Warehouse-receipts-law-and-guaranty-and-suretyship.docx

VI. WAREHOUSE RECEIPTS LAW Warehouse Receipts [G.R. No. 119231. April 18, 1996] PHILIPPINE NATIONAL BANK, petitioner, vs. HON. PRES. JUDGE BENITO C. SE, JR., RTC, BR. 45, MANILA; NOAHS ARK SUGAR REFINERY; ALBERTO T. LOOYUKO, JIMMY T. GO and WILSON T. GO, respondents. SYLLABUS 1. COMMERCIAL LAW; WAREHOUSE RECEIPTS LAW; THE UNCONDITIONAL PRESENTMENT OF THE RECEIPTS FOR PAYMENT CARRIED WITH IT THE ADMISSIONS OF THE EXISTENCE AND VALIDITY OF THE TERMS, CONDITIONS AND STIPULATIONS WRITTEN ON THE FACE OF THE WAREHOUSE RECEIPTS, INCLUDING THE UNQUALIFIED RECOGNITION OF THE PAYMENT OF WAREHOUSEMANS LIEN FOR STORAGE FEES AND PRESERVATION EXPENSES; CASE AT BAR. - Petitioner is in estoppel in disclaiming liability for the payment of storage fees due the private respondents as warehouseman while claiming to be entitled to the sugar stocks covered by the subject Warehouse Receipts on the basis of which it anchors its claim for payment or delivery of the sugar stocks. The unconditional presentment of the receipts by the petitioner for payment against private respondents on the strength of the provisions of the Warehouse Receipts Law (R.A. 2137) carried with it the admission of the existence and validity of the terms, conditions and stipulations written on the face of the Warehouse Receipts, including the unqualified recognition of the payment of warehousemans lien for storage fees and preservation expenses. Petitioner may not now retrieve the sugar stocks without paying the lien due private respondents as warehouseman. 2. ID.; ID.; ID.; WAREHOUSEMANS LIEN; POSSESSORY IN NATURE. - While the PNB is entitled to the stocks of sugar as the endorsee of the quedans, delivery to it shall be effected only upon payment of the storage fees. Imperative is the right of the warehouseman to demand payment of his lien at this juncture, because, in accordance with Section 29 of the Warehouse Receipts Law, the warehouseman loses his lien upon goods by surrendering possession thereof. In other words, the lien may be lost where the warehouseman surrenders the possession of the goods without requiring payment of his lien, because a warehousemans lien is possessory in nature. APPEARANCES OF COUNSEL Rolan A. Nieto for petitioner. Madella & Cruz Law Offices for private respondents. DECISION HERMOSISIMA, JR., J.: The source of conflict herein is the question as to whether the Philippine National Bank should pay storage fees for sugar stocks covered by five (5) Warehouse Receipts stored in the warehouse of private respondents in the face of the Court of Appeals decision (affirmed by the Supreme Court) declaring the Philippine National Bank as the owner of the said sugar stocks and ordering their delivery to the said bank. From the same facts but on a different perspective, it can be said that the issue is: Can the warehouseman enforce his warehousemans lien before delivering the sugar stocks as ordered by the Court of Appeals or need he file a separate action to enforce payment of storage fees? The herein petition seeks to annul: (1) the Resolution of respondent Judge Benito C. Se, Jr. of the Regional Trial Court of Manila, Branch 45, dated December 20, 1994, in Civil Case No. 90-53023, authorizing reception of evidence to establish the claim of respondents Noahs Ark Sugar Refinery, et al., for storage fees and preservation expenses over sugar stocks covered by five (5) Warehouse Receipts which is in the nature of a warehousemans lien; and (2) the Resolution of the said respondent Judge, dated March 1, 1995, declaring the validity of private respondents warehousemans lien under Section 27 of Republic Act No 2137 and ordering that execution of the Court of Appeals decision, dated December 13, 1991, be in effect held in abeyance until the full amount of the warehousemans lien on

the sugar stocks covered by five (5) quedans subject of the action shall have been satisfied conformably with the provisions of Section 31 of Republic Act 2137. Also prayed for by the petition is a Writ of Prohibition to require respondent RTC Judge to desist from further proceeding with Civil Case No. 90-53023, except order the execution of the Supreme Court judgment; and a Writ of Mandamus to compel respondent RTC Judge to issue a Writ of Execution in accordance with the said executory Supreme Court decision.

THE FACTS In accordance with Act No. 2137, the Warehouse Receipts Law, Noahs Ark Sugar Refinery issued on several dates, the following Warehouse Receipts (Quedans): (a) March 1, 1989, Receipt No. 18062, covering sugar deposited by Rosa Sy; (b) March 7, 1989, Receipt No. 18080, covering sugar deposited by RNS Merchandising (Rosa Ng Sy); (c) March 21, 1989, Receipt No. 18081, covering sugar deposited by St. Therese Merchandising; (d)March 31, 1989, Receipt No. 18086, covering sugar deposited by St. Therese Merchandising; and (e) April 1, 1989, Receipt No. 18087, covering sugar deposited by RNS Merchandising. The receipts are substantially in the form, and contains the terms, prescribed for negotiable warehouse receipts by Section 2 of the law. Subsequently, Warehouse Receipts Nos. 18080 and 18081 were negotiated and endorsed to Luis T. Ramos; and Receipts Nos. 18086, 18087 and 18062 were negotiated and endorsed to Cresencia K. Zoleta. Ramos and Zoleta then used the quedans as security for two loan agreements - one for P15.6 million and the other for P23.5 million obtained by them from the Philippine National Bank. The aforementioned quedans were endorsed by them to the Philippine National Bank. Luis T. Ramos and Cresencia K. Zoleta failed to pay their loans upon maturity on January 9, 1990. Consequently, on March 16, 1990, the Philippine National Bank wrote to Noahs Ark Sugar Refinery demanding delivery of the sugar stocks covered by the quedans endorsed to it by Zoleta and Ramos. Noahs Ark Sugar Refinery refused to comply with the demand alleging ownership thereof, for which reason the Philippine National Bank filed with the Regional Trial Court of Manila a verified complaint for Specific Performance with Damages and Application for Writ of Attachment against Noahs Ark Sugar Refinery, Alberto T. Looyuko, Jimmy T. Go and Wilson T. Go, the last three being identified as the sole proprietor, managing partner, and Executive Vice President of Noahs Ark, respectively. Respondent Judge Benito C. Se, Jr., in whose sala the case was raffled, denied the Application for Preliminary Attachment. Reconsideration therefor was likewise denied. Noahs Ark and its co-defendants filed an Answer with Counterclaim and Third-Party Complaint in which they claimed that they are the owners of the subject quedans and the sugar represented therein, averring as they did that: 9.*** In an agreement dated April 1, 1989, defendants agreed to sell to Rosa Ng Sy of RNS Merchandising and Teresita Ng of St. Therese Merchandising the total volume of sugar indicated in the quedans stored at Noahs Ark Sugar Refinery for a total consideration of P63,000,000.00, *** The corresponding payments in the form of checks issued by the vendees in favor of defendants were subsequently dishonored by the drawee banks by reason of payment stopped and drawn against insufficient funds, *** Upon proper notification to said vendees and plaintiff in due course, defendants refused to deliver to vendees therein the quantity of sugar covered by the subject quedans. 10. *** Considering that the vendees and first endorsers of subject quedans did not acquire ownership thereof, the subsequent endorsers and plaintiff itself did not acquire a better right of ownership than the original vendees/first endorsers. 1 The Answer incorporated a Third-Party Complaint by Alberto T. Looyuko, Jimmy T. Go and Wilson T. Go, doing business under the trade name and style Noahs Ark Sugar Refinery against Rosa Ng Sy and Teresita Ng, praying that

the latter be ordered to deliver or return to them the quedans (previously endorsed to PNB and the subject of the suit) and pay damages and litigation expenses. The Answer of Rosa Ng Sy and Teresita Ng, dated September 6, 1990, one of avoidance, is essentially to the effect that the transaction between them, on the one hand, and Jimmy T. Go, on the other, concerning the quedans and the sugar stocks covered by them was merely a simulated one being part of the latters complex banking schemes and financial maneuvers, and thus, they are not answerable in damages to him. On January 31, 1991, the Philippine National Bank filed a Motion for Summary Judgment in favor of the plaintiff as against the defendants for the reliefs prayed for in the complaint. On May 2, 1991, the Regional Trial Court issued an order denying the Motion for Summary Judgment. Thereupon, the Philippine National Bank filed a Petition for Certiorari with the Court of Appeals, docketed as CA-G.R. SP. No. 25938 on December 13, 1991. Pertinent portions of the decision of the Court of Appeals read: In issuing the questioned Orders, the respondent Court ruled that questions of law should be resolved after and not before, the questions of fact are properly litigated. A scrutiny of defendants affirmative defenses does not show material questions of fact as to the alleged nonpayment of purchase price by the vendees/first endorsers, and which nonpayment is not disputed by PNB as it does not materially affect PNBs title to the sugar stocks as holder of the negotiable quedans. What is determinative of the propriety of summary judgment is not the existence of conflicting claims from prior parties but whether from an examination of the pleadings, depositions, admissions and documents on file, the defenses as to the main issue do not tender material questions of fact (see Garcia vs. Court of Appeals, 167 SCRA 815) or the issues thus tendered are in fact sham, fictitious, contrived, set up in bad faith or so unsubstantial as not to constitute genuine issues for trial. (See Vergara vs. Suelto, et al., 156 SCRA 753; Mercado, et al. vs. Court of Appeals, 162 SCRA 75). The questioned Orders themselves do not specify what material facts are in issue. (See Sec. 4, Rule 34, Rules of Court). To require a trial notwithstanding pertinent allegations of the pleadings and other facts appearing on the record, would constitute a waste of time and an injustice to the PNB whose rights to relief to which it is plainly entitled would be further delayed to its prejudice. In issuing the questioned Orders, We find the respondent Court to have acted in grave abuse of discretion which justify holding null and void and setting aside the Orders dated May 2 and July 4, 1990 of respondent Court, and that a summary judgment be rendered forthwith in favor of the PNB against Noahs Ark Sugar Refinery, et al., as prayed for in petitioners Motion for Summary Judgment.2 On December 13, 1991, the Court of Appeals nullified and set aside the orders of May 2 and July 4, 1990 of the Regional Trial Court and ordered the trial court to render summary judgment in favor of the PNB. On June 18, 1992, the trial court rendered judgment dismissing plaintiffs complaint against private respondents for lack of cause of action and likewise dismissed private respondents counterclaim against PNB and of the Third-Party Complaint and the Third-Party Defendants Counterclaim. On September 4, 1992, the trial court denied PNBs Motion for Reconsideration. On June 9, 1992, the PNB filed an appeal from the RTC decision with the Supreme Court, G.R. No. 107243, by way of a Petition for Review on Certiorari under Rule 45 of the Rules of Court. This Court rendered judgment on September 1, 1993, the dispositive portion of which reads: WHEREFORE, the trial judges decision in Civil Case No. 90-53023, dated June 18, 1992, is reversed and set aside and a new one rendered conformably with the final and executory decision of the Court of Appeals in CA-G.R SP. No. 25938, ordering the private respondents Noahs Ark Sugar Refinery, Alberto T. Looyuko, Jimmy T. Go and Wilson T. Go, jointly and severally: (a) to deliver to the petitioner Philippine National Bank, the sugar stocks covered by the Warehouse Receipts/ Quedans which are now in the latters possession as holder for value and in due course; or alternatively, to

pay (said) plaintiff actual damages in the amount of P39.1 million, with legal interest thereon from the filing of the complaint until full payment; and (b) to pay plaintiff Philippine National Bank attorneys fees, litigation expenses and judicial costs hereby fixed at the amount of One Hundred Fifty Thousand Pesos (P150,000.00) as well as the costs. SO ORDERED.3 On September 29, 1993, private respondents moved for reconsideration of this decision. A Supplemental/Second Motion for Reconsideration with leave of court was filed by private respondents on November 8, 1993. We denied private respondents motion on January 10, 1994. . Private respondents filed a Motion Seeking Clarification of the Decision, dated September 1, 1993. We denied this motion in this manner: It bears stressing that the relief granted in this Courts decision of September 1, 1993 is precisely that set out in the final and executory decision of the Court of Appeals in CA-G.R. SP No. 25938, dated December 13, 1991, which was affirmed in toto by this Court and which became unalterable upon becoming final and executory. 4 Private respondents thereupon filed before the trial court an Omnibus Motion seeking among others the deferment of the proceedings until private respondents are heard on their claim for warehousemans lien. On the other hand, on August 22, 1994, the Philippine National Bank filed a Motion for the Issuance of a Writ of Execution and an Opposition to the Omnibus Motion filed by private respondents. The trial court granted private respondents Omnibus Motion on December 20, 1994 and set reception of evidence on their claim for warehousemans lien. The resolution of the PNBs Motion for Execution was ordered deferred until the determination of private respondents claim. On February 21, 1995, private respondents claim for lien was heard and evidence was received in support thereof. The trial court thereafter gave both parties five (5) days to file respective memoranda. On February 28, 1995, the Philippine National Bank filed a Manifestation with Urgent Motion to Nullify Court Proceedings. In adjudication thereof, the trial court issued the following order on March 1, 1995: WHEREFORE, this court hereby finds that there exists in favor of the defendants a valid warehousemans lien under Section 27 of Republic Act 2137 and accordingly, execution of the judgment is hereby ordered stayed and/ or precluded until the full amount of defendants lien on the sugar stocks covered by the five (5) quedans subject of this action shall have been satisfied conformably with the provisions of Section 31 of Republic Act 2137. 5 Consequently, the Philippine National Bank filed the herein petition to seek the nullification of the aboveassailed orders of respondent judge. The PNB submits that: I PNBs RIGHT TO A WRIT OF EXECUTION IS SUPPORTED BY TWO FINAL AND EXECUTORY DECISIONS: THE DECEMBER 13, 1991 COURT OF APPEALS DECISION IN CA-G.R. SP. NO. 25938; AND, THE NOVEMBER 9, 1992 SUPREME COURT DECISION IN G.R NO. 107243. RESPONDENT RTCS MINISTERIAL AND MANDATORY DUTY IS TO ISSUE THE WRIT OF EXECUTION TO IMPLEMENT THE DECRETAL PORTION OF SAID SUPREME COURT DECISION II RESPONDENT RTC IS WITHOUT JURISDICTION TO HEAR PRIVATE RESPONDENTS OMNIBUS MOTION. THE CLAIMS SET FORTH IN SAID MOTION: (1) WERE ALREADY REJECTED BY THE SUPREME COURT IN ITS MARCH 9, 1994 RESOLUTION DENYING PRIVATE RESPONDENTS MOTION FOR CLARIFICATION OF DECISION IN .G.R. NO. 107243; AND (2) ARE BARRED FOREVER BY PRIVATE RESPONDENTS FAILURE TO INTERPOSE THEM IN THEIR ANSWER, AND FAILURE TO APPEAL FROM THE JUNE 18, 1992 RTC DECISION IN CIVIL CASE NO. 90-52023

III RESPONDENT RTCS ONLY JURISDICTION IS TO ISSUE THE WRIT TO EXECUTE THE SUPREME COURT DECISION. THUS, PNB IS ENTITLED TO: (1) A WRIT OF CERTIORARI TO ANNUL THE RTC RESOLUTION DATED DECEMBER 20, 1994 AND THE ORDER DATED FEBRUARY 7, 1995 AND ALL PROCEEDINGS TAKEN BY THE RTC THEREAFTER; (2) A WRIT OF PROHIBITION TO PREVENT RESPONDENT RTC FROM FURTHER PROCEEDING WITH CIVIL CASE NO. 90-53023 AND COMMITTING OTHER ACTS VIOLATIVE OF THE SUPREME COURT DECISION IN G.R. NO. 107243; AND (3) A WRIT OF MANDAMUS TO COMPEL RESPONDENT RTC TO ISSUE THE WRIT TO EXECUTE THE SUPREME COURT JUDGMENT IN FAVOR OF PNB The issues presented before us in this petition revolve around the legality of the questioned orders of respondent judge, issued as they were after we had denied with finality private respondents contention that the PNB could not compel them to deliver the stocks of sugar in their warehouse covered by the endorsed quedans or pay the value of the said stocks of sugar. Petitioners submission is on a technicality, that is, that private respondents have lost their right to recover warehousemans lien on the sugar stocks covered by the five (5) Warehouse Receipts for the reason that they failed to set up said claim in their Answer before the trial court and that private respondents did not appeal from the decision in this regard, dated June 18, 1992. Petitioner asseverates that the denial by this Court on March 9, 1994 of the motion seeking clarification of our decision, dated September 1, 1993, has foreclosed private respondents right to enforce their warehousemans lien for storage fees and preservation expenses under the Warehouse Receipts Act. On the other hand, private respondents maintain that they could not have claimed the right to a warehouseman s lien in their Answer to the complaint before the trial court as it would have been inconsistent with their stand that they claim ownership of the stocks covered by the quedans since the checks issued for payment thereof were dishonored. If they were still the owners, it would have been absurd for them to ask payment for storage fees and preservation expenses. They further contend that our resolution, dated March 9, 1994, denying their motion for clarification did not preclude their right to claim their warehousemans lien under Sections 27 and 31 of Republic Act 2137, as our resolution merely affirmed and adopted the earlier decision, dated December 13, 1991, of the Court of Appeals (6th Division) in CA-G.R. SP. No. 25938 and did not make any finding on the matter of the warehouseman s lien. We find for private respondents on the foregoing issue and so the petition necessarily must fail. We have carefully examined our resolution, dated March 9, 1994, which denied Noahs Arks motion for clarification of our decision, dated September 1, 1993, wherein we affirmed in full and adopted the Court of Appeals earlier decision, dated December 13, 1991, in CA-G.R. SP. No. 25938. We are not persuaded by the petitioners argument that our said resolution carried with it the denial of the warehousemans lien over the sugar stocks covered by the subject Warehouse Receipts. We have simply resolved and upheld in our decision, dated September 1, 1993, the propriety of summary judgment which was then assailed by private respondents. In effect, we ruled therein that, considering the circumstances obtaining before the trial court, the issuance of the Warehouse Receipts not being disputed by the private respondents, a summary judgment in favor of PNB was proper. We in effect further affirmed the finding that Noahs Ark is a warehouseman which was obliged to deliver the sugar stocks covered by the Warehouse Receipts pledged by Cresencia K. Zoleta and Luis T. Ramos to the petitioner pursuant to the pertinent provisions of Republic Act 2137. In disposing of the private respondents motion for clarification, we could not contemplate the matter of warehousemans lien because the issue to be finally resolved then was the claim of private respondents for retaining ownership of the stocks of sugar covered by the endorsed quedans. Stated otherwise, there was no point in taking up the issue of warehousemans lien since the matter of ownership was as yet being determined. Neither could storage fees be due then while no one has been declared the owner of the sugar stocks in question. Of considerable relevance is the pertinent stipulation in the subject Warehouse Receipts which provides for respondent Noahs Arks right to impose and collect warehousemans lien: Storage of the refined sugar quantities mentioned herein shall be free up to one (1) week from the date of the quedans covering said sugar and thereafter, storage fees shall be charged in accordance with the Refining Contract under which the refined sugar covered by this Quedan was produced. 6

