Deposit & Guaranty (Outline, Case Digest, FullText Cases)

Case Digest CREDIT TRANSACTIONS

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CREDIT TRANSACTION

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DEPOSIT

BPI vs IAC and ZSHORNACK

Gr. No. L-66826, August 19, 1988

TRIPLE-V vs FILIPINO MERCHANTS

Gr. No. 160544, February 21, 2005

CA AGRO-INDUSTRIAL DEVELOPMENT CORP vs CA

Gr. No. 90027, March 3, 1993

ROMAN CATHOLIC BISHOP OF JARO vs DELA PENA

Gr. No. L-6913, November 21, 1913

YHT REALTY CORP vs CA

Gr. No. 126780, February 17, 2005

GUARANTY and SURETYSHIP

TUPAZ IV & TUPAZ vs CA & BPI

Gr. No. 145578, November 18, 2005, 475 SCRA 398

SECURITY BANK & TRUST CO. vs CUENCA

Gr. No. 138544, October 3, 2000, 341 SCRA 781

PALMARES vs CA & MB LENDING CORP

Gr. No. 126490, March 31, 1998, 288 SCRA 422

E. ZOBEL INC. vs CA

Gr. No. 113931, May 6, 1998, 290 SCRA 1

INTERNATIONAL FINANCE CORPORATION vs IMPERIAL

TEXTILE MILLS, INC.


PHILIPPINE BLOOMING MILLS INC & CHING vs CA


ESCANO & SILOS vs ORTIGAS JR.

Gr. No. 151953, June 29, 2007, 526 SCRA 26

Case Digest - Deposit CREDIT TRANSACTIONS

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DEPOSIT

BPI vs IAC and ZSHORNACK,

Gr. No. L-66826, August 19, 1988

Facts:

Rizaldy T. Zshornack and his wife maintained in

COMTRUST a dollar savings account and a peso current account. An

application for a dollar drat was accomplished by Virgillo Garcia

branch manager of COMTRUST payable to a certain Leovigilda Dizon.

In the PPLICtion, Garcia indicated that the amount was to be

charged to the dolar savings account of the Zshornacks. There wasa

no indication of the name of the purchaser of the dollar draft.

Comtrust issued a check payable to the order of Dizon. When

Zshornack noticed the withdrawal from his account, he demanded

an explainaiton from the bank. In its answer, Comtrust claimed that

the peso value of the withdrawal was given to Atty. Ernesto

Zshornack, brother of Rizaldy. When he encashed with COMTRUST a

cashiers check for P8450 issued by the manila banking corporation

payable to Ernesto.

Arguments:

COMTRUST (BPI): The parties entered into a contract of depositum

which banks do not enter into. Thus, Garcia exceeded his powers

when he entered into the contract on behalf of the bank, hence, the

bank cannot be liable under the contract.

Issue:

Whether or not the contract between petitioner and

respondent bank is a deposit.

Held:

Yes. The document which embodies the contract states

that the US$3,000.00 was received by the bank for safekeeping. The

subsequent acts of the parties also show that the intent of the

parties was really for the bank to safely keep the dollars and to

return it to Zshornack at a later time. Thus, Zshornack demanded the

return of the money on May 10, 1976, or over five months later.

The above arrangement is that contract defined under

Article 1962, New Civil Code, which reads:

Art. 1962. A deposit is constituted from the moment a

person receives a thing belonging to another, with the obligation of

safely keeping it and of returning the same. If the safekeeping of the

thing delivered is not the principal purpose of the contract, there is

no deposit but some other contract.

Note: But because the subject of the contract here is

a foreign exchange, it is covered by Central Bank Circular No.

20 which requires that, All receipts of foreign exchange by

any resident person, firm, company or corporation shall be sold to

authorized agents of the Central Bank by the recipients within one

business day following the receipt of such foreign exchange.

Since the document and the subsequent acts of the parties

show that they intended the bank to safekeep the foreign exchange,

and return it later to Zshornack, who alleged in his complaint that he

is a Philippine resident, the parties did not intend to sell the US

dollars to the Central Bank within one business day from receipt.

Otherwise, the contract of depositum would never have been

entered into at all.

In other words, the transaction between Zshornack and

the bank was void having been executed against the provisions of a

mandatory law (CB Circ No. 20). Being in pari delicto, the law cannot

afford either of them remedy.

