated that —

DECISION

GONZAGA-REYES, J.:

This is a petition for review by way of certiorari under Rule 45 of the Revised Rules of Court of the decision of the Court of Appeals 1 dated November 29, 1991 in CAG.R. CV No. 27779 affirming the decision 2 of the Regional Trial Court of Quezon City, Branch 88, dated June 14, 1990 in Civil Case No. Q-89-2483 and the Resolution of the Court of Appeals dated April 27, 1993 denying petitioner’s Motion for Reconsideration. The pertinent facts, as found by the trial court and affirmed by respondent court, are briefly narrated as follows: cha nro blesvi rtua l|awlib rary

Sometime in 1986, petitioner Pacionaria C. Baylon introduced private respondent Leonila Tomacruz, the comanager of her husband at PLDT, to Rosita B. Luanzon. 3 Petitioner told private respondent that Luanzon has been engaged in business as a contractor for twenty years and she invited private respondent to lend Luanzon money at a monthly interest rate of five percent (5%), to be used as capital for the latter’s business. Private respondent, persuaded by the assurances of petitioner that Luanzon’s business was stable and by the high interest rate, agreed to lend Luanzon money in the amount of P150,000. On June 22, 1987, Luanzon issued and signed a promissory note acknowledging receipt of the P150,000 from private respondent and obliging herself to pay the former the said amount on or before August 22, 1987. 4 Petitioner signed the promissory note, affixing her signature under the word "guarantor." Luanzon also issued a postdated Solidbank check no. CA418437 dated August 22, 1987 payable to Leonila Tomacruz in the amount of P150,000. 5 Subsequently, Luanzon replaced this check with another postdated Solidbank check no. 432945 dated December 22, 1987, in favor of the same payee and covering the same amount. 6 Several checks in the amount of P7,500 each were also issued by Luanzon and made payable to private Respondent. 7 Private respondent made a written demand upon petitioner for payment, which petitioner did not heed. Thus, on May 8, 1989, private respondent filed a case for the collection of a sum of money with the Regional Trial Court (RTC) of Quezon City, Branch 88, against Luanzon and petitioner herein, impleading Mariano Baylon, husband of petitioner, as an additional defendant. However, summons was never served upon Luanzon. In her answer, petitioner denied having guaranteed the

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payment of the promissory note issued by Luanzon. She claimed that private respondent gave Luanzon the money, not as a loan, but rather as an investment in Art Enterprises and Construction, Inc. — the construction business of Luanzon. Furthermore, petitioner avers that, granting arguendo that there was a loan and petitioner guaranteed the same, private respondent has not exhausted the property of the principal debtor nor has she resorted to all the legal remedies against the principal debtor as required by law. Finally, petitioner claims that there was an extension of the maturity date of the loan without her consent, thus releasing her from her obligation. 8

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The evidence and the testimonies on record clearly established a (sic) fact that the transaction between the plaintiff and defendants was a loan with five percent (5%) monthly interest and not an investment. In fact they all admitted in their testimonies that they are not given any stock certificate but only promissory notes similar to Exhibit "B" wherein it was clearly stated that defendant Luanzon would pay the amount of indebtedness on the date due. Postdated checks were issued simultaneously with the promissory notes to enable the plaintiff and others to withdraw their money on a certain fixed time. This shows that they were never participants in the business transaction of defendant Luanzon but were creditors. The evidences presented likewise show that plaintiff and others loan their money to defendant Luanzon because of the assurance of the monthly income of five percent (5%) of their money and that they could withdraw it anytime after the due date add to it the fact that their friend, Pacionaria Baylon, expresses her unequivocal guarantee to the payment of the amount loaned. x

x

x

WHEREFORE, premises considered, judgment is hereby rendered against the defendants Pacionaria C. Baylon and Mariano Baylon, to pay the plaintiff the sum of P150,000.00, with interest at the legal rate from the filing of this complaint until full payment thereof, to pay the total sum of P21,000.00 as attorney’s fees and costs of suit. 9 chanrob les.com. ph : virtual law l ibrary