It is not disputed, therefore, that, under the subject Warehouse Receipts provision, storage fees are chargeable. Petitioner anchors its claim against private respondents on the five (5) Warehouse Receipts issued by the latter to third-party defendants Rosa Ng Sy of RNS Merchandising and Teresita Ng of St. Therese Merchandising, which found their way to petitioner after they were negotiated to them by Luis T. Ramos and Cresencia K. Zoleta for a loan of P39.1 Million. Accordingly, petitioner PNB is legally bound to stand by the express terms and conditions on the face of the Warehouse Receipts as to the payment of storage fees. Even in the absence of such a provision, law and equity dictate the payment of the warehouseman s lien pursuant to Sections 27 and 31 of the Warehouse Receipts Law (R.A. 2137), to wit: SECTION 27. What claims are included in the warehousemans lien. - Subject to the provisions of section thirty, a warehouseman shall have lien on goods deposited or on the proceeds thereof in his hands, for all lawful charges for storage and preservation of the goods; also for all lawful claims for money advanced, interest, insurance, transportation, labor, weighing coopering and other charges and expenses in relation to such goods; also for all reasonable charges and expenses for notice, and advertisement of sale, and for sale of the goods where default has been made in satisfying the warehousemans lien. xxx xxx xxx SECTION 31. Warehouseman need not deliver until lien is satisfied. - A warehouseman having a lien valid against the person demanding the goods may refuse to deliver the goods to him until the lien is satisfied. After being declared not the owner, but the warehouseman, by the Court of Appeals on December 13, 1991 in CA-G.R. SP. No. 25938, the decision having been affirmed by us on December 1, 1993, private respondents cannot legally be deprived of their right to enforce their claim for warehousemans lien, for reasonable storage fees and preservation expenses. Pursuant to Section 31 which we quote hereunder, the goods under storage may not be delivered until said lien is satisfied. SECTION 31. Warehouseman need not deliver until lien is satisfied. - A warehouseman having a lien valid against the person demanding the goods may refuse to deliver the goods to him until the lien is satisfied. Considering that petitioner does not deny the existence, validity and genuineness of the Warehouse Receipts on which it anchors its claim for payment against private respondents, it cannot disclaim liability for the payment of the storage fees stipulated therein. As contracts, the receipts must be respected by authority of Article 1159 of the Civil Code, to wit: ART. 1159. Obligations arising from contracts have the force of law between the contracting parties and should be complied with in good faith. Petitioner is in estoppel in disclaiming liability for the payment of storage fees due the private respondents as warehouseman while claiming to be entitled to the sugar stocks covered by the subject Warehouse Receipts on the basis of which it anchors its claim for payment or delivery of the sugar stocks. The unconditional presentment of the receipts by the petitioner for payment against private respondents on the strength of the provisions of the Warehouse Receipts Law (R.A. 2137) carried with it the admission of the existence and validity of the terms, conditions and stipulations written on the face of the Warehouse Receipts, including the unqualified recognition of the payment of warehousemans lien for storage fees and preservation expenses. Petitioner may not now retrieve the sugar stocks without paying the lien due private respondents as warehouseman. In view of the foregoing, the rule may be simplified thus: While the PNB is entitled to the stocks of sugar as the endorsee of the quedans, delivery to it shall be effected only upon payment of the storage fees. Imperative is the right of the warehouseman to demand payment of his lien at this juncture, because, in accordance with Section 29 of the Warehouse Receipts Law, the warehouseman loses his lien upon goods by surrendering possession thereof. In other words, the lien may be lost where the warehouseman surrenders the possession of the goods without requiring payment of his lien, because a warehousemans lien is possessory in nature.

We, therefore, uphold and sustain the validity of the assailed orders of public respondent, dated December 20, 1994 and March 1, 1995. In fine, we fail to see any taint of abuse of discretion on the part of the public respondent in issuing the questioned orders which recognized the legitimate right of Noahs Ark, after being declared as warehouseman, to recover storage fees before it would release to the PNB sugar stocks covered by the five (5) Warehouse Receipts. Our resolution, dated March 9, 1994, did not preclude private respondents unqualified right to establish its claim to recover storage fees which is recognized under Republic Act No. 2137. Neither did the Court of Appeals decision, dated December 13, 1991, restrict such right. Our Resolutions reference to the decision by the Court of Appeals, dated December 13, 1991, in CA-G.R. SP. No. 25938, was intended to guide the parties in the subsequent disposition of the case to its final end. We certainly did not foreclose private respondents inherent right as warehouseman to collect storage fees and preservation expenses as stipulated n the face of each of the Warehouse Receipts and as provided for in the Warehouse Receipts Law (R.A. 2137). WHEREFORE, the petition should be, as it is, hereby dismissed for lack of merit. The questioned orders issued by public respondent judge are affirmed. Costs against the petitioner. SO ORDERED.

Warehouseman’s Lien G.R. No. 129918. July 9, 1998 PHILIPPINE NATIONAL BANK, petitioner, vs. HON. MARCELINO L. SAYO, JR., in his capacity as Presiding Judge of the Regional Trial Court of Manila (Branch 45), NOAHS ARK SUGAR REFINERY, ALBERTO T. LOOYUKO, JIMMY T. GO and WILSON T. GO, respondents. DECISION DAVIDE, JR., J.: In this special civil action for certiorari, actually the third dispute between the same private parties to have reached this Court,[1] petitioner asks us to annul the orders[2] of 15 April 1997 and 14 July 1997 issued in Civil Case No. 90-53023 by the Regional Trial Court, Manila, Branch 45. The first order[3] granted private respondents motion for execution to satisfy their warehousemans lien against petitioner, while the second order [4]denied, with finality, petitioners motion for reconsideration of the first order and urgent motion to lift garnishment, and private respondents motion for partial reconsideration. The factual antecedents until the commencement of G.R. No. 119231 were summarized in our decision therein, as follows: In accordance with Act No. 2137, the Warehouse Receipts Law, Noahs Ark Sugar Refinery issued on several dates, the following Warehouse Receipts (Quedans): (a) March 1, 1989, Receipt No. 18062, covering sugar deposited by Rosa Sy; (b) March 7, 1989, Receipt No. 18080, covering sugar deposited by RNS Merchandising (Rosa Ng Sy); (c) March 21, 1989, Receipt No. 18081, covering sugar deposited by St. Therese Merchandising; (d) March 31, 1989, Receipt No. 18086, covering sugar deposited by St. Therese Merchandising; and (e) April 1, 1989, Receipt No. 18087, covering sugar deposited by RNS Merchandising. The receipts are substantially in the form, and contains the terms, prescribed for negotiable warehouse receipts by Section 2 of the law. Subsequently, Warehouse Receipts Nos. 18080 and 18081 were negotiated and endorsed to Luis T. Ramos, and Receipts Nos. 18086, 18087 and 18062 were negotiated and endorsed to Cresencia K. Zoleta. Ramos and Zoleta then used the quedans as security for two loan agreements one for P15.6 million and the other for P23.5 million obtained by them from the Philippine National Bank. The aforementioned quedans were endorsed by them to the Philippine National Bank.

Luis T. Ramos and Cresencia K. Zoleta failed to pay their loans upon maturity on January 9, 1990. Consequently, on March 16, 1990, the Philippine National Bank wrote to Noahs Ark Sugar Refinery demanding delivery of the sugar stocks covered by the quedans endorsed to it by Zoleta and Ramos. Noahs Ark Sugar Refinery refused to comply with the demand alleging ownership thereof, for which reason the Philippine National Bank filed with the Regional Trial Court of Manila a verified complaint for Specific Performance with Damages and Application for Writ of Attachment against Noahs Ark Sugar Refinery, Alberto T. Looyuko, Jimmy T. Go and Wilson T. Go, the last three being identified as the sole proprietor, managing partner, and Executive Vice President of Noahs Ark, respectively. Respondent Judge Benito C. Se, Jr., [to] whose sala the case was raffled, denied the Application for Preliminary Attachment. Reconsideration therefor was likewise denied. Noahs Ark and its co-defendants filed an Answer with Counterclaim and Third-Party Complaint in which they claimed that they [were] the owners of the subject quedans and the sugar represented therein, averring as they did that: 9. *** In an agreement dated April 1, 1989, defendants agreed to sell to Rosa Ng Sy of RNS Merchandising and Teresita Ng of St. Therese Merchandising the total volume of sugar indicated in the quedans stored at Noahs Ark Sugar Refinery for a total consideration of P63,000,000.00, *** The corresponding payments in the form of checks issued by the vendees in favor of defendants were subsequently dishonored by the drawee banks by reason of payment stopped and drawn against insufficient funds, *** Upon proper notification to said vendees and plaintiff in due course, defendants refused to deliver to vendees therein the quantity of sugar covered by the subject quedans. 10. *** Considering that the vendees and first endorsers of subject quedans did not acquire ownership thereof, the subsequent endorsers and plaintiff itself did not acquire a better right of ownership than the original vendees/first endorsers. The Answer incorporated a Third-Party Complaint by Alberto T. Looyuko, Jimmy T. Go and Wilson T. Go, doing business under the trade name and style Noahs Ark Sugar Refinery against Rosa Ng Sy and Teresita Ng, praying that the latter be ordered to deliver or return to them the quedans (previously endorsed to PNB and the subject of the suit) and pay damages and litigation expenses. The Answer of Rosa Ng Sy and Teresita Ng, dated September 6, 1990, one of avoidance, is essentially to the effect that the transaction between them, on the one hand, and Jimmy T. Go, on the other, concerning the quedans and the sugar stocks covered by them was merely a simulated one being part of the latters complex banking schemes and financial maneuvers, and thus, they are not answerable in damages to him. On January 31, 1991, the Philippine National Bank filed a Motion for Summary Judgment in favor of the plaintiff as against the defendants for the reliefs prayed for in the complaint. On May 2, 1991, the Regional Trial Court issued an order denying the Motion for Summary Judgment. Thereupon, the Philippine National Bank filed a Petition for Certiorari with the Court of Appeals, docketed as CA-G.R. SP No. 25938 on December 13, 1991. Pertinent portions of the decision of the Court of Appeals read: In issuing the questioned Orders, the respondent Court ruled that questions of law should be resolved after and not before, the questions of fact are properly litigated. A scrutiny of defendants affirmative defenses does not show material questions of fact as to the alleged nonpayment of purchase price by the vendees/first endorsers, and which nonpayment is not disputed by PNB as it does not materially affect PNBs title to the sugar stocks as holder of the negotiable quedans. What is determinative of the propriety of summary judgment is not the existence of conflicting claims from prior parties but whether from an examination of the pleadings, depositions, admissions and documents on file, the defenses as to the main issue do not tender material questions of fact (see Garcia vs. Court of Appeals, 167 SCRA 815)

or the issues thus tendered are in fact sham, fictitious, contrived, set up in bad faith or so unsubstantial as not to constitute genuine issues for trial. (See Vergara vs. Suelto, et al., 156 SCRA 753; Mercado, et al. vs. Court of Appeals, 162 SCRA 75). [sic] The questioned Orders themselves do not specify what material facts are in issue. (See Sec. 4, Rule 34, Rules of Court). To require a trial notwithstanding pertinent allegations of the pleadings and other facts appearing on the record, would constitute a waste of time and an injustice to the PNB whose rights to relief to which it is plainly entitled would be further delayed to its prejudice. In issuing the questioned Orders, We find the respondent Court to have acted in grave abuse of discretion which justify holding null and void and setting aside the Orders dated May 2 and July 4, 1990 of respondent Court, and that a summary judgment be rendered forthwith in favor of the PNB against Noahs Ark Sugar Refinery, et al., as prayed for in petitioners Motion for Summary Judgment. On December 13, 1991, the Court of Appeals nullified and set aside the orders of May 2 and July 4, 1990 of the Regional Trial Court and ordered the trial court to render summary judgment in favor of the PNB. On June 18, 1992, the trial court rendered judgment dismissing plaintiffs complaint against private respondents for lack of cause of action and likewise dismissed private respondents counterclaim against PNB and of the Third-Party Complaint and the Third-Party Defendants Counterclaim. On September 4, 1992, the trial court denied PNBs Motion for Reconsideration. On June 9, 1992, the PNB filed an appeal from the RTC decision with the Supreme Court, G.R. No. 107243, by way of a Petition for Review on Certiorari under Rule 45 of the Rules of Court. This Court rendered judgment on September 1, 1993, the dispositive portion of which reads: WHEREFORE, the trial judges decision in Civil Case No. 90-53023, dated June 18, 1992, is reversed and set aside and a new one rendered conformably with the final and executory decision of the Court of Appeals in CA-G.R. SP No. 25938, ordering the private respondents Noahs Ark Sugar Refinery, Alberto T. Looyuko, Jimmy T. Go and Wilson T. Go, jointly and severally: (a) to deliver to the petitioner Philippine National Bank, the sugar stocks covered by the Warehouse Receipts/Quedans which are now in the latters possession as holder for value and in due course; or alternatively, to pay (said) plaintiff actual damages in the amount of P39.1 million, with legal interest thereon from the filing of the complaint until full payment; and (b) to pay plaintiff Philippine National Bank attorneys fees, litigation expenses and judicial costs hereby fixed at the amount of One Hundred Fifty Thousand Pesos (P150,000.00) as well as the costs. SO ORDERED. On September 29, 1993, private respondents moved for reconsideration of this decision. A Supplemental/Second Motion for Reconsideration with leave of court was filed by private respondents on November 8, 1993. We denied private respondents motion on January 10, 1994. Private respondents filed a Motion Seeking Clarification of the Decision, dated September 1, 1993. We denied this motion in this manner: It bears stressing that the relief granted in this Courts decision of September 1, 1993 is precisely that set out in the final and executory decision of the Court of Appeals in CA-G.R. SP No. 25938, dated December 13, 1991, which was affirmed in toto by this Court and which became unalterable upon becoming final and executory. Private respondents thereupon filed before the trial court an Omnibus Motion seeking among others the deferment of the proceedings until private respondents [were] heard on their claim for warehousemans lien. On the other hand,

on August 22, 1994, the Philippine National Bank filed a Motion for the Issuance of a Writ of Execution and an Opposition to the Omnibus Motion filed by private respondents. The trial court granted private respondents Omnibus Motion on December 20, 1994 and set reception of evidence on their claim for warehousemans lien. The resolution of the PNBs Motion for Execution was ordered deferred until the determination of private respondents claim. On February 21, 1995, private respondents claim for lien was heard and evidence was received in support thereof. The trial court thereafter gave both parties five (5) days to file respective memoranda. On February 28, 1995, the Philippine National Bank filed a Manifestation with Urgent Motion to Nullify Court Proceedings. In adjudication thereof, the trial court issued the following order on March 1, 1995: WHEREFORE, this court hereby finds that there exists in favor of the defendants a valid warehousemans lien under Section 27 of Republic Act 2137 and accordingly, execution of the judgment is hereby ordered stayed and/or precluded until the full amount of defendants lien on the sugar stocks covered by the five (5) quedans subject of this action shall have been satisfied conformably with the provisions of Section 31 of Republic Act 2137.[5] Unsatisfied with the trial courts order of 1 March 1995, herein petitioner filed with us G.R. No. 119231, contending: I PNBS RIGHT TO A WRIT OF EXECUTION IS SUPPORTED BY TWO FINAL AND EXECUTORY DECISIONS: THE DECEMBER 13, 1991 COURT OF APPEALS [sic] DECISION IN CA-G.R. SP NO. 25938; AND, THE NOVEMBER 9, 1992 SUPREME COURT DECISION IN G.R. NO. 107243.RESPONDENT RTCS MINISTERIAL AND MANDATORY DUTY IS TO ISSUE THE WRIT OF EXECUTION TO IMPLEMENT THE DECRETAL PORTION OF SAID SUPREME COURT DECISION. II RESPONDENT RTC IS WITHOUT JURISDICTION TO HEAR PRIVATE RESPONDENTS OMNIBUS MOTION. THE CLAIMS SET FORTH IN SAID MOTION: (1) WERE ALREADY REJECTED BY THE SUPREME COURT IN ITS MARCH 9, 1994 RESOLUTION DENYING PRIVATE RESPONDENTS MOTION FOR CLARIFICATION OF DECISION IN G.R. NO. 107243; AND (2) ARE BARRED FOREVER BY PRIVATE RESPONDENTS FAILURE TO INTERPOSE THEM IN THEIR ANSWER, AND FAILURE TO APPEAL FROM THE JUNE 18, 1992 DECISION IN CIVIL CASE NO. 90-52023. III RESPONDENT RTCS ONLY JURISDICTION IS TO ISSUE THE WRIT TO EXECUTE THE SUPREME COURT DECISION. THUS, PNB IS ENTITLED TO: (1) A WRIT OF CERTIORARI TO ANNUL THE RTC RESOLUTION DATED DECEMBER 20, 1994 AND THE ORDER DATED FEBRUARY 7, 1995 AND ALL PROCEEDINGS TAKEN BY THE RTC THEREAFTER; (2) A WRIT OF PROHIBITION TO PREVENT RESPONDENT RTC FROM FURTHER PROCEEDING WITH CIVIL CASE NO. 90-53023 AND COMMITTING OTHER ACTS VIOLATIVE OF THE SUPREME COURT DECISION IN G.R. NO. 107243; AND (3) A WRIT OF MANDAMUS TO COMPEL RESPONDENT RTC TO ISSUE THE WRIT TO EXECUTE THE SUPREME COURT JUDGMENT IN FAVOR OF PNB. In our decision of 18 April 1996 in G.R. No. 119231, we held against herein petitioner as to these issues and concluded: In view of the foregoing, the rule may be simplified thus: While the PNB is entitled to the stocks of sugar as the endorsee of the quedans, delivery to it shall be effected only upon payment of the storage fees. Imperative is the right of the warehouseman to demand payment of his lien at this juncture, because, in accordance with Section 29 of the Warehouse Receipts Law, the warehouseman loses his lien upon goods by surrendering

possession thereof. In other words, the lien may be lost where the warehouseman surrenders the possession of the goods without requiring payment of his lien, because a warehousemans lien is possessory in nature. We, therefore, uphold and sustain the validity of the assailed orders of public respondent, dated December 20, 1994 and March 1, 1995. In fine, we fail to see any taint of abuse of discretion on the part of the public respondent in issuing the questioned orders which recognized the legitimate right of Noahs Ark, after being declared as warehouseman, to recover storage fees before it would release to the PNB sugar stocks covered by the five (5) Warehouse Receipts. Our resolution, dated March 9, 1994, did not preclude private respondents unqualified right to establish its claim to recover storage fees which is recognized under Republic Act No. 2137. Neither did the Court of Appeals decision, dated December 13, 1991, restrict such right. Our Resolutions reference to the decision by the Court of Appeals, dated December 13, 1991, in CA-G.R. SP No. 25938, was intended to guide the parties in the subsequent disposition of the case to its final end. We certainly did not foreclose private respondents inherent right as warehouseman to collect storage fees and preservation expenses as stipulated on the face of each of the Warehouse Receipts and as provided for in the Warehouse Receipts Law (R.A. 2137).[6] Petitioners motion to reconsider the decision in G.R. No. 119231 was denied. After the decision in G.R. No. 119231 became final and executory, various incidents took place before the trial court in Civil Case No. 90-53023.The petition in this case summarizes these as follows: 3.24 Pursuant to the abovementioned Supreme Court Decision, private respondents filed a Motion for Execution of Defendants Lien as Warehouseman dated 27 November 1996. A photocopy of said Motion for Execution is attached hereto as Annex I. 3.25 PNB opposed said Motion on the following grounds: (a) The lien claimed by Noahs Ark in the unbelievable amount of P734,341,595.06 is illusory; and (b) There is no legal basis for execution of defendants lien as warehouseman unless and until PNB compels the delivery of the sugar stocks. 3.26 In their Reply to Opposition dated 18 January 1997, private respondents pointed out that a lien existed in their favor, as held by the Supreme Court. In its Rejoinder dated 7 February 1997, PNB countered private respondents argument, pointing out that the dispositive portion of the court a quos Order dated 1 March 1995 failed to state the amount for which execution may be granted and, thus, the same could not be the subject of execution; and (b) private respondents should instead file a separate action to prove the amount of its claim as warehouseman. 3.27 The court a quo, this time presided by herein public respondent, Hon. Marcelino L. Sayo Jr., granted private respondents Motion for Execution.In its questioned Order dated 15 April 1997 (Annex A), the court a quo ruled in this wise: Accordingly, the computation of accrued storage fees and preservation charges presented in evidence by the defendants, in the amount of P734,341,595.06 as of January 31, 1995 for the 86,356.41 50 kg. bags of sugar, being in order and with sufficient basis, the same should be granted. This Court consequently rejects PNBs claim of no sugar no lien, since it is undisputed that the amount of the accrued storage fees is substantially in excess of the alternative award of P39.1 Million in favor of PNB, including legal interest and P150,000.00 in attorneys fees, which PNB is however entitled to be credited x x x. xxxxxxxxx