TRIPLE-V FOOD SERVICES INC. vs. FILIPINO MERCHANTS

INSURANCE COMPANY

GR. No. 160554, February 21, 2005

Facts:

Mary Jo-Anne De Asis dined at petitioner's Kamayan

Restaurant. De Asis was using a Mitsubishi Galant Super Saloon

Model 1995 issued by her employer Crispa Textile Inc.. On said date,

De Asis availed of the valet parking service of petitioner and

entrusted her car key to petitioner's valet counter. Afterwards, a

certain Madridano, valet attendant, noticed that the car was not in

its parking slot and its key no longer in the box where valet

attendants usually keep the keys of cars entrusted to them. The car

was never recovered. Thereafter, Crispa filed a claim against its

insurer, herein respondent Filipino Merchants Insurance Company,

Inc. Having indemnified Crispa for the loss of the subject vehicle,

FMICI, as subrogee to Crispa's rights, filed with the RTC at Makati

City an action for damages against petitioner Triple-V Food Services,

Inc. Petitioner claimed that the complaint failed to adduce facts to

support the allegations of recklessness and negligence committed in

the safekeeping and custody of the subject vehicle. Besides, when

De Asis availed the free parking stab which contained a waiver of

petitioners liability in case of loss, she had thereby waived her

rights.

Issue:

Whether or not petitioner Triple-V Food Services, Inc. is

liable for the loss.

Held:

Yes. The Supreme Court ruled in the affirmative. In a

contract of deposit, a person receives an object belonging to

another with the obligation of safely keeping it and returning the

same. A deposit may be constituted even without any consideration.

It is not necessary that the depositary receives a fee before it

becomes obligated to keep the item entrusted for safekeeping and

to return it later to the depositor. Petitioner cannot evade liability by

arguing that neither a contract of deposit nor that of insurance,

guaranty or surety for the loss of the car was constituted when De

Asis availed of its free valet parking service.

Case Digest - Deposit CREDIT TRANSACTIONS

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CA AGRO-INDUSTRIAL DEVELOPMENT CORP. VS CA

291 SCRA 426, Gr. No 90027, March 3, 1993

Facts:

Petitioner CA Agro-Industrial Development Corp. and the

spouses Ramon and Paula Pugao rented a Safety Deposit Box

Security Bank and Trust Company. Certificates of title of parcels of

land were then stored therein. Thereafter, a certain Mrs. Margarita

Ramos offered to buy two lots from petitioner. Mrs. Ramos

demanded the execution of a deed of sale which necessarily entailed

the production of the certificates of title. In view thereof, Aguirre,

accompanied by the Pugaos, then proceeded to the Bank to open

the safety deposit box and get the certificates of title. However,

when opened in the presence of the Bank's representative, the box

yielded no such certificates. By virtue of which, petitioner filed an

action against the bank for the loss. The bank, however, contended

that they are not liable for the loss because, aside from the waiver

signed by the petitioner, what transpired between them is a

contract of lease and not deposit.

Issue:

Whether or not the contractual relation between a

commercial bank and another party in a contract of rent of a safety

deposit box with respect to its contents placed by the latter one of

bailor and bailee or one of lessor and lessee.

Held:

The contract for the rent of the safety deposit box is not

an ordinary contract of lease as defined in Article 1643 of the Civil

Code. However, the Court do not fully subscribe to its view that the

same is a contract of deposit that is to be strictly governed by the

provisions in the Civil Code on deposit; the contract in the case at

bar is a special kind of deposit. It cannot be characterized as an

ordinary contract of lease under Article 1643 because the full and

absolute possession and control of the safety deposit box was not

given to the joint renters the petitioner and the Pugaos. The

guard key of the box remained with the respondent Bank; without

this key, neither of the renters could open the box. On the other

hand, the respondent Bank could not likewise open the box without

the renter's key. In this case, the said key had a duplicate which was

made so that both renters could have access to the box.

BISHOP OF JARO vs DELA PENA

26 Phil 144, Gr. No. L-6913, November 21, 1913

Facts:

In 1898, Fr. Agustin Dela Pena deposited in his personal

account a sum of money entrusted to him for the construction of a

leper hospital. Thereafter, Father De la Pea was arrested by the

military authorities as a political prisoner. While under detention, Fr.