On appeal, the trial court’s decision was affirmed by the Court of Appeals. Hence, this present case wherein petitioner makes the following assignment of errors — I. RESPONDENT COURT ERRED IN HOLDING THAT THE PRIVATE RESPONDENT TOMACRUZ WAS A CREDITOR OF DEFENDANT LUANZON AND NOT AN INVESTOR IN THE CONSTRUCTION BUSINESS OF ART ENTERPRISES & CONSTRUCTION, INC. II. GRANTING, WITHOUT ADMITTING, THAT PETITIONER-APPELLANT BAYLON WAS A "GUARANTOR" AS APPEARING IN THE NOTE (EXH. "A") THE RESPONDENT COURT ERRED IN RULING THAT PETITIONER-APPELLANT BAYLON IS LIABLE TO THE PRIVATE RESPONDENT BECAUSE THE LATTER HAS NOT TAKEN STEPS TO EXHAUST THE PROPERTY OF THE PRINCIPAL DEBTOR AND HAS NOT RESORTED TO ALL THE LEGAL REMEDIES PROVIDED BY LAW AGAINST THE DEBTOR, DEFENDANT LUANZON.

Guaranty

CIVIL LAW | C r e d i t T r a n s a c t i o n s III. GRANTING, WITHOUT ADMITTING THAT PETITIONER-APPELLANT BAYLON WAS A GUARANTOR UNDER THAT NOTE (EXHIBIT "A") DATED JUNE 22, 1987, THE LOWER COURT ERRED IN RESOLVING THAT SHE WAS NOT RELEASED FROM HER GUARANTY BY THE SUBSEQUENT TRANSACTIONS BETWEEN THE RESPONDENT-APPELLANT AND DEFENDANT LUANZON. chanroblesvi rtua llawli bra ry

At the outset, we note that petitioner’s claim that the factual findings of the lower court, which were affirmed by the Court of Appeals, were based on a misapprehension of facts and contradicted by the evidence on records 10 is a bare allegation and devoid of merit. As a rule, the conclusions of fact of the trial court, especially when affirmed by the Court of Appeals, are final and conclusive and cannot be reviewed on appeal by the Supreme Court. 11 Although this rule admits of several exceptions, 12 none of the exceptions are in point in the present case. The factual findings of the respondent court are borne out by the record and are based on substantial evidence. Petitioner claims that there is no loan to begin with; that private respondent gave Luanzon the amount of P150,000, not as a loan, but rather as an investment in the construction project of the latter. 13 In support of her claim, petitioner cites the use by private respondent of the words "investment," "dividends," and "commission" in her testimony before the lower court; the fact that private respondent received monthly checks from Luanzon in the amount of P7,500 from July to December, 1987, representing dividends on her investment; and the fact that other employees of the Development Bank of the Philippines made similar investments in Luanzon’s construction business. 14 However, all the circumstances mentioned by petitioner cannot override the clear and unequivocal terms of the June 22, 1987 promissory note whereby Luanzon promised to pay private respondent the amount of P150,000 on or before August 22, 1987. The promissory note states as follows: chan roble svirtual lawlib rary:re d

June 22, 1987 To Whom It May Concern:

If the terms of a contract are clear and leave no doubt as to the intention of the contracting parties, the literal meaning of its stipulation shall control. 16 Resort to extrinsic aids and other extraneous sources are not necessary in order to ascertain the parties’ intent when there is no ambiguity in the terms of the agreement. 17 Both petitioner and private respondent do not deny the due execution and authenticity of the June 22, 1987 promissory note. All of petitioner’s arguments are directed at uncovering the real intention of the parties in executing the promissory note, but no amount of argumentation will change the plain import of the terms thereof, and accordingly, no attempt to read into it any alleged intention of the parties thereto may be justified. 18 The clear terms of the promissory note establish a creditor-debtor relationship between Luanzon and private Respondent. The transaction at bench is therefore a loan, not an investment. chanroble svi rtualawl ib rary

It is petitioner’s contention that, even though she is held to be a guarantor under the terms of the promissory note, she is not liable because private respondent did not exhaust the property of the principal debtor and has not resorted to all the legal remedies provided by the law against the debtor. 19 Petitioner is invoking the benefit of excussion pursuant to article 2058 of the Civil Code, which provides that — The guarantor cannot be compelled to pay the creditor unless the latter has exhausted all the property of the debtor, and has resorted to all the legal remedies against the debtor. chanroble s.com:c ralaw:re d

It is axiomatic that the liability of the guarantor is only subsidiary. 20 All the properties of the principal debtor must first be exhausted before his own is levied upon. Thus, the creditor may hold the guarantor liable only after judgment has been obtained against the principal debtor and the latter is unable to pay, "for obviously the ‘exhaustion of the principal’s property’ — the benefit of which the guarantor claims — cannot even begin to take place before judgment has been obtained." 21 This rule is embodied in article 2062 of the Civil Code which provides that the action brought by the creditor must be filed against the principal debtor alone, except in some instances when the action may be brought against both the debtor and the principal debtor. 22