WHEREFORE, premises considered and finding merit in the defendants motion for execution of their claim for lien as warehouseman, the same is hereby GRANTED. Accordingly, let a writ of execution issue for the amount of P662,548,611.50, in accordance with the above disposition. SO ORDERED. (Emphasis supplied.) 3.28 On 23 April 1997, PNB was immediately served with a Writ of Execution for the amount of P662,548,611.50 in spite of the fact that it had not yet been served with the Order of the court a quo dated 15 April 1997. PNB thus filed an Urgent Motion dated 23 April 1997 seeking the deferment of the enforcement of the Writ of Execution. A photocopy of the Writ of Execution is attached hereto as Annex J. 3.29 Nevertheless, the Sheriff levied on execution several properties of PNB. Firstly, a Notice of Levy dated 24 April 1997 on a parcel of land with an area of Ninety-Nine Thousand Nine Hundred Ninety-Nine (99,999) square meters, covered by Transfer Certificate of Title No. 23205 in the name of PNB, was served upon the Register of Deeds of Pasay City. Secondly, a Notice of Garnishment dated 23 April 1997 on fund deposits of PNB was served upon the Bangko Sentral ng Pilipinas. Photocopies of the Notice of Levy and the Notice of Garnishment are attached hereto as Annexes K and L, respectively. 3.30 On 28 April 1997, petitioner filed a Motion for Reconsideration with Urgent Prayer for Quashal of Writ of Execution dated 15 April 1997. Petitioners Motion was based on the following grounds: (1) Noahs Ark is not entitled to a warehousemans lien in the humongous amount of P734,341,595.06 because the same has been waived for not having been raised earlier as either counterclaim or defense against PNB; (2) Assuming said lien has not been waived, the same, not being registered, is already barred by prescription and/or laches; (3) Assuming further that said lien has not been waived nor barred, still there was no complaint ever filed in court to effectively commence this entirely new cause of action; (4) There is no evidence on record which would support and sustain the claim of P734,341,595.06 which is excessive, oppressive and unconscionable; (5) Said claim if executed would constitute unjust enrichment to the serious prejudice of PNB and indirectly the Philippine Government, who innocently acquired the sugar quedans through assignment of credit; (6) In all respects, the decisions of both the Supreme Court and of the former Presiding Judge of the trial court do not contain a specific determination and/or computation of warehousemans lien, thus requiring first and foremost a fair hearing of PNBs evidence, to include the true and standard industry rates on sugar storage fees, which if computed at such standard rate of thirty centavos per kilogram per month, shall result in the sum of about Three Hundred Thousand Pesos only. 3.31 In its Motion for Reconsideration, petitioner prayed for the following reliefs: 1. PNB be allowed in the meantime to exercise its basic right to present evidence in order to prove the above allegations especially the true and reasonable storage fees which may be deducted from PNBs judgment award of P39.1 Million, which storage fees if computed correctly in accordance with standard sugar industry rates, would amount to only P300 Thousand Pesos, without however waiving or abandoning its (PNBs) legal positions/contentions herein abovementioned. 2. The Order dated April 15, 1997 granting the Motion for Execution by defendant Noahs Ark be set aside. 3. The execution proceedings already commenced by said sheriffs be nullified at whatever stage of accomplishment.

A photocopy of petitioners Motion for Reconsideration with Urgent Prayer for Quashal of Writ of Execution is attached hereto and made integral part hereof as Annex M. 3.32 Private respondents filed an Opposition with Motion for Partial Reconsideration dated 8 May 1997. Still discontented with the excessive and staggering amount awarded to them by the court a quo, private respondents Motion for Partial Reconsideration sought additional and continuing storage fees over and above what the court a quo had already unjustly awarded. A photocopy of private respondents Opposition with Motion for Partial Reconsideration dated 8 May 1997 is attached hereto as Annex N. 3.32.1 Private respondents prayed for the further amount of P227,375,472.00 in storage fees from 1 February 1995 until 15 April 1997, the date of the questioned Order granting their Motion for Execution. 3.32.2 In the same manner, private respondents prayed for a continuing amount of P345,424.00 as daily storage fees after 15 April 1997 until the total amount of the storage fees is satisfied. 3.33 On 19 May 1997, PNB filed its Reply with Opposition (To Defendants Opposition with Partial Motion for Reconsideration), containing therein the following motions: (i) Supplemental Motion for Reconsideration; (ii) Motion to Strike out the Testimony of Noahs Arks Accountant Last February 21, 1995; and (iii) Motion for the Issuance of a Writ of Execution in favor of PNB. In support of its pleading, petitioner raised the following: (1) Private respondents failed to pay the appropriate docket fees either for its principal claim or for its additional claim, as said claims for warehousemans lien were not at all mentioned in their answer to petitioners Complaint; (2) The amount awarded by the court a quo was grossly and manifestly unreasonable, excessive, and oppressive; (3) It is the dispositive portion of the decision which shall be controlling in any execution proceeding. If no specific award is stated in the dispositive portion, a writ of execution supplying an amount not included in the dispositive portion of the decision being executed is null and void; (4) Private respondents failed to prove the existence of the sugar stocks in Noahs Arks warehouses. Thus, private respondents claims are mere paper liens which cannot be the subject of execution; (5) The attendant circumstances, particularly Judge Ses Order of 1 March 1995 onwards, were tainted with fraud and absence of due process, as PNB was not given a fair opportunity to present its evidence on the matter of the warehousemans lien. Thus, all orders prescinding thereform, including the questioned Order dated 15 April 1997, must perforce be set aside and the execution proceedings against PNB be permanently stayed. 3.34 On 6 May 1997, petitioner also filed an Urgent Motion to Lift Garnishment of PNB Funds with Bangko Sentral ng Pilipinas. 3.35 On 14 July 1997, respondent Judge issued the second Order (Annex B), the questioned part of the dispositive portion of which states: WHEREFORE, premises considered, the plaintiff Philippine National Banks subject Motion for Reconsideration With Urgent Prayer for Quashal of Writ of Execution dated April 28, 1997 and undated Urgent Motion to Lift Garnishment of PNB Funds With Bangko Sentral ng Pilipinas filed on May 6, 1997, together with all its related Motions are all DENIED with finality for lack of merit. xxxxxxxxx

The Order of this Court dated April 15, 1997, the final Writ of Execution likewise dated April 15, 1997 and the corresponding Garnishment all stand firm. SO ORDERED.[7] Aggrieved thereby, petitioners filed this petition, alleging as grounds therefor, the following: A. THE COURT A QUO ACTED WITHOUT OR IN EXCESS OF ITS JURISDICTION OR WITH GRAVE ABUSE OF DISCRETION WHEN IT ISSUED A WRIT OF EXECUTION IN FAVOR OF DEFENDANTS FOR THE AMOUNT OF P734,341,595.06. 4.1 The court a quo had no authority to issue a writ of execution in favor of private respondents as there was no final and executory judgment ripe for execution. 4.2 Public respondent judge patently exceeded the scope of his authority in making a determination of the amount of storage fees due private respondents in a mere interlocutory order resolving private respondents Motion for Execution. 4.3 The manner in which the court a quo awarded storage fees in favor of private respondents and ordered the execution of said award was arbitrary and capricious, depriving petitioner of its inherent substantive and procedural rights. B. EVEN ASSUMING ARGUENDO THAT THE COURT A QUO HAD AUTHORITY TO GRANT PRIVATE RESPONDENTS MOTION FOR EXECUTION, THE COURT A QUO ACTED WITH GRAVE ABUSE OF DISCRETION IN AWARDING THE HIGHLY UNREASONABLE, UNCONSCIONABLE, AND EXCESSIVE AMOUNT OF P734,341,595.06 IN FAVOR OF PRIVATE RESPONDENTS. 4.4 There is no basis for the court a quos award of P734,341,595.06 representing private respondents alleged warehousemans lien. 4.5 PNB has sufficient evidence to show that the astronomical amount claimed by private respondents is very much in excess of the industry rate for storage fees and preservation expenses. C. PUBLIC RESPONDENT JUDGES GRAVE ABUSE OF DISCRETION BECOMES MORE PATENT AFTER A CLOSE PERUSAL OF THE QUESTIONED ORDER DATED 14 JULY 1997. 4.6 The court a quo resolved a significant and consequential matter entirely relying on documents submitted by private respondents totally disregarding clearly contrary evidence submitted by PNB. 4.7 The court a quo misquoted and misinterpreted the Supreme Court Decision dated 18 April 1997. D. THE COURT A QUO ACTED WITH GRAVE ABUSE OF DISCRETION IN NOT HOLDING THAT PRIVATE RESPONDENTS HAVE LONG WAIVED THEIR RIGHT TO CLAIM ANY WAREHOUSEMANS LIEN. 4.8 Private respondents raised the matter of their entitlement to a warehousemans lien for storage fees and preservation expenses for the first time only during the execution proceedings of the Decision in favor of PNB. 4.9 Private respondents claim for warehousemans lien is in the nature of a compulsory counterclaim which should have been included in private respondents answer to the Complaint. Private respondents failed to include said claim in their answer either as a counterclaim or as an alternative defense to PNBs Complaint. 4.10 Private respondents claim is likewise lost by virtue of a specific provision of the Warehouse Receipts Law and barred by prescription and laches.

E. PUBLIC RESPONDENT JUDGE ACTED WITH GRAVE ABUSE OF DISCRETION IN REFUSING TO LIFT THE ORDER OF GARNISHMENT OF THE FUNDS OF PNB WITH THE BANGKO SENTRAL NG PILIPINAS. 4.11 Public respondent judge failed to consider PNBs arguments in support of its Urgent Motion to Lift Garnishment.[8] In arguing its cause, petitioner explained that this Courts decision in G.R. No. 119231 merely affirmed the trial courts resolutions of 20 December 1994 and 1 March 1995. The earlier resolution set private respondents reception of evidence for hearing to prove their warehousemans lien and, pending determination thereof, deferred petitioners motion for execution of the summary judgment rendered in petitioners favor in G.R. No. 107243. The subsequent resolution recognized the existence of a valid warehousemans lien without, however, specifying the amount, and required its full satisfaction by petitioner prior to the execution of the judgment in G.R. No. 107243. Under said circumstances, petitioner reiterated that neither this Courts decision nor the trial courts resolutions specified any amount for the warehousemans lien, either in the bodies or dispositive portions thereof. Petitioner therefore questioned the propriety of the computation of the warehousemans lien in the assailed order of 15 April 1997. Petitioner further characterized as highly irregular the trial courts final determination of such lien in a mere interlocutory order without explanation, as such should or could have been done only by way of a judgment on the merits. Petitioner likewise reasoned that a writ of execution was proper only to implement a final and executory decision, which was not present in the instant case. Petitioner then cited the cases of Edward v. Arce, where we ruled that the only portion of the decision which could be the subject of execution was that decreed in the dispositive part,[9] and Ex-Bataan Veterans Security Agency, Inc. v. National Labor Relations Commission,[10] where we held that a writ of execution should conform to the dispositive portion to be executed, otherwise, execution becomes void if in excess of and beyond the original judgment. Petitioner likewise emphasized that the hearing of 21 February 1995 was marred by procedural infirmities, narrating that the trial court proceeded with the hearing notwithstanding the urgent motion for postponement of petitioners counsel of record, who attended a previously scheduled hearing in Pampanga. However, petitioners lawyer-representative was sent to confirm the allegations in said motion. To petitioners dismay, instead of granting a postponement, the trial court allowed the continuance of the hearing on the basis that there was nothing sensitive about [the presentation of private respondents evidence].[11] At the same hearing, the trial court admitted all the documentary evidence offered by private respondents and ordered the filing of the parties respective memoranda. Hence, petitioner was virtually deprived of its right to cross-examine the witness, comment on or object to the offer of evidence and present countervailing evidence. In fact, to date, petitioners urgent motion to nullify the court proceedings remains unresolved. To stress its point, petitioner underscores the conflicting views of Judge Benito C. Se, Jr., who heard and tried almost the entire proceedings, and his successor, Judge Marcelino L. Sayo, Jr., who issued the assailed orders. In the resolution[12] of 1 March 1995, Judge Se found private respondents claim for warehouse lien in the amount of P734,341,595.06 unacceptable, thus: In connection with [private respondents] claim for payment of warehousing fees and expenses, this Court cannot accept [private respondents] pretense that they are entitled to storage fees and preservation expenses in the amount of P734,341,595.06 as shown in their Exhibits 1 to 11. There would, however, appear to be legal basis for their claim for fees and expenses covered during the period from the time of the issuance of the five (5) quedans until demand for their delivery was made by [petitioner] prior to the institution of the present action. [Petitioner] should not be made to shoulder the warehousing fees and expenses after the demand was made. xxx[13] Since it was deprived of a fair opportunity to present its evidence on the warehousemans lien due Noahs Ark, petitioner submitted the following documents: (1) an affidavit of petitioners credit investigator[14] and his report[15] indicating that Noahs Ark only had 1,490 50kg. bags, and not 86,356.41 50kg. bags, of sugar in its warehouse; (2) Noahs Arks reports[16] for 1990-94 showing that it did not have sufficient sugar stock to cover the quantity specified in the subject quedans; (3) Circular Letter No. 18 (s. 1987-88)[17] of the Sugar Regulatory Administration requiring sugar mill companies to submit reports at weeks end to prevent the issuance of warehouse

receipts not covered by actual inventory; and (4) an affidavit of petitioners assistant vice president[18] alleging that Noahs Arks daily storage fee of P4/bag exceeded the prevailing industry rate. Petitioner, moreover, laid stress on the fact that in the questioned order of 14 July 1997, the trial court relied solely on the Annual Synopsis of Production & Performance Date/Annual Compendium of Performance by Philippine Sugar Refineries from 1989 to 1994, in disregard of Noahs Arks certified reports that it did not have sufficient sugar stock to cover the quantity specified in the subject quedans. Between the two, petitioner urged, the latter should have been accorded greater evidentiary weight. Petitioner then argued that the trial courts second assailed order of 14 July 1997 misinterpreted our decision in G.R. No. 119231 by ruling that the Refining Contract under which the subject sugar stock was produced bound the parties. According to petitioner, the Refining Contract never existed, it having been denied by Rosa Ng Sy; thus, the trial court could not have properly based its computation of the warehousemans lien on the Refining Contract. Petitioner maintained that a separate trial was necessary to settle the issue of the warehousemans lien due Noahs Ark, if at all proper. Petitioner further asserted that Noahs Ark could no longer recover its lien, having raised the issue for the first time only during the execution proceedings of this Courts decision in G.R. No. 107243. As said claim was a separate cause of action which should have been raised in private respondents answer with counterclaim to petitioners complaint, private respondents failure to raise said claim should have been deemed a waiver thereof. Petitioner likewise insisted that under Section 29[19] of the Warehouse Receipts Law, private respondents were barred from claiming the warehousemans lien due to their refusal to deliver the goods upon petitioners demand. Petitioner further raised that private respondents failed to timely assert their claim within the five-year prescriptive period, citing Article 1149[20] of the New Civil Code. Finally, petitioner questioned the trial courts refusal to lift the garnishment order considering that the levy on its real property, with an estimated market value of P6,000,000,000, was sufficient to satisfy the judgment award; and contended that the garnishment was contrary to Section 103[21]of the Bangko Sentral ng Pilipinas Law (Republic Act No. 7653). On 8 August 1997, we required respondents to comment on the petition and issued a temporary restraining order enjoining the trial court from implementing its orders of 15 April and 14 July 1997. In their comment, private respondents first sought the lifting of the temporary restraining order, claiming that petitioner could no longer seek a stay of the execution of this Courts decision in G.R. No. 119231 which had become final and executory; and the petition raised factual issues which had long been resolved in the decision in G.R. No. 119231, thereby rendering the instant petition moot and academic. They underscored that CA-G.R. No. SP No. 25938, G.R. No. 107243 and G.R. No. 119231 all sustained their claim for a warehousemans lien, while the storage fees stipulated in the Refining Contract had the approval of the Sugar Regulatory Authority. Likewise, under the Warehouse Receipts Law, full payment of their lien was a pre-requisite to their obligation to release and deliver the sugar stock to petitioner. Anent the trial courts jurisdiction to determine the warehousemans lien, private respondents maintained that such had already been established. Accordingly, the resolution of 1 March 1995 declared that they were entitled to a warehousemans lien, for which reason, the execution of the judgment in favor of petitioner was stayed until the latters full payment of the lien. This resolution was then affirmed by this Court in our decision in G.R. No. 119231. Even assuming the trial court erred, the error could only have been in the wisdom of its findings and not of jurisdiction, in which case, the proper remedy of petitioner should have been an appeal and certiorari did not lie. Private respondents also raised the issue of res judicata as a bar to the instant petition, i.e., the March resolution was already final and unappealable, having been resolved in G.R. No. 119231, and the orders assailed here were issued merely to implement said resolution. Private respondents then debunked the claim that petitioner was denied due process. In that February hearing, petitioner was represented by counsel who failed to object to the presentation and offer of their evidence consisting of the five quedans, Refining Contracts with petitioner and other quedan holders, and the computation resulting in the amount of P734,341,595.06, among other documents. Private respondents even attached a copy of the transcript of stenographic notes[22] to their comment. In refuting petitioners argument that no writ of execution could issue in absence of a specific amount in the dispositive portion of this Courts decision in G.R. No. 119231, private respondents