Dela Pea made an order on said bank in favor of the United States

Army officer under whose charge he was then for the sum thus

deposited in said bank. The arrest of Father De la Pea and the

confiscation of the funds in the bank were the result of the claim of

the military authorities that he was an insurgent and that the funds

thus deposited had been collected by him for revolutionary

purposes. The money was taken from the bank by the military

authorities by virtue of such order and was turned over to the

Government.

Issue:

Whether or not Father de la Pea is liable for the loss of

the money under his trust.

Held:

No. The Supreme Court ruled in the negative. Father De la

Pea's liability is determined by those portions of the Civil Code

which relate to obligations. Although the Civil Code states that "a

person obliged to give something is also bound to preserve it with

the diligence pertaining to a good father of a family". It also

provides, following the principle of the Roman law, major casus est,

cui humana infirmitas resistere non potest, that "no one shall be

liable for events which could not be foreseen, or which having been

foreseen were inevitable, with the exception of the cases expressly

mentioned in the law or those in which the obligation so declares."

YHT REALTY CORPORATION vs. CA

GR. No. 126780, February 17, 2005

Facts:

Maurice Mcloughlin is an Australian philanthropist,

businessman, and a tourist. In his various trips from Australia going

to different countries, one of which is the Philippines, he would stay

in Tropicana Inn which is owned by YHT Realty Corp. After series of

transactions with the inn as depositary of his belongings, he noticed

that his money and several jewelries would be either reduced or

lost. He then decided to file an action against Tropicana and its inn-

keepers. However, the latter argued that they have no liability with

regard to the loss by virtue of the undertaking signed by Mcloughlin.

Such undertaking is a waiver of the inns liability in case of any loss.

The RTC and CA both decided that such undertaking is null and void

as contrary to the express provisions of the law. Hence, the petition.

Issue:

Whether or not the subject undertaking is null and void

Held:

Yes. The court ruled in the affirmative. Art. 2003 of the Civil Code

provides that, the hotel-keeper cannot free himself from

responsibility by posting notices to the effect that he is not liable for

the articles brought by the guest. Any stipulation between the hotel-

keeper and the guest whereby the responsibility of the former as set

forth in Articles 1998 to 2001 is suppressed or diminished shall be

void.

Case Digest Guaranty and Suretyship CREDIT TRANSACTIONS

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GUARANTY and SURETYSHIP

TUPAZ IV & TUPAZ vs CA & BPI


Facts:

Petitioners Jose Tupaz IV and Petronila Tupaz were Vice-

President for Operations and Vice-President/Treasurer, respectively,

of El Oro Engraver Corporation. El Oro Corporation had a contract

with the Philippine Army to supply the latter with survival bolos.

Petitioners, on behalf of El Oro Corporation, applied with

respondent Bank of the Philippine Island for two commercial letters

of credit to finance the purchase of the raw materials for the survival

bolos. The letters of credit were in favor of El Oro Corporations

suppliers, Tanchaoco Manufacturing Incorporated and Maresco

Rubber and Retreading Corporation. Respondent bank granted

petitioners application and issued two letters of credit.

Simultaneously, petitioners signed trust receipts in favor

of respondent bank. On September 30, 1981, petitioner Jose Tupaz

signed, in his personal capacity, a trust receipt corresponding to one

letter of credit while on October 9, 1981, both petitioners signed, in

their capacities as officers of El Oro Corporation, a trust receipt

corresponding to the other. After Tanchaoco Incorporated and

Maresco Corporation delivered the raw materials to El Oro

Corporation, respondent bank paid the former.

When petitioners did not comply with their undertaking

under the trust receipts after respondent banks several demands,

the latter charged petitioners with estafa under the Trust Receipts

Law. The trial court acquitted petitioners of estafa on reasonable

doubt however it found petitioners solidarily liable with El Oro

Corporation for the balance of El Oro Corporations principal debt

under the trust receipts. Petitioners appealed to the Court of

Appeals contending that their acquittal operates to extinguish their

civil liability and so they are not personally liable for El Oro

Corporations debts. The Court of Appeals affirmed the trial courts

ruling. Hence, this petition.

Issue:

Whether or not petitioners are personally (solidarily) liable

with El Oro Corporation.

Held:

No. In the trust receipt dated 9 October 1981, petitioners

signed as officers of El Oro Corporation. By so signing that trust

receipt, petitioners did not bind themselves personally liable for El

Oro Corporations obligation.