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Under the circumstances availing in the present case, we hold that it is premature for this Court to even determine whether or not petitioner is liable as a guarantor and whether she is entitled to the concomitant rights as such, like the benefit of excussion, since the most basic prerequisite is wanting — that is, no judgment was first obtained against the principal debtor Rosita B. Luanzon. It is useless to speak of a guarantor when no debtor has been held liable for the obligation which is allegedly secured by such guarantee. Although the principal debtor Luanzon was impleaded as defendant, there is nothing in the records to show that summons was served upon her. Thus, the trial court never even acquired jurisdiction over the principal debtor. We hold that private respondent must first obtain a judgment against the principal debtor before assuming to run after the alleged guarantor.

For value received, I hereby promise to pay Mrs. LEONILA TOMACRUZ the amount of ONE HUNDRED FIFTY THOUSAND PESOS ONLY (P150,000.00) on or before August 22, 1987. The above amount is covered by _____ Check No. _____ dated August 22, 1987. (signed) ROSITA B. LUANZON GURARANTOR:

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(signed) PACIONARIA O. BAYLON

IN VIEW OF THE FOREGOING, the petition is granted and the questioned Decision of the Court of Appeals dated November 29, 1991 and Resolution dated April 27, 1993 are SET ASIDE. No pronouncement as to costs.

Tel. No. 801-28-00 18 P. Mapa St., DBP Village

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Almanza, Las Pinas, M.M. 15

SO ORDERED.

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CIVIL LAW | C r e d i t T r a n s a c t i o n s Melo, Vitug, Panganiban and Purisima, JJ., concur. Endnotes:

1. Ninth Division, composed of Associate Justices Serafin V.C. Guingona (ponente), Luis A. Javellana and Jorge S. Imperial.

the principal debtor alone, except in the cases mentioned in article 2059, the former shall ask the court to notify the guarantor of the action. The guarantor may appear so that he may, if he so desire, set up such defenses as are granted him by law. The benefit of excussion mentioned in article 2058 shall always be unimpaired, even if judgment should be rendered against the principal debtor and the guarantor in case of appearance by the latter.

2. Penned by Judge Tirso D.C. Velasco. 3. Petition, p. 4; Rollo, p. 28. 4. Exhibit A. 5. Exhibit B. 6. Exhibit 15. 7. Exhibits E, F, G, H, I, J, and K. 8. Answer, pp. 2-3; Rollo, pp. 26-27. 9. RTC Records, pp. 128-133. 10. Petition, p. 9; Rollo, p. 33. 11. Fortune Motors Phils. Corp. v. Court of Appeals, 267 SCRA 653 (1997); Meneses v. Court of Appeals, 246 SCRA 162 (1995); Tan Chun Suy v. Court of Appeals, 229 SCRA 151 (1994). 12. Commissioner of Internal Revenue v. Embroidery and Garments Industries, G.R. No. 96262 (1999); Mangahas v. Court of Appeals, G.R. No. 95815 (1999); Diaz v. Sandiganbayan, G.R. No. 125213 (1999). 13. Petition, p. 4; Rollo, p. 28. 14. Petition, pp. 3-9; Rollo, pp. 27-33. 15. Exhibit A. 16. Civil Code, Art. 1370; Cebu Shipyard and Engineering Works, Inc. v. William Lines, Inc. and Prudential Guarantee and Assurance Company, Inc., G.R. No. 132607 (1999); Rizal Commercial Banking Corporation v. Court of Appeals and Lustre, G.R. No. 133107 (1999); Salvatierra v. Court of Appeals, 261 SCRA 45 (1996); Abella v. Court of Appeals, 257 SCRA 482 (1996). 17. Inter-Asia Services Corp. v. Court of Appeals, 263 SCRA 408 (1996). 18. Ascalon v. Court of Appeals, 158 SCRA 542 (1988); Pichel v. Alonzo, 111 SCRA 341 (1982); San Mauricio Mining Company v. Ancheta, 105 SCRA 371 (1981). 19. Petition, p. 9; Rollo, p. 33. 20. World Wide Ins. and Surety Corp. v. Jose, 96 Phil 45 (1954); Visayan Surety and Ins. Corp. v. De Laperal, 69 Phil 688 (1940). 21. Vda. de Syquia v. Jacinto, 60 Phil 861 (1934). 22. Civil Code, article 2062 provides — In every action by the creditor, which must be against

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