argued that any ambiguity in the decision could be resolved by referring to the entire record of the case,[23] even after the decision had become final. Private respondents next alleged that the award of P734,341,595.06 to satisfy their warehousemans lien was in accordance with the stipulations provided in the quedans and the corresponding Refining Contracts, and that the validity of said documents had been recognized by this Court in our decision in G.R. No. 119231. Private respondents then questioned petitioners failure to oppose or rebut the evidence they presented and bewailed its belated attempts to present contrary evidence through its pleadings. Nonetheless, said evidence was even considered by the trial court when petitioner sought a reconsideration of the first assailed order of 15 April 1997, thus further precluding any claim of denial of due process. Private respondents next pointed to the fact that they consistently claimed that they had not been paid for storing the sugar stock, which prompted them to file criminal charges of estafa and violation of Batas Pambansa (BP) Blg. 22 against Rosa Ng Sy and Teresita Ng. In fact, Sy was eventually convicted of two counts of violation of BP Blg. 22. Private respondents, moreover, incurred, and continue to incur, expenses for the storage and preservation of the sugar stock; and denied having waived their warehousemans lien, an issue already raised and rejected by this Court in G.R. No. 119231. Private respondents further claimed that the garnishment order was proper, only that it was rendered ineffective. In a letter[24] received by the sheriff from the Bangko Sentral ng Pilipinas, it was stated that the garnishment could not be enforced since petitioners deposits with the Bangko Sentral ng Pilipinas consisted solely of legal reserves which were exempt from garnishment. Petitioner therefore suffered no damage from said garnishment. Private respondents likewise deemed immaterial petitioners argument that the writ of execution issued against its real property in Pasay City was sufficient, considering its prevailing market value of P6,000,000,000 was in excess of the warehousemans lien; and invoked Rule 39 of the 1997 Rules of Civil Procedure, which provided that the sheriff must levy on all the property of the judgment debtor, excluding those exempt from execution, in the execution of a money judgment. Finally, private respondents accused petitioner of coming to court with unclean hands, specifically citing its misrepresentation that the award of the warehousemans lien would result in the collapse of its business. This claim, private respondents asserted, was contradicted by petitioners 1996 Audited Financial Statement indicating that petitioners assets amounted to billions of pesos, and its 1996 Annual Report to its stockholders where petitioner declared that the pending legal actions arising from their normal course of business will not materially affect the Groups financial position.[25] In reply, petitioner advocated that resort to the remedy of certiorari was proper since the assailed orders were interlocutory, and not a final judgment or decision. Further, that it was virtually deprived of its constitutional right to due process was a valid issue to raise in the instant petition;and not even the doctrine of res judicata could bar this petition as the element of a final and executory judgment was lacking. Petitioner likewise disputed the claim that the resolution of 1 March 1995 was final and executory, otherwise private respondents would not have filed an opposition and motion for partial reconsideration[26] two years later. Petitioner also contended that the issues raised in this petition were not resolved in G.R. No. 119231, as what was resolved there was private respondents mere entitlement to a warehousemans lien, without specifying a corresponding amount. In the instant petition, the issues pertained to the amount and enforceability of said lien based on the arbitrary manner the amount was determined by the trial court. Petitioner further argued that the refining contracts private respondents invoked could not bind the former since it was not a party thereto. In fact, said contracts were not even attached to the quedans when negotiated; and that their validity was repudiated by a supposed party thereto, Rosa Ng Sy, who claimed that the contract was simulated, thus void pursuant to Article 1345 of the New Civil Code. Should the refining contracts in turn be declared void, petitioner advocated that any determination by the court of the existence and amount of the warehousemans lien due should be arrived at using the test of reasonableness. Petitioner likewise noted that the other refining contracts[27] presented by private respondents to show similar storage fees were executed between the years 1996 and 1997, several years after 1989. Thus, petitioner concluded, private respondents could not claim that the more recent and increased rates where those which prevailed in 1989. Finally, petitioner asserted that in the event that this Court should uphold the trial courts determination of the amount of the warehousemans lien, petitioner should be allowed to exercise its option as a judgment obligor to

specify which of its properties may be levied upon, citing Section 9(b), Rule 39 of the 1997 Rules of Civil Procedure. Petitioner claimed to have been deprived of this option when the trial court issued the garnishment and levy orders. The petition was set for oral argument on 24 November 1997 where the parties addressed the following issues we formulated for them to discuss: (1) Is this special civil action the appropriate remedy? (2) Has the trial court the authority to issue a writ of execution on Noahs Arks claims for storage fees considering that this Court in G.R. No. 119231 merely sustained the trial courts order of 20 December 1994 granting the Noahs Ark Omnibus Motion and setting the reception of evidence on its claims for storage fees, and of 1 March 1995 finding that there existed in favor of Noahs Ark a warehousemans lien under Section 27 of R.A. No. 2137 and directing that the execution of the judgment in favor of PNB be stayed and/or precluded until the full amount of Noahs Arks lien is satisfied conformably with Section 31 of R.A. No. 2137? (3) Is [petitioner] liable for storage fees (a) from the issuance of the quedans in 1989 to Rosa Sy, St. Therese Merchandising and RNS Merchandising, up to their assignment by endorsees Ramos and Zoleta to [petitioner] for their loan; or (b) after [petitioner] has filed an action for specific performance and damages (Civil Case No. 90-53023) against Noahs Ark for the latters failure to comply with [petitioners] demand for the delivery of the sugar? (4) Did respondent Judge commit grave abuse of discretion as charged?[28] In our resolution of 24 November 1997, we summarized the positions of the parties on these issues, thus: Expectedly, counsel for petitioner submitted that certiorari under Rule 65 of the Rules of Court is the proper remedy and not an ordinary appeal, contending, among others, that the order of execution was not final. On the other hand, counsel for respondents maintained that petitioner PNB disregarded the hierarchy of courts as it bypassed the Court of Appeals when it filed the instant petition before this Court. On the second issue, counsel for petitioner submitted that the trial court had no authority to issue the writ of execution or if it had, it denied PNB due process when it held PNB liable for the astronomical amount of P734,341,595.06 as warehousemans lien or storage fees. Counsel for respondent, on the other hand, contended that the trial courts authority to issue the questioned writ of execution is derived from the decision in G.R. No. 119231 which decision allegedly provided for ample or sufficient parameters for the computation of the storage fees. On the third issue, counsel for petitioner while presupposing that PNB may be held to answer for storage fees, contended that the same should start from the time the endorsees of the sugar quedans defaulted in their payments, i.e., 1990 because before that, respondent Noahs Arks claim was that it was the owner of the sugar covered by the quedans. On the other hand, respondents counsel pointed out that PNBs liability should start from the issuance of the quedans in 1989. The arguments on the fourth issue, hinge on the parties arguments for or against the first three issues. Counsel for petitioner stressed that the trial court indeed committed a grave abuse of discretion, while respondents counsel insisted that no grave abuse of discretion was committed by the trial court.[29] Private respondents likewise admitted that during the pendency of the case, they failed to avail of their options as a warehouseman. Concretely, they could have enforced their lien through the foreclosure of the goods or the filing of an ordinary civil action. Instead, they sought to execute this Courts judgment in G.R. No. 119231. They eventually agreed that petitioners liability for the warehousemans lien should be reckoned from the time it stepped into the shoes of the original depositors.[30] In our resolution of 24 November 1997, we required the parties to simultaneously submit their respective memoranda within 30 days or, in the alternative, a compromise agreement should a settlement be achieved. Notwithstanding efforts exerted by the parties, no mutually acceptable solution was reached.

In their respective memoranda, the parties reiterated or otherwise buttressed the arguments raised in their previous pleadings and during the oral arguments on 24 November 1997, especially on the formulated issues. The petition is meritorious. We shall take up the formulated issues in seriatim. A. This Special Civil Action is an Appropriate Remedy. A careful perusal of the first assailed order shows that the trial court not only granted the motion for execution, but also appreciated the evidence in the determination of the warehousemans lien; formulated its computation of the lien; and adopted an offsetting of the parties claims. Ineluctably, the order as in the nature of a final order for it left nothing else to be resolved thereafter. Hence, petitioners remedy was to appeal therefrom.[31] Nevertheless, petitioner was not precluded from availing of the extraordinary remedy of certiorari under Rule 65 of the Rules of Court.It is well-settled that the availability of an appeal does not foreclose recourse to the extraordinary remedies of certiorari or prohibition where appeal is not adequate, or equally beneficial, speedy and sufficient.[32] Petitioner assailed the challenged orders as having been issued without or in excess of jurisdiction or with grave abuse of discretion and alleged that it had no other plain, speedy and adequate remedy in the ordinary course of law. As hereafter shown, these claims were not unfounded, thus the propriety of this special civil action is beyond question. This Court has original jurisdiction, concurrent with that of Regional Trial Courts and the Court of Appeals, over petitions for certiorari, prohibition, mandamus, quo warranto and habeas corpus,[33] and we entertain direct resort to us in cases where special and important reasons or exceptional and compelling circumstances justify the same.[34] These reasons and circumstances are present here. B. Under the Special Circumstances in This Case, Private Respondents May Enforce Their Warehousemans Lien in Civil Case No. 90-53023. The remedies available to a warehouseman, such as private respondents, to enforce his warehousemans lien are: (1)To refuse to deliver the goods until his lien is satisfied, pursuant to Section 31 of the Warehouse Receipt Law; (2) To sell the goods and apply the proceeds thereof to the value of the lien pursuant to Sections 33 and 34 of the Warehouse Receipts Law; and (3) By other means allowed by law to a creditor against his debtor, for the collection from the depositor of all charges and advances which the depositor expressly or impliedly contracted with the warehouseman to pay under Section 32 of the Warehouse Receipt Law; or such other remedies allowed by law for the enforcement of a lien against personal property under Section 35 of said law. The third remedy is sought judicially by suing for the unpaid charges.[35] Initially, private respondents availed of the first remedy. However, when petitioner moved to execute the judgment in G.R. No. 107243 before the trial court, private respondents, in turn, moved to have the warehouse charges and fees due them determined and thereafter sought to collect these from petitioners. While the most appropriate remedy for private respondents was an action for collection, in G.R. No. 119231, we alreadyrecognized their right to have such charges and fees determined in Civil Case No. 90-53023. The import of our holding in G.R. No. 119231 was that private respondents were likewise entitled to a judgment on their warehouse charges and fees, and the eventual satisfaction thereof, thereby avoiding having to file another action to recover these charges and fees, which would only have further delayed the resolution of the respective claims of the parties, and as a corollary thereto, the indefinite deferment of the execution of the judgment in G.R. No. 107243. Thus we note that petitioner, in fact, already acquiesced to the scheduled dates previously set for the hearing on private respondents warehousemans charges. However, as will be shown below, it would be premature to execute the order fixing the warehousemans charges and fees. C. Petitioner is Liable for Storage Fees.

We confirmed petitioners liability for storage fees in G.R. No. 119231. However, petitioners status as to the quedans must first be clearly defined and delineated to be able to determine the extent of its liability. Petitioner insisted, both in its petition and during the oral arguments on 24 November 1997, that it was a mere pledgee as the quedans were used to secure two loans it granted.[36] In our decision in G.R. No. 107243, we upheld this contention of petitioner, thus: Zoleta and Ramos then used the quedans as security for loans obtained by them from the Philippine National Bank (PNB) as security for loans obtained by them in the amounts of P23.5 million and P15.6 million, respectively. These quedans they indorsed to the bank.[37] As such, Martinez v. Philippine National Bank[38] becomes relevant: In conclusion, we hold that where a warehouse receipt or quedan is transferred or endorsed to a creditor only to secure the payment of a loan or debt, the transferee or endorsee does not automatically become the owner of the goods covered by the warehouse receipt or quedan but he merely retains the right to keep and with the consent of the owner to sell them so as to satisfy the obligation from the proceeds of the sale, this for the simple reason that the transaction involved is not a sale but only a mortgage or pledge, and that if the property covered by the quedans or warehouse receipts is lost without the fault or negligence of the mortgagee or pledgee or the transferee or endorsee of the warehouse receipt or quedan, then said goods are to be regarded as lost on account of the real owner, mortgagor or pledgor. The indorsement and delivery of the warehouse receipts (quedans) by Ramos and Zoleta to petitioner was not to convey title to or ownership of the goods but to secure (by way of pledge) the loans granted to Ramos and Zoleta by petitioner. The indorsement of the warehouse receipts (quedans), to perfect the pledge,[39] merely constituted a symbolical or constructive delivery of the possession of the thing thus encumbered.[40] The creditor, in a contract of real security, like pledge, cannot appropriate without foreclosure the things given by way of pledge.[41] Any stipulation to the contrary, termed pactum commissorio, is null and void.[42] The law requires foreclosure in order to allow a transfer of title of the good given by way of security from its pledgor,[43] and before any such foreclosure, the pledgor, not the pledgee, is the owner of the goods. In Philippine National Bank v. Atendido,[44] we said: The delivery of the palay being merely by way of security, it follows that by the nature of the transaction its ownership remains with the pledgor subject only to foreclosure in case of non-fulfillment of the obligation. By this we mean that if the obligation is not paid upon maturity the most that the pledgee can do is to sell the property and apply the proceeds to the payment of the obligation and to return the balance, if any, to the pledgor (Art. 1872, Old Civil Code [Art. 2112, New Civil Code]). This is the essence of this contract, for, according to law, a pledgee cannot become the owner of, nor appropriate to himself, the thing given in pledge (Article 1859, Old Civil Code [Art. 2088, New Civil Code]) The fact that the warehouse receipt covering palay was delivered, endorsed in blank, to the bank does not alter the situation, the purpose of such endorsement being merely to transfer the juridical possession of the property to the pledgees and to forestall any possible disposition thereof on the part of the pledgor. This is true notwithstanding the provisions of the Warehouse Receipt Law. The warehouseman, nevertheless, is entitled to the warehousemans lien that attaches to the goods invokable against anyone who claims a right of possession thereon. The next issue to resolve is the duration of time the right of petitioner over the goods may be held subject to the warehousemans lien. Sections 8, 29 and 31 of the Warehouse Receipts Law now come to fore. They provide, as follows: SECTION 8. Obligation of warehousemen to deliver. A warehouseman, in the absence of some lawful excuse provided by this Act, is bound to deliver the goods upon a demand made either by the holder of a receipt for the goods or by the depositor, if such demand is accompanied with:

(a) An offer to satisfy warehousemans lien; (b) An offer to surrender the receipt, if negotiable, with such indorsements as would be necessary for the negotiation of the receipt; and (c) A readiness and willingness to sign, when the goods are delivered, an acknowledgment that they have been delivered, if such signature is requested by the warehouseman. In case the warehouseman refuses or fails to deliver the goods in compliance with a demand by the holder or depositor so accompanied, the burden shall be upon the warehouseman to establish the existence of a lawful excuse for such refusal. SECTION 29. How the lien may be lost. A warehouseman loses his lien upon goods; (a) By surrendering possession thereof, or (b) By refusing to deliver the goods when a demand is made with which he is bound to comply under the provisions of this Act. SECTION 31. Warehouseman need not deliver until lien is satisfied. A warehouseman having a lien valid against the person demanding the goods may refuse to deliver the goods to him until the lien is satisfied. Simply put, where a valid demand by the lawful holder of the quedans for the delivery of the goods is refused by the warehouseman, despite the absence of a lawful excuse provided by the statute itself, the warehousemans lien is thereafter concomitantly lost. As to what the law deems a valid demand, Section 8 enumerates what must accompany a demand; while as regards the reasons which a warehouseman may invoke to legally refuse to effect delivery of the goods covered by the quedans, these are: (1) That the holder of the receipt does not satisfy the conditions prescribed in Section 8 of the Act. (See Sec. 8, Act No. 2137) (2) That the warehouseman has legal title in himself on the goods, such title or right being derived directly or indirectly from a transfer made by the depositor at the time of or subsequent to the deposit for storage, or from the warehousemans lien. (Sec. 16, Act No. 2137) (3) That the warehouseman has legally set up the title or right of third persons as lawful defense for nondelivery of the goods as follows: (a) Where the warehouseman has been requested, by or on behalf of the person lawfully entitled to a right of property of or possession in the goods, not to make such delivery (Sec. 10, Act No. 2137), in which case, the warehouseman may, either as a defense to an action brought against him for nondelivery of the goods, or as an original suit, whichever is appropriate, require all known claimants to interplead (Sec. 17, Act No. 2137); (b) Where the warehouseman had information that the delivery about to be made was to one not lawfully entitled to the possession of the goods (Sec. 10, Act No. 2137), in which case, the warehouseman shall be excused from liability for refusing to deliver the goods, either to the depositor or person claiming under him or to the adverse claimant, until the warehouseman has had a reasonable time to ascertain the validity of the adverse claims or to bring legal proceedings to compel all claimants to interplead (Sec. 18, Act No. 2137); and (c) Where the goods have already been lawfully sold to third persons to satisfy a warehousemans lien, or have been lawfully sold or disposed of because of their perishable or hazardous nature. (Sec. 36, Act No. 2137). (4) That the warehouseman having a lien valid against the person demanding the goods refuses to deliver the goods to him until the lien is satisfied. (Sec. 31, Act No. 2137)

(5) That the failure was not due to any fault on the part of the warehouseman, as by showing that, prior to demand for delivery and refusal, the goods were stolen or destroyed by fire, flood, etc., without any negligence on his part, unless he has contracted so as to be liable in such case, or that the goods have been taken by the mistake of a third person without the knowledge or implied assent of the warehouseman, or some other justifiable ground for nondelivery. (67 C.J. 532)[45] Regrettably, the factual settings do not sufficiently indicate whether the demand to obtain possession of the goods complied with Section 8 of the law. The presumption, nevertheless, would be that the law was complied with, rather than breached, by petitioner. Upon the other hand, it would appear that the refusal of private respondents to deliver the goods was not anchored on a valid excuse, i.e., non-satisfaction of the warehousemans lien over the goods, but on an adverse claim of ownership. Private respondents justified their refusal to deliver the goods, as stated in their Answer with Counterclaim and Third-Party Complaint in Civil Case No. 90-53023, by claiming that they are still the legal owners of the subject quedans and the quantity of sugar represented therein. Under the circumstances, this hardly qualified as a valid, legal excuse. The loss of the warehousemans lien, however, does not necessarily mean the extinguishment of the obligation to pay the warehousing fees and charges which continues to be a personal liability of the owners, i.e., the pledgors, not the pledgee, in this case. But even as to the owners-pledgors, the warehouseman fees and charges have ceased to accrue from the date of the rejection by Noahs Ark to heed the lawful demand by petitioner for the release of the goods. The finality of our denial in G.R. No. 119231 of petitioners petition to nullify the trial courts order of 01 March 1995 confirms the warehousemans lien; however, such lien, nevertheless, should be confined to the fees and charges as of the date in March 1990 when Noahs Ark refused to heed PNBs demand for delivery of the sugar stocks and in no event beyond the value of the credit in favor of the pledgee (since it is basic that, in foreclosures, the buyer does not assume the obligations of the pledgor to his other creditors even while such buyer acquires title over the goods less any existing preferred lien thereover).[46] The foreclosure of the thing pledged, it might incidentally be mentioned, results in the full satisfaction of the loan liabilities to the pledgee of the pledgors.[47] D. Respondent Judge Committed Grave Abuse of Discretion. We hold that the trial court deprived petitioner of due process in rendering the challenged order of 15 April 1996 without giving petitioner an opportunity to present its evidence. During the final hearing of the case, private respondents commenced and concluded their presentation of evidence as to the matter of the existence of and amount owing due to their warehousemans lien. Their exhibits were duly marked and offered, and the trial court thereafter ruled, to wit: Court: Order. With the admission of Exhibits 1 to 11, inclusive of submarkings, as part of the testimony of Benigno Bautista, the defendant [private respondents] is given five (5) days from today to file its memorandum. Likewise, plaintiff [petitioner] is given five (5) days, from receipt of defendants [private respondents] memorandum, to file its comment thereto. Thereafter the same shall be deemed submitted for decision. SO ORDERED.[48] Nowhere in the transcript of stenographic notes, however, does it show that petitioner was afforded an opportunity to comment on, much less, object to, private respondents offer of exhibits, or even present its evidence on the matter in dispute. In fact, petitioner immediately moved to nullify the proceedings conducted during that hearing, but its motion was ignored and never resolved by the trial court. Moreover, it cannot be said that petitioners filing of subsequent pleadings, where it attached its affidavits and documents to contest the warehousemans lien, was sufficient to fully satisfy the requirements of due process. The subsequent pleadings were filed only to show that petitioner had evidence to refute the claims of private respondents or that the latter were not entitled thereto, but could not have adequately substituted for a full-blown opportunity to present its evidence, given the exorbitant amounts involved. This, when coupled with the fact that the motion to postpone the hearing filed by petitioners counsel was not unreasonable, leads us to conclude that petitioners right to fully present its case was rendered nugatory. It is thus evident to us that there was undue and unwarranted haste on the part of respondent court to

rule in favor of private respondents. We do not hesitate to say that any tilt of the scales of justice, no matter how slight, evokes suspicion and erodes a litigants faith and hope in seeking recourse before courts of law. Likewise do we refuse to give credence to private respondents allegation that the parties agreed that petitioners presentation of evidence would be submitted on the basis of affidavits,[49] without, however, specifying any order or written agreement to that effect. It is interesting to note that among the evidence petitioner wanted to present were reports obtained from Noahs Ark, disclosing that the latter failed to maintain a sufficient inventory to satisfy the sugar stock covered by the subject quedans. This was a serious allegation, and on that score alone, the trial court should have allowed a hearing on the matter, especially in light of the magnitude of the claims sought. If it turns out to be true that the stock of sugar Noahs Ark had in possession was below the quantities specified in the quedans, then petitioner should not be made to pay for storage and preservation expenses for non-existent goods. It was likewise grave abuse of discretion on the part of respondent court to order immediate execution of the 15 April 1997 order. We ruled earlier that said order was in the nature of a final order fixing the amount of the warehousemans charges and fees, and petitioners net liability, after the set-off of the money judgment in its favor in G.R. No. 107243. Section 1 of Rule 39 of the Rules of Court explicitly provides that execution shall issue as a matter of right, on motion, upon a judgment or order that disposes of the action or proceeding upon the expiration of the period to appeal therefrom if no appeal has been duly perfected. Execution pending appeal is, however, allowed in Section 2 thereof, but only on motion with due notice to the adverse party, more importantly, only upon good reasons shown in a special order. Here, there is no showing that a motion for execution pending appeal was filed and that a special order was issued by respondent court. Verily, the immediate execution only served to further strengthen our perception of undue and unwarranted haste on the part of respondent court in resolving the issue of the warehousemans lien in favor of private respondents. In light of the above, we need not rule anymore on the fourth formulated issue. WHEREFORE, the petition is GRANTED. The challenged orders of 15 April and 14 July 1997, including the notices of levy and garnishment, of the Regional Trial Court of Manila, Branch 45, in Civil Case No. 90-53023 are REVERSED and SET ASIDE, and said court is DIRECTED to conduct further proceedings in said case: (1) to allow petitioner to present its evidence on the matter of the warehousemans lien; (2) to compute the petitioners warehousemans lien in light of the foregoing observations; and (3) to determine whether, for the relevant period, Noahs Ark maintained a sufficient inventory to cover the volume of sugar specified in the quedans. Costs against private respondents. SO ORDERED. SECOND DIVISION Warehouse Bond, James Bond

G.R. No. 165487

COUNTRY BANKERS CORPORATION, Petitioner,

Present:

-versus-

INSURANCE

CARPIO,J., Chairperson, LEONARDO DE CASTRO,* VILLARAMA, JR.,** PEREZ, and SERENO, JJ. Promulgated:

ANTONIO LAGMAN, Respondent.

July 13, 2011

x ----------------------------------------------------------------------------------------x DECISION PEREZ, J.: This is a petition for review on certiorari under Rule 45 of the 1997 Rules of Civil Procedure, assailing the Decision[1] and Resolution[2] of the Court of Appeals dated 21 June 2004 and 24 September 2004, respectively. These are the undisputed facts. Nelson Santos (Santos) applied for a license with the National Food Authority (NFA) to engage in the business of storing not more than 30,000 sacks of palay valued at P5,250,000.00 in his warehouse at Barangay Malacampa, Camiling, Tarlac. Under Act No. 3893 or the General Bonded Warehouse Act, as amended, [3] the approval for said license was conditioned upon posting of a cash bond, a bond secured by real estate, or a bond signed by a duly authorized bonding company, the amount of which shall be fixed by the NFA Administrator at not less than thirtythree and one third percent (33 1/3%) of the market value of the maximum quantity of rice to be received. Accordingly, Country Bankers Insurance Corporation (Country Bankers) issued Warehouse Bond No. for P1,749,825.00 on 5 November 1989 and Warehouse Bond No. 02355[5] for P749,925.00 on 13 December 1989 (1989 Bonds) through its agent, Antonio Lagman (Lagman). Santos was the bond principal, Lagman was the surety and the Republic of the Philippines, through the NFA was the obligee. In consideration of these issuances, corresponding Indemnity Agreements[6] were executed by Santos, as bond principal, together with Ban Lee Lim Santos (Ban Lee Lim), Rhosemelita Reguine (Reguine) and Lagman, as co-signors. The latter bound themselves jointly and severally liable to Country Bankers for any damages, prejudice, losses, costs, payments, advances and expenses of whatever kind and nature, including attorneys fees and legal costs, which it may sustain as a consequence of the said bond; to reimburse Country Bankers of whatever amount it may pay or cause to be paid or become liable to pay thereunder; and to pay interest at the rate of 12% per annum computed and compounded monthly, as well as to pay attorneys fees of 20% of the amount due it.[7] 03304[4]

Santos then secured a loan using his warehouse receipts as collateral.[8] When the loan matured, Santos defaulted in his payment.The sacks of palay covered by the warehouse receipts were no longer found in the bonded warehouse.[9] By virtue of the surety bonds, Country Bankers was compelled to pay P1,166,750.37.[10] Consequently, Country Bankers filed a complaint for a sum of money docketed as Civil Case No. 95-73048 before the Regional Trial Court (RTC) of Manila. In his Answer, Lagman alleged that the 1989 Bonds were valid only for 1 year from the date of their issuance, as evidenced by receipts; that the bonds were never renewed and revived by payment of premiums; that on 5 November 1990, Country Bankers issued Warehouse Bond No. 03515 (1990 Bond) which was also valid for one year and that no Indemnity Agreement was executed for the purpose; and that the 1990 Bond supersedes, cancels, and renders no force and effect the 1989 Bonds.[11]

The bond principals, Santos and Ban Lee Lim, were not served with summons because they could no longer be found.[12] The case was eventually dismissed against them without prejudice.[13] The other co-signor, Reguine, was declared in default for failure to file her answer.[14] On 21 September 1998, the trial court rendered judgment declaring Reguine and Lagman jointly and severally liable to pay Country Bankers the amount of P2,400,499.87.[15] The dispositive portion of the RTC Decision[16] reads: WHEREFORE, premises considered, judgment is hereby rendered, ordering defendants Rhomesita [sic] Reguine and Antonio Lagman, jointly and severally liable to pay plaintiff, Country Bankers Assurance Corporation, the amount of P2,400,499.87, with 12% interest from the date the complaint was filed until fully satisfied plus 20% of the amount due plaintiff as and for attorneys fees and to pay the costs. As the Court did not acquire jurisdiction over the persons of defendants Nelson Santos and Ban Lee Lim Santos, let the case against them be DISMISSED. Defendant Antonio Lagmans counterclaim is likewise DISMISSED, for lack of merit.[17] In holding Lagman and Reguine solidarily liable to Country Bankers, the trial court relied on the express terms of the Indemnity Agreement that they jointly and severally bound themselves to indemnify and make good to Country Bankers any liability which the latter may incur on account of or arising from the execution of the bonds.[18] The trial court rationalized that the bonds remain in force unless cancelled by the Administrator of the NFA and cannot be unilaterally cancelled by Lagman. The trial court emphasized that for the failure of Lagman to comply with his obligation under the Indemnity Agreements, he is likewise liable for damages as a consequence of the breach. Lagman filed an appeal to the Court of Appeals, docketed as CA G.R. CV No. 61797. He insisted that the lifetime of the 1989 Bonds, as well as the corresponding Indemnity Agreements was only 12 months. According to Lagman, the 1990 Bond was not pleaded in the complaint because it was not covered by an Indemnity Agreement and it superseded the two prior bonds.[19] On 21 June 2004, the Court of Appeals rendered the assailed Decision reversing and setting aside the Decision of the RTC and ordering the dismissal of the complaint filed against Lagman.[20] The appellate court held that the 1990 Bond superseded the 1989 Bonds. The appellate court observed that the 1990 Bond covers 33.3% of the market value of the palay, thereby manifesting the intention of the parties to make the latter bond more comprehensive. Lagman was also exonerated by the appellate court from liability because he was not a signatory to the alleged Indemnity Agreement of 5 November 1990 covering the 1990 Bond. The appellate court rejected the argument of Country Bankers that the 1989 bonds were continuing, finding, as reason therefor, that the receipts issued for the bonds indicate that they were effective for only one-year. Country Bankers sought reconsideration which was denied in a Resolution dated 24 September 2004.[21] Expectedly, Country Bankers filed the instant petition attributing two (2) errors to the Court of Appeals, to wit: A. THE HONORABLE COURT OF APPEALS SERIOUSLY ERRED IN DISREGARDING THE EXPRESS PROVISIONS OF SECTION 177 OF THE INSURANCE CODE WHEN IT HELD THAT THE SUBJECT

SURETY BONDS WERE SUPERSEDED BY A SUBSEQUENT BOND NOTWITHSTANDING THE NONCANCELLATION THEREOF BY THE BOND OBLIGEE. B. THE HONORABLE COURT OF APPEALS SERIOUSLY ERRED IN HOLDING THAT RECEIPTS FOR THE PAYMENT OF PREMIUMS PREVAIL OVER THE EXPRESS PROVISION OF THE SURETY BOND THAT FIXES THE TERM THEREOF.[22] Country Bankers maintains that by the express terms of the 1989 Bonds, they shall remain in full force until cancelled by the Administrator of the NFA. As continuing bonds, Country Bankers avers that Section 177 of the Insurance Code applies, in that the bond may only be cancelled by the obligee, by the Insurance Commissioner or by a competent court. Country Bankers questions the existence of a third bond, the 1990 Bond, which allegedly cancelled the 1989 Bonds on the following grounds: First, Lagman failed to produce the original of the 1990 Bond and no basis has been laid for the presentation of secondary evidence; Second, the issuance of the 1990 Bond was not approved and processed by Country Bankers; Third, the NFA as bond obligee was not in possession of the 1990 Bond. Country Bankers stresses that the cancellation of the 1989 Bonds requires the participation of the bond obligee. Ergo, the bonds remain subsisting until cancelled by the bond obligee. Country Bankers further assert that Lagman also failed to prove that the NFA accepted the 1990 Bond in replacement of the 1989 Bonds. Country Bankers notes that the receipts issued for the 1989 Bonds are mere evidence of premium payments and should not be relied on to determine the period of effectivity of the bonds. Country Bankers explains that the receipts only represent the transactions between the bond principal and the surety, and does not involve the NFA as bond obligee. Country Bankers calls this Courts attention to the incontestability clause contained in the Indemnity Agreements which prohibits Lagman from questioning his liability therein. In his Comment, Lagman raises the issue of novation by asserting that the 1989 Bonds were superseded by the 1990 Bond, which did not include Lagman as party. Therefore, Lagman argues, Country Bankers has no cause of action against him. Lagman also reiterates that because of novation, the 1989 bonds are neither perpetual nor continuing. Lagman anchors his defense on two (2) arguments: 1) the 1989 Bonds have expired and 2) the 1990 Bond novates the 1989 Bonds. The Court of Appeals held that the 1989 bonds were effective only for one (1) year, as evidenced by the receipts on the payment of premiums. We do not agree. The official receipts in question serve as proof of payment of the premium for one year on each surety bond. It does not, however, automatically mean that the surety bond is effective for only one (1) year. In fact, the effectivity of the bond is not wholly dependent on the payment of premium. Section 177 of the Insurance Code expresses:

Sec. 177. The surety is entitled to payment of the premium as soon as the contract of suretyship or bond is perfected and delivered to the obligor. No contract of suretyship or bonding shall be valid and binding unless and until the premium therefor has been paid, except where the obligee has accepted the bond, in which case the bond becomes valid and enforceable irrespective of whether or not the premium has been paid by the obligor to the surety: Provided, That if the contract of suretyship or bond is not accepted by, or filed with the obligee, the surety shall collect only reasonable amount, not exceeding fifty per centum of the premium due thereon as service fee plus the cost of stamps or other taxes imposed for the issuance of the contract or bond: Provided, however, That if the non-acceptance of the bond be due to the fault or negligence of the surety, no such service fee, stamps or taxes shall be collected. (Emphasis supplied) The 1989 Bonds have identical provisions and they state in very clear terms the effectivity of these bonds, viz: NOW, THEREFORE, if the above-bounded Principal shall well and truly deliver to the depositors PALAY received by him for STORAGE at any time that demand therefore is made, or shall pay the market value therefore in case he is unable to return the same, then this obligation shall be null and void; otherwise it shall remain in full force and effect and may be enforced in the manner provided by said Act No. 3893 as amended by Republic Act No. 247 and P.D. No. 4. This bond shall remain in force until cancelled by the Administrator of National Food Authority.[23] This provision in the bonds is but in compliance with the second paragraph of Section 177 of the Insurance Code, which specifies that a continuing bond, as in this case where there is no fixed expiration date, may be cancelled only by the obligee, which is the NFA, by the Insurance Commissioner, and by the court. Thus: In case of a continuing bond, the obligor shall pay the subsequent annual premium as it falls due until the contract of suretyship is cancelled by the obligee or by the Commissioner or by a court of competent jurisdiction, as the case may be. By law and by the specific contract involved in this case, the effectivity of the bond required for the obtention of a license to engage in the business of receiving rice for storage is determined not alone by the payment of premiums but principally by the Administrator of the NFA.From beginning to end, the Administrators brief is the enabling or disabling document. The clear import of these provisions is that the surety bonds in question cannot be unilaterally cancelled by Lagman. The same conclusion was reached by the trial court and we quote: As there appears no record of cancellation of the Warehouse Bonds No. 03304 and No. 02355 either by the administrator of the NFA or by the Insurance Commissioner or by the Court, the Warehouse Bonds are valid and binding and cannot be unilaterally cancelled by defendant Lagman as general agent of the plaintiff.[24] While the trial court did not directly rule on the existence and validity of the 1990 Bond, it upheld the 1989 Bonds as valid and binding, which could not be unilaterally cancelled by Lagman. The Court of Appeals, on the other hand, acknowledged the 1990 Bond as having cancelled the two previous bonds by novation. Both courts however

failed to discuss their basis for rejecting or admitting the 1990 Bond, which, as we indicated, is bone to pick in this case. Lagmans insistence on novation depends on the validity, nay, existence of the allegedly novating 1990 Bond. Country Bankers understandably impugns both. We see the point. Lagman presented a mere photocopy of the 1990 Bond. We rule as inadmissible such copy. Under the best evidence rule, the original document must be produced whenever its contents are the subject of inquiry.[25] The rule is encapsulated in Section 3, Rule 130 of the Rules of Court, as follow: Sec. 3. Original document must be produced; exceptions. When the subject of inquiry is the contents of a documents, no evidence shall be admissible other than the original document itself, except in the following cases: (a) When the original has been lost or destroyed, or cannot be produced in court, without bad faith on the part of the offeror; (b) When the original is in the custody or under the control of the party against whom the evidence is offered, and the latter fails to produce it after reasonable notice; (c) When the original consists of numerous accounts or other documents which cannot be examined in court without great loss of time and the fact sought to be established from them is only the general result of the whole; and (d) When the original is a public record in the custody of a public officer or is recorded in a public office.[26] A photocopy, being a mere secondary evidence, is not admissible unless it is shown that the original is unavailable.[27] Section 5, Rule 130 of the Rules of Court states: SEC.5 When original document is unavailable. When the original document has been lost or destroyed, or cannot be produced in court, the offeror, upon proof of its execution or existence and the cause of its unavailability without bad faith on his part, may prove its contents by a copy, or by a recital of its contents in some authentic document, or by the testimony of witnesses in the order stated. Before a party is allowed to adduce secondary evidence to prove the contents of the original, the offeror must prove the following: (1) the existence or due execution of the original; (2) the loss and destruction of the original or the reason for its non-production in court; and (3) on the part of the offeror, the absence of bad faith to which the unavailability of the original can be attributed. The correct order of proof is as follows: existence, execution, loss, and contents.[28] In the case at bar, Lagman mentioned during the direct examination that there are actually four (4) duplicate originals of the 1990 Bond: the first is kept by the NFA, the second is with the Loan Officer of the NFA in Tarlac, the third is with Country Bankers and the fourth was in his possession.[29] A party must first present to the court proof of loss or other satisfactory explanation for the non-production of the original instrument.[30] When more than one original copy exists, it must appear that all of them have been lost, destroyed, or cannot be produced in court before secondary evidence can be given of any one. A photocopy may not be used without accounting for the other originals.[31]

Despite knowledge of the existence and whereabouts of these duplicate originals, Lagman merely presented a photocopy. He admitted that he kept a copy of the 1990 Bond but he could no longer produce it because he had already severed his ties with Country Bankers. However, he did not explain why severance of ties is by itself reason enough for the non-availability of his copy of the bond considering that, as it appears from the 1989 Bonds, Lagman himself is a bondsman. Neither did Lagman explain why he failed to secure the original from any of the three other custodians he mentioned in his testimony. While he apparently was able to find the original with the NFA Loan Officer, he was merely contented with producing its photocopy. Clearly, Lagman failed to exert diligent efforts to produce the original. Fueling further suspicion regarding the existence of the 1990 Bond is the absence of an Indemnity Agreement. While Lagman argued that a 1990 Bond novates the 1989 Bonds, he raises the defense of non-existence of an indemnity agreement which would conveniently exempt him from liability. The trial court deemed this defense as indicia of bad faith, thus: To the observation of the Court, defendant Lagman contended that being a general agent (which requires a much higher qualification than an ordinary agent), he is expected to have attended seminars and workshops on general insurance wherein he is supposed to have acquired sufficient knowledge of the general principles of insurance which he had fully practised or implemented from experience. It somehow appears to the Courts assessment of his reneging liability of the bonds in question, that he is still short of having really understood the principle of suretyship with reference to the transaction of indemnity in which he is a signatory. If, as he alleged, that he is well-versed in insurance, the Court finds no excuse for him to stand firm in denying his liability over the claim against the bonds with indemnity provision. If he insists in not recognizing that liability, the more that this Court is convinced that his knowledge that insurance operates under the principle of good faith is inadequate. He missed the exception provided by Section 177 of the Insurance Code, as amended, wherein non-payment of premium would not have the same essence in his mind that the agreements entered into would not have full force or effect. It could be glimpsed, therefore, that the mere fact of cancelling bonds with indemnity agreements and replacing them (absence of the same) to escape liability clearly manifests bad faith on his part.[32](Emphasis supplied.) Having discounted the existence and/or validity of the 1990 Bond, there can be no novation to speak of. Novation is the extinguishment of an obligation by the substitution or change of the obligation by a subsequent one which extinguishes or modifies the first, either by changing the object or principal conditions, or by substituting another in place of the debtor, or by subrogating a third person in the rights of the creditor. For novation to take place, the following requisites must concur: 1) There must be a previous valid obligation; 2) The parties concerned must agree to a new contract; 3) The old contract must be extinguished; and 4) There must be a valid new contract.[33] In this case, only the first element of novation exists. Indeed, there is a previous valid obligation, i.e., the 1989 Bonds. There is however neither a valid new contract nor a clear agreement between the parties to a new contract since the very existence of the 1990 Bond has been rendered dubious. Without the new contract, the old contract is not extinguished. Implied novation necessitates a new obligation with which the old is in total incompatibility such that the old obligation is completely superseded by the new one.[34] Quite obviously, neither can there be implied novation. In this case, there is no new obligation.

The liability of Lagman is expressed in Indemnity Agreements executed in consideration of the 1989 Bonds which we have considered as continuing contracts. Under both Indemnity Agreements, Lagman, as co-signor, together with Santos, Ban Lee Lim and Reguine, bound themselves jointly and severally to Country Bankers to indemnify it for any damage or loss sustained on the account of the execution of the bond, among others. The pertinent identical stipulations of the Indemnity Agreements state: INDEMNITY: ─ To indemnify and make good to the COMPANY jointly and severally, any damages, prejudice, loss, costs, payments advances and expenses of whatever kind and nature, including attorneys fees and legal costs, which the COMPANY may, at any time, sustain or incur, as well as to reimburse to said COMPANY all sums and amounts of money which the COMPANY or its representatives shall or may pay or cause to be paid or become liable to pay, on account of or arising from the execution of the above-mentioned BOND or any extension, renewal, alteration or substitution thereof made at the instance of the undersigned or anyone of them.[35]

Moreover, the Indemnity Agreements also contained identical Incontestability Clauses which provide: INCONTESTABILITY OF PAYMENTS MADE BY THE COMPANY: ─ Any payment or disbursement made by the COMPANY on account of the above-mentioned Bond, its renewals, extensions, alterations or substitutions either in the belief that the COMPANY was obligated to make such payment or in the belief that said payment was necessary or expedient 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, alterations, or substitutions, shall be final and shall not be disputed by the undersigned, who hereby jointly and severally bind themselves to indemnify [Country Bankers] of any and all such payments, as stated in the preceding clauses. In case the COMPANY shall have paid[,] settled or compromised any liability, loss, costs, damages, attorneys fees, expenses, claims[,] demands, suits, or judgments as above-stated, arising out of or in connection with said bond, an itemized statement thereof, signed by an officer of the COMPANY and other evidence to show said payment, settlement or compromise, shall be prima facie evidence of said payment, settlement or compromise, as well as the liability of the undersigned in any and all suits and claims against the undersigned arising out of said bond or this bond application.[36] Lagman is bound by these Indemnity Agreements. Payments made by Country Bankers by virtue of the 1989 Bonds gave rise to Lagmans obligation to reimburse it under the Indemnity Agreements. Lagman, being a solidary debtor, is liable for the entire obligation. WHEREFORE, the petition is GRANTED. The assailed Decision and Resolution of the Court of Appeals in CA-G.R. CV No. 61797 are SET ASIDE and the Decision dated 21 September 1998 of the RTC is hereby REINSTATED. SO ORDERED.

Negotiability of Warehouse Receipt G.R. No. L-17825

June 26, 1922

In the matter of the Involuntary insolvency of U. DE POLI. FELISA ROMAN, claimant-appellee, vs. ASIA BANKING CORPORATION, claimant-appellant.

OSTRAND, J.: This is an appeal from an order entered by the Court of First Instance of Manila in civil No. 19240, the insolvency of Umberto de Poli, and declaring the lien claimed by the appellee Felisa Roman upon a lot of leaf tobacco, consisting of 576 bales, and found in the possession of said insolvent, superior to that claimed by the appellant, the Asia Banking Corporation. The order appealed from is based upon the following stipulation of facts: It is hereby stipulated and agreed by and between Felisa Roman and Asia Banking Corporation, and on their behalf by their undersigned attorneys, that their respective rights, in relation to the 576 bultos of tobacco mentioned in the order of this court dated April 25, 1921, be, and hereby are, submitted to the court for decision upon the following: I. Felisa Roman claims the 576 bultos of tobacco under and by virtue of the instrument, a copy of which is hereto attached and made a part hereof and marked Exhibit A. II. That on November 25, 1920, said Felisa Roman notified the said Asia Banking Corporation of her contention, a copy of which notification is hereto attached and made a part hereof and marked Exhibit B. III. That on November 29, 1920, said Asia Banking Corporation replied as per copy hereto attached and marked Exhibit C. IV. That at the time the above entitled insolvency proceedings were filed the 576 bultos of tobacco were in possession of U. de Poli and now are in possession of the assignee. V. That on November 18, 1920, U. de Poli, for value received, issued a quedan, covering aforesaid 576 bultosof tobacco, to the Asia Banking Corporation as per copy of quedan attached and marked Exhibit D. VI. That aforesaid 576 bultos of tobacco are part and parcel of the 2,777 bultos purchased by U. de Poli from Felisa Roman. VII. The parties further stipulate and agree that any further evidence that either of the parties desire to submit shall be taken into consideration together with this stipulation. Manila, P. I., April 28, 1921. (Sgd.) ANTONIO V. HERRERO Attorney for Felisa Roman (Sgd.) WOLFSON, WOLFSON & SCHWARZKOPF Attorney for Asia Banking Corp. Exhibit A referred to in the foregoing stipulation reads: 1.º Que la primera parte es dueña de unos dos mil quinientos a tres mil quintales de tacabo de distintas clases, producidos en los municipios de San Isidro, Kabiaw y Gapan adquiridos por compra con dinero perteneciente a sus bienes parafernales, de los cuales es ella administradora. 2.º Que ha convenido la venta de dichos dos mil quinientos a tres mil quintales de tabaco mencionada con la Segunda Parte, cuya compraventa se regira por las condiciones siguientes: (a) La Primera Parte remitira a la Segunda debidamente enfardado el tabaco de que ella es propietaria en bultos no menores de cincuenta kilos, siendo de cuenta de dicha Primera Parte todos los gastos que origine

dicha mercancja hasta la estacion de ferrocarril de Tutuban, en cuyo lugar se hara cargo la Segunda y desde cuyo instante seran de cuenta de esta los riesgos de la mercancia. (b) El precio en que la Primera Parte vende a la Segunda el tabaco mencionada es el de veintiseis pesos (P26), moneda filipina, por quintal, pagaderos en la forma que despues se establece. (c) La Segunda Parte sera la consignataria del tabaco en esta Ciudad de Manila quien se hara cargo de el cuando reciba la factura de embarque y la guia de Rentas Internas, trasladandolo a su bodega quedando en la misma en calidad de deposito hasta la fecha en que dicha Segunda Parte pague el precio del mismo, siendo de cuenta de dicha Segunda Parte el pago de almacenaje y seguro. (d) LLegada la ultima expedicion del tabaco, se procedera a pesar el mismo con intervencion de la Primera Parte o de un agente de ella, y conocido el numero total de quintales remitidos, se hara liquidacion del precio a cuenta del cual se pagaran quince mil pesos (P15,000), y el resto se dividira en cuatro pagares vencederos cada uno de ellos treinta dias despues del anterior pago; esto es, el primer pagare vencera a los treinta dias de la fecha en que se hayan pagado los quince mil pesos, el segundo a igual tiempo del anterior pago, y asi sucesivamente; conviniendose que el capital debido como precio del tabaco devengara un interes del diez por ciento anual. Los plazos concedidos al comprador para el pago del precio quedan sujetos a la condicion resolutoria de que si antes del vencimiento de cualquier plazo, el comprador vendiese parte del tabaco en proporcion al importe de cualquiera de los pagares que restasen por vencer, o caso de que vendiese, pues se conviene para este caso que desde el momento en que la Segunda Parte venda el tabaco, el deposito del mismo, como garantia del pago del precio, queda cancelado y simultaneamente es exigible el importe de la parte por pagar. Leido este documento por los otorgantes y encontrandolo conforme con lo por ellos convenido, lo firman la Primera Parte en el lugar de su residencia, San Isidro de Nueva Ecija, y la Segunda en esta Ciudad de Manila, en las fechas que respectivamente al pie de este documento aparecen. (Fdos.) FELISA ROMAN VDA. DE MORENO U. DE POLI Firmado en presencia de: (Fdos.) ANTONIO V. HERRERO T. BARRETTO ("Acknowledged before Notary") Exhibit D is a warehouse receipt issued by the warehouse of U. de Poli for 576 bales of tobacco. The first paragraph of the receipt reads as follows: Quedan depositados en estos almacenes por orden del Sr. U. de Poli la cantidad de quinientos setenta y seis fardos de tabaco en rama segun marcas detalladas al margen, y con arreglo a las condiciones siguientes: In the left margin of the face of the receipts, U. de Poli certifies that he is the sole owner of the merchandise therein described. The receipt is endorced in blank "Umberto de Poli;" it is not marked "non-negotiable" or "not negotiable." Exhibit B and C referred to in the stipulation are not material to the issues and do not appear in the printed record. Though Exhibit A in its paragraph (c) states that the tobacco should remain in the warehouse of U. de Poli as a deposit until the price was paid, it appears clearly from the language of the exhibit as a whole that it evidences a contract of sale and the recitals in order of the Court of First Instance, dated January 18, 1921, which form part of the printed record, show that De Poli received from Felisa Roman, under this contract, 2,777 bales of tobacco of the total value

of P78,815.69, of which he paid P15,000 in cash and executed four notes of P15,953.92 each for the balance. The sale having been thus consummated, the only lien upon the tobacco which Felisa Roman can claim is a vendor's lien. The order appealed from is based upon the theory that the tobacco was transferred to the Asia Banking Corporation as security for a loan and that as the transfer neither fulfilled the requirements of the Civil Code for a pledge nor constituted a chattel mortgage under Act No. 1508, the vendor's lien of Felisa Roman should be accorded preference over it. It is quite evident that the court below failed to take into consideration the provisions of section 49 of Act No. 2137 which reads: Where a negotiable receipts has been issued for goods, no seller's lien or right of stoppage in transitu shall defeat the rights of any purchaser for value in good faith to whom such receipt has been negotiated, whether such negotiation be prior or subsequent to the notification to the warehouseman who issued such receipt of the seller's claim to a lien or right of stoppage in transitu. Nor shall the warehouseman be obliged to deliver or justified in delivering the goods to an unpaid seller unless the receipt is first surrendered for cancellation. The term "purchaser" as used in the section quoted, includes mortgagee and pledgee. (See section 58 (a) of the same Act.) In view of the foregoing provisions, there can be no doubt whatever that if the warehouse receipt in question is negotiable, the vendor's lien of Felisa Roman cannot prevail against the rights of the Asia Banking Corporation as the indorse of the receipt. The only question of importance to be determined in this case is, therefore, whether the receipt before us is negotiable. The matter is not entirely free from doubt. The receipt is not perfect: It recites that the merchandise is deposited in the warehouse "por orden" instead of "a la orden" or "sujeto a la orden" of the depositor and it contain no other direct statement showing whether the goods received are to be delivered to the bearer, to a specified person, or to a specified person or his order. We think, however, that it must be considered a negotiable receipt. A warehouse receipt, like any other document, must be interpreted according to its evident intent (Civil Code, arts. 1281 et seq.) and it is quite obvious that the deposit evidenced by the receipt in this case was intended to be made subject to the order of the depositor and therefore negotiable. That the words "por orden" are used instead of "a la orden" is very evidently merely a clerical or grammatical error. If any intelligent meaning is to be attacked to the phrase "Quedan depositados en estos almacenes por orden del Sr. U. de Poli" it must be held to mean "Quedan depositados en estos almacenes a la orden del Sr. U. de Poli." The phrase must be construed to mean that U. de Poli was the person authorized to endorse and deliver the receipts; any other interpretation would mean that no one had such power and the clause, as well as the entire receipts, would be rendered nugatory. Moreover, the endorsement in blank of the receipt in controversy together with its delivery by U. de Poli to the appellant bank took place on the very of the issuance of the warehouse receipt, thereby immediately demonstrating the intention of U. de Poli and of the appellant bank, by the employment of the phrase "por orden del Sr. U. de Poli" to make the receipt negotiable and subject to the very transfer which he then and there made by such endorsement in blank and delivery of the receipt to the blank. As hereinbefore stated, the receipt was not marked "non-negotiable." Under modern statutes the negotiability of warehouse receipts has been enlarged, the statutes having the effect of making such receipts negotiable unless marked "non-negotiable." (27 R. C. L., 967 and cases cited.) Section 7 of the Uniform Warehouse Receipts Act, says: A non-negotiable receipt shall have plainly placed upon its face by the warehouseman issuing it 'nonnegotiable,' or 'not negotiable.' In case of the warehouseman's failure so to do, a holder of the receipt who

purchased it for value supposing it to be negotiable may, at his option, treat such receipt as imposing upon the warehouseman the same liabilities he would have incurred had the receipt been negotiable. This section shall not apply, however, to letters, memoranda, or written acknowledgments of an informal character. This section appears to give any warehouse receipt not marked "non-negotiable" or "not negotiable" practically the same effect as a receipt which, by its terms, is negotiable provided the holder of such unmarked receipt acquired it for value supposing it to be negotiable, circumstances which admittedly exist in the present case. We therefore hold that the warehouse receipts in controversy was negotiable and that the rights of the endorsee thereof, the appellant, are superior to the vendor's lien of the appellee and should be given preference over the latter. The order appealed from is therefore reversed without costs. So ordered. Araullo, C.J., Malcolm, Avanceña, Villamor, Johns and Romualdez, JJ., concur.

VII. GUARANTY AND SURETYSHIP

G.R. No. 117660. December 18, 2000 AGRO CONGLOMERATES, INC. and MARIO SORIANO, petitioners, vs. THE HON. COURT OF APPEALS and REGENT SAVINGS and LOAN BANK, INC., respondents. DECISION QUISUMBING, J.: This is a petition for review challenging the decision[1] dated October 17, 1994 of the Court of Appeals in CA-G.R. No. 32933, which affirmed in toto the judgment of the Manila Regional Trial Court, Branch 27, in consolidated Cases Nos. 86-37374, 86-37388, 86-37543. This petition springs from three complaints for sums of money filed by respondent bank against herein petitioners. In the decision of the Court of Appeals, petitioners were ordered to pay respondent bank, as follows: Wherefore, judgment is hereby rendered in favor of plaintiff and against defendants, as follows: 1) In Civil Case No. 86-37374, defendants [petitioners, herein] are ordered jointly and severally, to pay to plaintiff the amount of P78,212.29, together with interest and service charge thereon, at the rates of 14% and 3% per annum, respectively, computed from November 10, 1982, until fully paid, plus

stipulated penalty on unpaid principal at the rate of 6% per annum, computed from November 10, 1982, plus 15% as liquidated damage plus 10% of the total amount due, as attorneys fees, plus costs; 2) In Civil Case No. 86-37388, defendant is ordered to pay plaintiff the amount of P632,911.39, together with interest and service charge thereon at the rate of 14% and 3% per annum, respectively, computed from January 15, 1983, until fully paid, plus stipulated penalty on unpaid principal at the rate of 6% per annum, computed from January 15, 1983, plus liquidated damages equivalent to 15% of the total amount due, plus attorneys fees equivalent to 10% of the total amount due, plus costs; and 3) In Civil Case No. 86-37543, defendant is ordered to pay plaintiff, on the first cause of action, the amount of P510,000.00, together with interest and service charge thereon, at the rates of 14% and 2% per annum, respectively, computed from March 13, 1983, until fully paid, plus a penalty of 6% per annum, based on the outstanding principal of the loan, computed from March 13, 1983, until fully paid; and on the second cause of action, the amount of P494,936.71, together with interest and service charge thereon at the rates of 14% and 2%, per annum, respectively, computed from March 30, 1983, until fully paid, plus a penalty charge of 6% per annum, based on the unpaid principal, computed from March 30, 1983, until fully paid, plus (on both causes of action) an amount equal to 15% of the total amounts due, as liquidated damages, plus attorneys fees equal to 10% of the total amounts due, plus costs.[2] Based on the records, the following are the factual antecedents. On July 17, 1982, petitioner Agro Conglomerates, Inc. as vendor, sold two parcels of land to Wonderland Food Industries, Inc. In their Memorandum of Agreement,[3] the parties covenanted that the purchase price of Five Million (P5,000,000.00) Pesos would be settled by the vendee, under the following terms and conditions: (1) One Million (P1,000,000.00) Pesos shall be paid in cash upon the signing of the agreement; (2) Two Million (P2,000,000.00) Pesos worth of common shares of stock of the Wonderland Food Industries, Inc.; and (3) The balance of P2,000,000.00 shall be paid in four equal installments, the first installment falling due, 180 days after the signing of the agreement and every six months thereafter, with an interest rate of 18% per annum, to be advanced by the vendee upon the signing of the agreement. On July 19, 1982, the vendor, the vendee, and the respondent bank Regent Savings & Loan Bank (formerly Summa Savings & Loan Association), executed an Addendum[4]to the previous Memorandum of Agreement. The new arrangement pertained to the revision of settlement of the initial payments of P1,000,000.00 and prepaid interest of P360,000.00 (18% of P2,000,000.00) as follows: Whereas, the parties have agreed to qualify the stipulated terms for the payment of the said ONE MILLION THREE HUNDRED SIXTY THOUSAND (P1,360,000.00) PESOS. WHEREFORE, in consideration of the mutual covenant and agreement of the parties, they do further covenant and agree as follows: 1. That the VENDEE instead of paying the amount of ONE MILLION THREE HUNDRED SIXTY THOUSAND (P1,360,000.00) PESOS in cash, hereby authorizes the VENDOR to obtain a loan from Summa Savings and Loan Association with office address at Valenzuela, Metro Manila, being represented herein by its President, Mr. Jaime Cario and referred to hereafter as Financier; in the amount of ONE MILLION THREE HUNDRED SIXTY THOUSAND (P1,360,000.00)PESOS, plus interest thereon at such rate as the VENDEE and the Financier may agree, which amount shall cover the ONE MILLION (P1,000,000.00) PESOS cash which was agreed to be paid upon signing of the Memorandum of Agreement, plus 18% interest on the balance of two million pesos stipulated upon in Item No. 1(c) of the said agreement; provided however, that said loan shall be made for and in the name of the VENDOR. 2. The VENDEE also agrees that the full amount of ONE MILLION THREE HUNDRED SIXTY THOUSAND (P1,360,000.00) PESOS be paid directly to the VENDOR; however, the VENDEE hereby undertakes to pay the full amount of the said loan to the Financier on such terms and conditions agreed upon by the Financier and the VENDOR, it being understood that while the loan will be secured from and in the name of the VENDOR, the VENDEE will be the one liable to pay the entire proceeds thereof including interest and other charges.[5]

This addendum was not notarized. Consequently, petitioner Mario Soriano signed as maker several promissory notes,[6] payable to the respondent bank. Thereafter, the bank released the proceeds of the loan to petitioners. However, petitioners failed to meet their obligations as they fell due. During that time, the bank was experiencing financial turmoil and was under the supervision of the Central Bank. Central Bank examiner and liquidator Cordula de Jesus, endorsed the subject promissory notes to the banks counsel for collection. The bank gave petitioners opportunity to settle their account by extending payment due dates. Mario Soriano manifested his intention to re-structure the loan, yet did not show up nor submit his formal written request. Respondent bank filed three separate complaints before the Regional Trial Court of Manila for Collection of Sums of money. The corresponding case histories are illustrated in the table below: Date of Loan

Amount

Payment Due Date

Payment Extension Dates

Civil Case 86-37374 August 12, 1982

P78,212.29

Nov. 10, 1982

Feb. 8, 1983 May 9, 1983 Aug. 7, 1983

Civil Case 86-37388 July 19, 1982

P632,911.39

Jan. 15, 1983

May 16, 1983 Aug. 14, 1983

Civil Case 86-37543 September 14, 1982

P510,000.00

March 13, 1983

June 11, 1983 Sept. 9, 1983

October 1, 1982

P494,936.71

March 30, 1983

June 28, 1983 Sept. 26, 1983

In their answer, petitioners interposed the defense of novation and insisted there was a valid substitution of debtor. They alleged that the addendum specifically states that although the promissory notes were in their names, Wonderland shall be responsible for the payment thereof. The trial court held that petitioners are liable, to wit: The evidences, however, disclose that Wonderland did not comply with its obligation under said Addendum (Exh. S) as the agreement to turn over the farmland to it, did not materialize (57 tsn, May 29, 1990), and there was, actually no sale of the land (58 tsn, ibid). Hence, Wonderland is not answerable. And since the loans obtained under the four promissory notes (Exhs. A, C, G, and E) have not been paid, despite opportunities given by plaintiff to defendants to make payments, it stands to reason that defendants are liable to pay their obligations thereunder to plaintiff. In fact, defendants failed to file a third-party complaint against Wonderland, which shows the weakness of its stand that Wonderland is answerable to make said payments.[7] Petitioners appealed to the Court of Appeals. The trial courts decision was affirmed by the appellate court. Hence, this recourse, wherein petitioners raise the sole issue of: WHETHER THE COURT OF APPEALS ERRED IN NOT FINDING THAT THE ADDENDUM, SIGNED BY THE PETITIONERS, RESPONDENT BANK AND WONDERLAND INC., CONSTITUTES A NOVATION OF THE CONTRACT BY SUBSTITUTION OF DEBTOR, WHICH EXEMPTS THE PETITIONERS FROM ANY LIABILITY OVER THE PROMISSORY NOTES. Revealed by the facts on record, the conflict among the parties started from a contract of sale of a farmland between petitioners and Wonderland Food Industries, Inc. As found by the trial court, no such sale materialized.

A contract of sale is a reciprocal transaction. The obligation or promise of each party is the cause or consideration for the obligation or promise by the other. The vendee is obliged to pay the price, while the vendor must deliver actual possession of the land. In the instant case the original plan was that the initial payments would be paid in cash. Subsequently, the parties (with the participation of respondent bank) executed an addendum providing instead, that the petitioners would secure a loan in the name of Agro Conglomerates Inc. for the total amount of the initial payments, while the settlement of said loan would be assumed by Wonderland. Thereafter, petitioner Soriano signed several promissory notes and received the proceeds in behalf of petitioner-company. By this time, we note a subsidiary contract of suretyship had taken effect since petitioners signed the promissory notes as maker and accommodation party for the benefit of Wonderland. Petitioners became liable as accommodation party. An accommodation party is a person who has signed the instrument as maker, acceptor, or indorser, without receiving value therefor, and for the purpose of lending his name to some other person and is liable on the instrument to a holder for value, notwithstanding such holder at the time of taking the instrument knew (the signatory) to be an accommodation party.[8] He has the right, after paying the holder, to obtain reimbursement from the party accommodated, since the relation between them has in effect become one of principal and surety, the accommodation party being the surety.[9] Suretyship is defined as the relation which exists where one person has undertaken an obligation and another person is also under the obligation or other duty to the obligee, who is entitled to but one performance, and as between the two who are bound, one rather than the other should perform. [10] The suretys liability to the creditor or promisee of the principal is said to be direct, primary and absolute; in other words, he is directly and equally bound with the principal.[11]And the creditor may proceed against any one of the solidary debtors.[12] We do not give credence to petitioners assertion that, as provided by the addendum, their obligation to pay the promissory notes was novated by substitution of a new debtor, Wonderland. Contrary to petitioners contention, the attendant facts herein do not make a case of novation. Novation is the extinguishment of an obligation by the substitution or change of the obligation by a subsequent one which extinguishes or modifies the first, either by changing the object or principal conditions, or by substituting another in place of the debtor, or by subrogating a third person in the rights of the creditor.[13] In order that a novation can take place, the concurrence of the following requisites[14] are indispensable: 1) There must be a previous valid obligation; 2) There must be an agreement of the parties concerned to a new contract; 3) There must be the extinguishment of the old contract; and 4) There must be the validity of the new contract. In the instant case, the first requisite for a valid novation is lacking. There was no novation by substitution of debtor because there was no prior obligation which was substituted by a new contract. It will be noted that the promissory notes, which bound the petitioners to pay, were executed after the addendum. The addendum modified the contract of sale, not the stipulations in the promissory notes which pertain to the surety contract.At this instance, Wonderland apparently assured the payment of future debts to be incurred by the petitioners. Consequently, only a contract of surety arose. It was wrong for petitioners to presume a novation had taken place. The well-settled rule is that novation is never presumed,[15] it must be clearly and unequivocally shown.[16] As it turned out, the contract of surety between Wonderland and the petitioners was extinguished by the rescission of the contract of sale of the farmland. With the rescission, there was confusion or merger in the persons of the principal obligor and the surety, namely the petitioners herein.The addendum which was dependent thereon likewise lost its efficacy. It is true that the basic and fundamental rule in the interpretation of contract is that, if the terms thereof are clear and leave no doubt as to the intention of the contracting parties, the literal meaning shall control. However, in order to judge the intention of the parties, their contemporaneous and subsequent acts should be considered.[17] The contract of sale between Wonderland and petitioners did not materialize. But it was admitted that petitioners received the proceeds of the promissory notes obtained from respondent bank. Sec. 22 of the Civil Code provides:

Every person who through an act of performance by another, or any other means, acquires or comes into possession of something at the expense of the latter without just or legal ground, shall return the same to him. Petitioners had no legal or just ground to retain the proceeds of the loan at the expense of private respondent. Neither could petitioners excuse themselves and hold Wonderland still liable to pay the loan upon the rescission of their sales contract. If petitioners sustained damages as a result of the rescission, they should have impleaded Wonderland and asked damages. The non-inclusion of a necessary party does not prevent the court from proceeding in the action, and the judgment rendered therein shall be without prejudice to the rights of such necessary party.[18] But respondent appellate court did not err in holding that petitioners are duty-bound under the law to pay the claims of respondent bank from whom they had obtained the loan proceeds. WHEREFORE, the petition is DENIED for lack of merit. The assailed decision of the Court of Appeals dated October 17, 1994 is AFFIRMED.Costs against petitioners. SO ORDERED.

G.R. No. 84084 August 20, 1990 FINMAN GENERAL ASSURANCE CORPORATION, petitioner, vs. ABDULGANI SALIK, BALABAGAN AMPILAN ALI KUBA GANDHI PUA, DAVID MALANAO, THE ADMINISTRATOR, PHILIPPINE OVERSEAS AND EMPLOYMENT ADMINISTRATION, THE SECRETARY OF LABOR AND EMPLOYMENT, respondents. 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: 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). 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). 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 nonissuance 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 cashbond 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. 1617). 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: WHEREFORE, premises considered, both respondents are hereby directed to pay jointly and severally the claims of complainants, as follows: 1. Abdulgani Salik P5,000.00 2. Balabagan Ampilan 5,000.00 3. Ali Kuba 5,000.00 4. Gandhi Dua 5,000.00 5. David Malanao 5,000.00 Based on the records of this Administration, respondent agency is presently serving a total period of suspension of seventeen (1 7) 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 imposable 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. 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: 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. 87-091022 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 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) 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 filed on September 11, 1989 (Ibid., p. 89) and March 16, 1990 (Ibid., p. 120), respectively. 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: 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. 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]). 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 (Asiaworld Publishing House, Inc. vs. 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 a pear (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 (Asiaworld 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. G.R. No. L-57757 August 31, 1987 PHILIPPINE NATIONAL BANK, petitioner, vs. THE HONORABLE COURT OF APPEALS, PRAGMACIO VITUG AND MAXIMO VITUG, respondents. GANCAYCO, J.: Does the presumption of conjugality of properties acquired by the spouses during coverture provided for in Article 160 of the Civil Code apply to property covered by a Torrens certificate of title in the name of the widow? This is the issue posed in this petition to review on certiorari of the decision of the Court of Appeals in CA-G.R. No. 60903 which is an action for reconveyance and damages. *

On November 28, 1952, Donata Montemayor, through her son, Salvador M. Vitug, mortgaged to the Philippine National Bank (PNB) several parcels of land covered by Transfer Certificate of Title (TCT) No. 2289 — Pampanga to guarantee the loan granted by the PNB to Salvador Jaramilla and Pedro Bacani in the amount of P40,900.00 which was duly registered in the Office of the Register of Deeds of Pampanga. 1 On December 1, 1963, Donata Montemayor also mortgaged in favor of PNB certain properties covered by TCT Nos. 2887 and 2888-Pampanga to guarantee the payment of the loan account of her son Salvador Vitug in the amount of P35,200.00, which mortgage was duly registered in the Register of Deeds of Pampanga. 2 The above-mentioned Transfer Certificates of Titles covering said properties were all in the name of Donata Montemayor, of legal age, Filipino, widow and a resident of Lubao, Pampanga at the time they were mortgaged to PNB 3 and were free from all hens and encumbrances. 4 Salvador Vitug failed to pay his account so the bank foreclosed the mortgaged properties covered by TCT Nos. 2887 and 2888. They were sold at public auction on May 20, 1968 in which the PNB was the highest bidder. The titles thereto were thereafter consolidated in the name of PNB. Likewise, Salvador Jaramilla and Pedro Bacani failed to settle their accounts with the PNB so the latter foreclosed the properties covered by TCT No. 2889 which were sold at public auction and likewise PNB was the buyer thereof. On August 30, 1968, a certificate of sale was issued by the Register of Deeds covering said properties in favor of the PNB. When the title of the PNB was consolidated a new title was issued in its name. 5 On September 2, 1969, the PNB sold the properties covered by TCT Nos. 2887 and 2888 — Pampanga to Jesus M. Vitug, Anunciacion V. de Guzman, Prudencia V. Fajardo, Salvador Vitug and Aurora V. Gutierrez in those names the corresponding titles were issued. 6 During the lifetime of Clodualdo Vitug he married two times. His first wife was Gervacia Flores with whom he had 3 children, namely, Victor, Lucina and Julio all surnamed Vitug. Victor now dead is survived by his 5 children: Leonardo, Juan, Candida Francisco and Donaciano, an surnamed Vitug. Juan Vitug is also dead and is survived by his only daughter Florencia Vitug. The second wife of Clodualdo Vitug was Donata Montemayor with whom he had 8 children, namely, Pragmacio, Maximo, Jesus, Salvador, Prudencio and Anunciacion, all surnamed Vitug, the late Enrique Vitug represented by his wife Natalia Laquian, and the late Francisco Vitug who is survived by 11 children, namely, Antonio, Francisco, Aurora, Pedro, Honorio, Corazon, Anselmo, Benigno, Eligio Jesus and Luz. Clodualdo Vitug died intestate on May 20, 1929 so his estate was settled and distributed in Special Proceeding No. 422 in the Court of First Instance of Pampanga wherein Donata Montemayor was the Administratrix. 7 Meanwhile, on May 12,1958, Donata Montemayor executed a contract of lease of Lot No. 24, which is covered by TCT No. 2887-R in favor of her children Pragmacio and Maximo both surnamed Vitug. This lease was extended on August 31, 1963. By virtue of a general power of attorney executed by Donata Montemayor on Sept. 19, 1966 in favor of Pragmacio Vitug, the latter executed a contract of lease on Sept. 19, 1967 of the said lot in favor of Maximo Vitug. 8 On March 21, 1970 Pragmacio Vitug and Maximo Vitug filed an action for partition and reconveyance with damages in the Court of First Instance of Pampanga against Marcelo Mendiola, special administrator of the intestate estate of Donata Montemayor who died earlier, Jesus Vitug, Sr., Salvador, Natalia, Prudencia, Anunciacion, all surnamed Vitug, Antonio, Francisco, Aurora, Pedro, Honorio, Corazon, Anselmo, Benigno, Eligio Jesus and Luz, all surnamed Fajardo and the PNB. The subject of the action is 30 parcels of land which they claim to be the conjugal property of the spouses Donata Montemayor and Clodualdo Vitug of which they claim a share of 2/11 of 1/2 thereof. They assailed the mortgage to the PNB and the public auction of the properties as null and void. They invoked the case of Vitug vs. Montemayor, L-

5297 decided by this Court on Oct. 20, 1953 which is an action for partition and liquidation of the said 30 parcels of land wherein the properties were found to be conjugal in nature. In a decision of Sept. 15, 1975, the lower court dismissed the complaint with costs against the plaintiffs and ordered them to pay attorney's fees of P5,000.00 to the defendant's counsel. Plaintiffs then interposed an appeal to the Court of Appeals, wherein in due course a decision was rendered on May 20, 1981, the dispositive part of which reads as follows: WHEREFORE, in the light of the foregoing, the decision appealed from is hereby reversed and set aside, and another one entered in accordance with the tenor of the prayer of appellant's complaint with the modification that the sale at public auction of the 22 parcels be considered valid with respect to the 1/2 thereof. No costs. Hence the herein petition for certiorari filed by the PNB raising the following assignments of error: I THE RESPONDENT COURT OF APPEALS ERRED IN APPLYING TO THE CASE AT BAR THE RULING OF THIS HONORABLE SUPREME COURT IN FLORENCIA VITUG VS. DONATA MONTEMAYOR, ET AL., 91 PHIL. 286 (1953) BECAUSE: A. BETWEEN A PROVISION OF A SPECIAL LAW AND THE JUDICIAL INTERPRETATION AND/OR APPLICATION OF A PROVISION OF A GENERAL LAW, THE FORMER PREVAILS. B. THE DOCTRINE OF STARE DECISIS IS NOT A MECHANICAL FORMULA OF ADHERENCE. C. PNB WAS NOT A PARTY, AND HAD NO KNOWLEDGE OF THE ABOVECITED CASE. D. SIMILARLY, PRAGMACIO VITUG AND MAXIMO VITUG WERE NOT PARTIES IN SAID CASE. II THE RESPONDENT COURT OF APPEALS ERRED IN NOT RECOGNIZING THE CONCLUSIVENESS OF THE CERTIFICATE, OF TITLE, AS PROVIDED IN ACT 496, AS AMENDED (THE LAND REGISTRATION). III THE RESPONDENT COURT OF APPEALS ERRED IN IGNORING THE CONCLUSIVENESS OF OWNERSHIP OF DONATA MONTEMAYOR OVER THE PROPERTIES WHICH WERE REGISTERED EXCLUSIVELY IN HER NAME WHEN PRIVATE RESPONDENTS (PRAGMACIO VITUG AND MAXIMO VITUG), AS LESSEES, ENTERED INTO A CONTRACT OF LEASE WITH DONATA MONTEMAYOR AS THE OWNER-LESSOR. IV THE RESPONDENT COURT OF APPEALS ERRED IN CONCLUDING THAT PNB WAS A MORTGAGEE IN BAD FAITH. The petition is impressed with merit.

When the subject properties were mortgaged to the PNB they were registered in the name of Donata Montemayor, widow. Relying on the torrens certificate of title covering said properties the mortgage loan applications of Donata were granted by the PNB and the mortgages were duly constituted and registered in the office of the Register of Deeds. In processing the loan applications of Donata Montemayor, the PNB had the right to rely on what appears in the certificates of title and no more. On its face the properties are owned by Donata Montemayor, a widow. The PNB had no reason to doubt nor question the status of said registered owner and her ownership thereof. Indeed, there are no liens and encumbrances covering the same. The well-known rule in this jurisdiction is that a person dealing with a registered land has a right to rely upon the face of the torrens certificate of title and to dispense with the need of inquiring further, except when the party concerned has actual knowledge of facts and circumstances that would impel a reasonably cautious man make such inquiry. 9 A torrens title concludes all controversy over ownership of the land covered by a final degree of registration. 10 Once the title is registered the owner may rest assured without the necessity of stepping into the portals of the court or sitting in the mirador de su casa to avoid the possibility of losing his land. 11 Article 160 of the Civil Code provides as follows: Art. 160. All property of the marriage is presumed to belong to the conjugal partnership, unless it be proved that it pertains exclusively to the husband or to the wife. The presumption applies to property acquired during the lifetime of the husband and wife. In this case, it appears on the face of the title that the properties were acquired by Donata Montemayor when she was already a widow. When the property is registered in the name of a spouse only and there is no showing as to when the property was acquired by said spouse, this is an indication that the property belongs exclusively to said spouse. 12 And this presumption under Article 160 of the Civil Code cannot prevail when the title is in the name of only one spouse and the rights of innocent third parties are involved. 13 The PNB had a reason to rely on what appears on the certificates of title of the properties mortgaged. For all legal purposes, the PNB is a mortgagee in goodfaith for at the time the mortgages covering said properties were constituted the PNB was not aware to any flaw of the title of the mortgagor. 14 True it is that in the earlier cases decided by this Court, namely Vitug VS. Montemayor decided on May 15, 1952, which is an action for recovery of possession of a share in said parcels of land, 15 and in the subsequent action for partition between the same parties decided on Oct. 20, 1953, 16 this court found the 30 parcels of land in question to be conjugal in nature and awarded the corresponding share to the property of Florencia Vitug, an heir of the late Clodualdo Vitug from the first marriage. In said cases this Court affirmed the decision of the lower court. In the dispositive part of the decision of the trial court it made the observation that "but from the conduct of Clodualdo Vitug and Donata Montemayor during the existence of their marital life, the inference is clear that Clodualdo had the unequivocal intention of transmitting the full ownership of the 30 parcels of land to his wife Donata Montemayor, thus considering the 1/2 of the funds of the conjugal property so advanced for the purchase of said parcels of land as reimbursible to the estate of Clodualdo Vitug on his death. 17 That must be the reason why the property was registered in the name of Donata Montemayor as widow after the death of Clodualdo Vitug. 18 At any rate, although actions for recovery of real property and for partition are real actions, however, they are actions in personam that bind only the particular individuals who are parties thereto. 19 The PNB not being a party in said cases is not bound by the said decisions. Nor does it appear that the PNB was aware of the said decisions when it extended the above describe mortgage loans. Indeed, if the PNB knew of the conjugal nature of said properties it would not have approved the mortgage applications covering said properties of Donata Montemayor without requiring the consent of all the other heirs or co-owners thereof. Moreover, when said properties were sold at public auction, the PNB was a purchaser for value in good faith. So its right thereto is beyond question. 20

Pragmacio and Maximo Vitug are now estopped from questioning the title of Donata Montemayor to the said properties. They never raised the conjugal nature of the property nor took issue as to the ownership of their mother, Donata Montemayor, over the same. Indeed private respondents were among the defendants in said two cases wherein in their answers to the complaint they asserted that the properties in question are paraphernal properties belonging exclusively to Donata Montemayor and are not conjugal in nature. 21 Thus they leased the properties from their mother Donata Montemayor for many years knowing her to be the owner. They were in possession of the property for a long time and they knew that the same were mortgaged by their mother to the PNB and thereafter were sold at public auction, but they did not do anything. 22 It is only after 17 years that they remembered to assert their rights. Certainly, they are guilty of laches. 23 Moreover, as correctly held by the lower court. Pragmacio and Maximo Vitug as occupants and lessees of the property in question cannot now dispute the ownership of their mother over the same who was their lessor. 24 WHEREFORE, the subject decision of the respondent Court of Appeals is hereby REVERSED and set aside and another decision is hereby rendered DISMISSING the complaint and ordering private respondents to pay attomey's fees and expenses of litigation to petitioner PNB in the amount of P20,000.00 and the costs of the suit. SO ORDERED. G.R. No. L-45848 November 9,1977 TOWERS ASSURANCE CORPORATION, petitioner, vs. ORORAMA SUPERMART, ITS OWNER-PROPRIETOR, SEE HONG and JUDGE BENJAMIN K. GOROSPE, Presiding Judge, Court of First Instance of Misamis Oriental, Branch I, respondents. AQUINO, J.: This case is about the liability of a surety in a counterbond for the lifting of a writ of preliminary attachment. On February 17, 1976 See Hong, the proprietor of Ororama Supermart in Cagayan de Oro City, sued the spouses Ernesto Ong and Conching Ong in the Court of First Instance of Misamis Oriental for the collection of the sum of P 58,400 plus litigation expenses and attorney's fees (Civil Case No. 4930). See Hong asked for a writ of preliminary attachment. On March 5, 1976, the lower court issued an order of attachment. The deputy sheriff attached the properties of the Ong spouses in Valencia, Bukidnon and in Cagayan de Oro City. To lift the attachment, the Ong spouses filed on March 11, 1976 a counterbond in 'the amount of P 58,400 with Towers Assurance Corporation as surety. In that undertaking, the Ong spouses and Towers Assurance Corporation bound themselves to pay solidarity to See Hong the sum of P 58,400. On March 24, 1976 the Ong spouses filed an answer with a counterclaim. For non-appearance at the pre- trial, the Ong spouses were declared in default. On October 25, 1976, the lower court rendered a decision, ordering not only the Ong spouses but also their surety, Towers Assurance Corporation, to pay solidarily to See Hong the sum of P 58,400. The court also ordered the Ong spouses to pay P 10,000 as litigation expenses and attorney's fees. Ernesto Ong manifested that he did not want to appeal. On March 8, 1977, Ororama Supermart filed a motion for execution. The lower court granted that motion. The writ of execution was issued on March 14 against the judgment debtors and their surety. On March 29, 1977, Towers Assurance Corporation filed the instant petition for certiorari where it assails the decision and writ of execution.

We hold that the lower court acted with grave abuse of discretion in issuing a writ of execution against the surety without first giving it an opportunity to be heard as required in Rule 57 of tie Rules of Court which provides: SEC. 17. When execution returned unsatisfied, recovery had upon bound. — If the execution be returned unsatisfied in whole or in part, the surety or sureties on any counterbound given pursuant to the provisions of this rule to secure the payment of the judgment shall become charged on such counterbound, and bound to pay to the judgment creditor upon demand, the amount due under the judgment, which amount may be recovered from such surety or sureties after notice and summary hearing in the same action. Under section 17, in order that the judgment creditor might recover from the surety on the counterbond, it is necessary (1) that execution be first issued against the principal debtor and that such execution was returned unsatisfied in whole or in part; (2) that the creditor made a demand upon the surety for the satisfaction of the judgment, and (3) that the surety be given notice and a summary hearing in the same action as to his liability for the judgment under his counterbond. The first requisite mentioned above is not applicable to this case because Towers Assurance Corporation assumed a solidary liability for the satisfaction of the judgment. A surety is not entitled to the exhaustion of the properties of the principal debtor (Art. 2959, Civil Code; Luzon Steel Corporation vs. Sia, L-26449, May 15, 1969, 28 SCRA 58, 63). But certainly, the surety is entitled to be heard before an execution can be issued against him since he is not a party in the case involving his principal. Notice and hearing constitute the essence of procedural due process. (Martinez vs. Villacete 116 Phil. 326; Insurance & Surety Co., Inc. vs. Hon. Piccio, 105 Phil. 1192, 1200, Luzon Surety Co., Inc. vs. Beson, L-26865-66, January 30. 1970. 31 SCRA 313). WHEREFORE, the order and writ of execution, insofar as they concern Towers Corporation, are set aside. The lower court is directed to conduct a summary hearing on the surety's liability on its counterbound. No costs. SO ORDERED. G.R. No. L-18411

December 17, 1966

MAGDALENA ESTATES, INC., plaintiff-appellee, vs. RODRIGUEZ, defendants-appellants.

ANTONIO

A.

RODRIGUEZ

and

HERMINIA

C.

REGALA, J.: Appeal from the decision of the Court of First Instance of Manila ordering the defendants-appellants to pay jointly and severally to the plaintiff-appellee the sum of P655.89, plus legal interest thereon from date of the judicial demand, the sum of P100.00 as attorney's fees, and to pay the costs. The appellants bought from the appellee a parcel of land in Quezon City known as Lot 7-K-2-G, Psd-26193. In view of an unpaid balance of P5,000.00 on account of the purchase price of the lot, the appellants executed on January 4, 1957, the following promissory note representing the said account: PROMISSORY NOTE P5,000.00 Manila, January 4, 1957 We, the Spouses ANTONIO A. RODRIGUEZ and HERMINIA C. RODRIGUEZ, jointly and severally promise to pay the Magdalena Estates, Inc., or order, at its offices in the City of Manila, without any demand the sum of FIVE THOUSAND PESOS (P5,000.00), Philippine currency, with interest at the rate of Nine Per

Cent 9% per annum, within sixty (60) days from January 7, 1957. The sum of P5,000.00 represents the balance of the purchase price of the parcel of land known as Lot 7-K-2-G, Psd. 26193, containing an area of 2,191 square meters, Quezon City. (Sgd.) Antonio Rodriguez ( T ) ANTONIO RODRIGUEZ (Sgd.) Herminia Rodriguez ( T ) HERMINIA RODRIGUEZ

A. A. C. C.

Signed in the Presence of: (Sgd.)

ILLEGIBLE

(Sgd.) ILLEGIBLE On the same date, the appellants and the Luzon Surety Co., Inc. executed a bond in favor of the appellee, the undertaking thereof being embodied therein as follows: . . . comply with the obligation to pay the amount of P5,000.00 representing balance of the purchase price of a parcel of land known as Lot 7-K-2-G, Psd-26193, with an area of 2191 square meters, Quezon City, covered by Transfer Certificate of Title No. 13 (6947), Quezon City, within a period of sixty (60) days from January 7, 1957; That the Surety shall be notified in writing within Ten (10) days from moment of default otherwise, this undertaking is automatically null and void. On June 20, 1958, when the obligation of the appellants became due and demandable, the Luzon Surety Co., Inc. paid to the appellee the sum of P5,000.00. Subsequently, the appellee demanded from the appellants the payment of P655.89 corresponding to the alleged accumulated interests on the principal of P5,000.00. Due to the refusal of the appellants to pay the said interest, the appellee started this suit in the Municipal Court of Manila to enforce the collection thereof. The said court, on February 5, 1959, rendered judgment in favor of the appellee and against the appellants, ordering the latter to pay jointly and severally the appellee the sum of P655.89 with interest thereon at the legal rate from November 10, 1958, the date of the filing of the complaint, until the whole amount is fully paid. Not satisfied with that judgment, appellants appealed to the Court of First Instance of Manila, where the case was submitted for decision on the pleadings. The Court of First Instance of Manila rendered the judgment stated at the outset of this decision. On appeal directly to this Court, the following errors are assigned: I. The lower court erred in concluding as a fact from the pleadings that the plaintiff-appellee demanded, and the Luzon Surety Co., Inc. refused, the payment of interest in the amount of P655.89, and in not finding and declaring that said plaintiff-appellee waived or condoned the said interests. II. The lower court erred in not finding and declaring that the obligation of the defendants-appellants in favor of the plaintiff-appellee was totally extinguished by payment and/or condonation. III. The lower court erred in not finding and declaring that the promissory note executed by the defendantsappellants in favor of the plaintiff-appellee was, insofar as the said document provided for the payment of interests, novated when the plaintiff-appellee unqualifiedly accepted the surety bond which merely guaranteed payment of the principal in the sum of P5,000.00.

Appellants claim that the pleadings do not show that there was demand made by the appellee for the payment of accrued interest and what could be deduced therefrom was merely that the appellee demanded from the Luzon Surety Co., Inc., in the capacity of the latter as surety, the payment of the obligation of the appellants, and said appellee accepted unqualifiedly the amount of P5,000.00 as performance by the obligor and/or obligors of the obligation in its favor. It is further claimed that the unqualified acceptance of payment made by the Luzon Surety Co., Inc. of P5,000.00 or only the amount of the principal obligation and without exercising its (appellee's) right to apply a portion of P655.89 thereof to the payment of the alleged interest due despite its presumed knowledge of its right to do so, the appellee showed that it waived or condoned the interests due, because Articles 1235 and 1253 of the Civil Code provide: ART. 1235. When the obligee accepts the performance, knowing its incompleteness or irregularity, and without expressing any protest or objection, the obligation is deemed fully complied with. ART. 1253. If the debt produces interest, payment of the principal shall not be deemed to have been made until the interests have been recovered. We do not agree with the contention of the appellants. It is very clear in the promissory note that the principal obligation is the balance of the purchase price of the parcel of land known as Lot 7-K-2-G, Psd-26193, which is the sum of P5,000.00, and in the surety bond, the Luzon Surety Co., Inc. undertook "to pay the amount of P5,000.00 representing balance of the purchase price of a parcel of land known as Lot 7-K-2-G, Psd-26193, . . . ." The appellee did not protest nor object when it accepted the payment of P5,000.00 because it knew that that was the complete amount undertaken by the surety as appearing in the contract. The liability of a surety is not extended, by implication, beyond the terms of his contract.1 It is for the same reason that the appellee cannot apply a part of the P5,000.00 as payment for the accrued interest. Appellants are relying on Article 1253 of the Civil Code, but the rules contained in Articles 1252 to 1254 of the Civil Code apply to a person owing several debts of the same kind of a single creditor. They cannot be made applicable to a person whose obligation as a mere surety is both contingent and singular; his liability is confined to such obligation, and he is entitled to have all payments made applied exclusively to said application and to no other.2 Besides, Article 1253 of the Civil Code is merely directory, and not mandatory.3 Inasmuch as the appellee cannot protest for non-payment of the interest when it accepted the amount of P5,000.00 from the Luzon Surety Co., Inc., nor apply a part of that amount as payment for the interest, we cannot now say that there was a waiver or condonation on the interest due. It is claimed that there was a novation and/or modification of the obligation of the appellants in favor of the appellee because the appellee accepted without reservation the subsequent agreement set forth in the surety bond despite its failure to provide that it also guaranteed payment of accruing interest. The rule is settled that novation by presumption has never been favored. To be sustained, it needs to be established that the old and new contracts are incompatible in all points, or that the will to novate appears by express agreement of the parties or in acts of similar import.4 An obligation to pay a sum of money is not novated, in a new instrument wherein the old is ratified, by changing only the terms of payment and adding other obligations not incompatible with the old one, 5 or wherein the old contract is merely supplemented by the new one.6 The mere fact that the creditor receives a guaranty or accepts payments from a third person who has agreed to assume the obligation, when there is no agreement that the first debtor shall be released from responsibility does not constitute a novation, and the creditor can still enforce the obligation against the original debtor. (Straight v. Haskel, 49 Phil. 614; Pacific Commercial Co. v. Sotto, 34 Phil. 237; Estate of Mota v. Serra, 47 Phil. 464; Duñgo v. Lopena, supra ). In the instant case, the surety bond is not a new and separate contract but an accessory of the promissory note. WHEREFORE, the judgment appealed from should be, as it is hereby, affirmed, with costs against the appellants. Concepcion, C.J., Reyes, J.B.L., Barrera, Dizon, Makalintal, Bengzon, J.P., Zaldivar, Sanchez and Castro, JJ.,concur.

G.R. No. 89775 November 26, 1992 JACINTO UY DIÑO and NORBERTO UY, petitioners, vs. HON. COURT OF APPEALS and METROPOLITAN BANK AND TRUST COMPANY, respondents. 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 in CA-G.R. CV No. 17724 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 vs. 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. 82-9303. 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 Court summarizes the antecedent facts as follows: 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. 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 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 obtain 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 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 (Original Records, p. 331). Pursuant to the above commercial transaction, UTEFS executed and delivered to METROBANK and 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 entrusted, 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 parties-defendants. 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-defendant herein) filed a motion to dismiss the complaint on the ground of lack of cause of action. 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. 51-54). 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, 198, rendered its judgment, a portion of which reads: The evidence and the pleadings, thus, pose the querry (sic):

Are the defendants Jacinto Uy Diñoand Norberto Uy liable for the obligation contracted by Uy Tiam under the Letter of Credit (Exh. B) issued on March 30, 1987 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 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 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 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 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 xxx

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In its Decision, the trial court decreed as follows: PREMISES CONSIDERED, judgment is hereby rendered: 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. SO ORDERED. (Records, p. 336) 4 From the said Decision, the private respondent appealed to the Court of Appeals. The case was docketed as CA-G.R. CV No. 17724. In support thereof, it made the following assignment of errors in its Brief: I. THE LOWER COURT SERIOUSLY ERRED IN NOT FINDING AND HOLDING THAT DEFENDANTSAPPELLEES JACINTO UY DIÑO AND NORBERTO UY ARE SOLIDARILY LIABLE TO PLAINTIFFAPPELLANT 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: WHEREFORE, premises considered, the judgment appealed from is hereby REVERSED AND SET, ASIDE. In lieu thereof, another one is rendered: 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 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 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 the 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: . . . 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 25 February 1977. 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., the 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 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 s 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. The issues presented for determination are quite simple: 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 known at the time the guaranty is executed. 8 This is the basis for contracts denominated as 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 is 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: I. For and in consideration of any existing indebtedness 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, 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 evidence 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 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 herein before 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 Borrow 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 currenc(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 THOUSAND PESOS (P800,000.00). 14 Paragraph IV of both agreements stipulate that: 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 receipt (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 The foregoing stipulations unequivocally reveal that the suretyship agreement 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: 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. xxx xxx xxx 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 obligation, 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 guaranty may be constituted to guarantee the performance of a voidable or an unenforceable contract. It may also guarantee a natural obligation. 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 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 bond 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: . . . 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 They further provide that: 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 interest, 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 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. Interest 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. vs. P.L. Galang Machinery Co., Inc., 22 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.

xxx xxx xxx The objection has to be overruled, because as far back as the year 1922 this Court held in Tagawa vs. 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 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 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 vs. 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. The records do not reveal the exact amount of the unpaid portion of the principal obligation of Uy Tiam to MERTOBANK under Irrevocable Letter of Credit No. SN-Loc-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." 23This 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: 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 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 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 extend 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. SO ORDERED. [G.R. No. 109941. August 17, 1999] PACIONARIA C. BAYLON, petitioner, vs. THE HONORABLE COURT OF APPEALS (Former Ninth Division) and LEONILA TOMACRUZ, respondents. 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 CA-G.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: 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 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] After trial on the merits, the lower court ruled in favor of private respondent. In its Decision dated June 14, 1990, it stated that -

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 gurarantee to the payment of the amount loaned. xxx xx xxx 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 attorneys fees and costs of suit.[9] 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. 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 RESPONDENTAPPELLANT AND DEFENDANT LUANZON. At the outset, we note that petitioners 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 Luanzons 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:

June 22, 1987 To Whom It May Concern: 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: (signed) PACIONARIA O. BAYLON Tel. No. 801-28-00 18 P. Mapa St., DBP Village Almanza, Las Pinas, M.M.[15] 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. 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. 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 principals 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] 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. 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. SO ORDERED.