Hence, for the trust receipt dated 9 October 1981,

petitioners are not personally liable for El Oro Corporations

obligation. For the trust receipt dated 30 September 1981,

petitioner Jose Tupaz signed alone in his personal capacity, he did

not indicate that he was signing as El Oro Corporations Vice-

President for Operations. Hence, petitioner Jose Tupaz bound

himself personally liable for El Oro Corporations debts. Not being a

party to the trust receipt dated 30 September 1981, petitioner

Petronila Tupaz is not liable under such trust receipt.

SECURITY BANK & TRUST CO. vs CUENCA


Petitioner bank cannot hold herein respondent liable for

loans obtained in excess of the amount or beyond the period

stipulated in the original agreement, absent any clear stipulation

showing that the latter waived his right to be notified thereof, or to

give consent thereto.

Facts:

Defendant-appellant Sta. Ines Melale (Sta. Ines/SIMC) is a

corporation engaged in logging operations. It was a holder of a

Timber License Agreement issued by the DENR.

On 10 November 1980, Security Bank and Trust Co.

granted appellant Sta. Ines a credit line in the amount of

(P8,000,000.00) effective til November 30, 1981 to assist the latter

in meeting the additional capitalization requirements of its logging

operations.

To secure payment, it executed a chattel mortgage over

some of its machineries and equipments. And as an additional

security, its President and Chairman of the Board of Directors

Rodolfo Cuenca, executed an Indemnity agreement in favor of

Security Bank whereby he bound himself jointly and severally with

Sta. Ines.

Specific stipulations: The bank reserves the right to amend

any of the aforementioned terms and conditions upon written

notice to the Borrower. As additional security for the payment of the

loan, Rodolfo M. Cuenca executed an Indemnity Agreement dated

17 December 1980 solidary binding himself: Rodolfo M. Cuenca x x

x hereby binds himself x x x jointly and severally with the client

(SIMC) in favor of the bank for the payment, upon demand and

without the benefit of excussion of whatever amount x x x the client

may be indebted to the bank x x x by virtue of aforesaid credit

accommodation(s) including the substitutions, renewals,

extensions, increases, amendments, conversions and revivals of

the aforesaid credit accommodation(s) x x x .

1985: Cuenca resigned as President and Chairman of the

Board of Directors of defendant-appellant Sta. Ines. Subsequently,

the shareholdings of Cuenca in Sta. Ines were sold at a public

auction to Adolfo Angala. Before and after this, Sta Ines availed of its

credit line.

Sta Ines encountered difficulty in making the amortization

payments on its loans and requested SBTC for a complete

restructuring of its indebtedness. SBTC accommodated SIMCs

request and signified its approval in a letter dated 18 February 1988

wherein SBTC and Sta. Ines, without notice to or the prior consent of

] Cuenca, agreed to restructure the past due obligations of

defendant-appellant Sta. Ines. To formalize their agreement to


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restructure the loan obligations of Sta. Ines, Security Bank and Sta.

Ines executed a Loan Agreement dated 31 October 1989

Sta Ines made payments up to (P1,757,000.00) The

defaulted in the payment of its restructured loan obligations to SBTC

despite demands made upon appellant SIMC and CUENCA,

SBTC filed a complaint for collection of sum of resulting

after trial on the merits in a decision by the court a quo, from which

Cuenca appealed

CA: Released Cuenca from liability because 1989 Loan

Agreement novated the 1980 credit accommodation which

extinguished the Indemnity Agreement for which Cuenca was liable

solidarily. No notice/consent to restructure. Since with expiration

date, liable only up to that date and up to that amount (8M).

Amounted to extension.of time with no notice to suret therefore

released from liability.

Issue:

(a) Whether or not the 1989 Loan Agreement novated the

original credit accommodation and Cuencas liability under the

Indemnity Agreement YES

(b) Whether or not Cuenca waived his right to be notified

of and to give consent to any substitution, renewal, extension,

increase, amendment, conversion or revival of the said credit

accommodation. NO

Held: Petition of Bank no merit.CA affirmed.

RATIO:

A. Original Obligation Extinguished by Novation

An obligation may be extinguished by novation,

pursuant to Article 1292 of the Civil Code, Novation of a contract is

never presumed. Indeed, the following requisites must be

established: (1) there is a previous valid obligation; (2) the parties

concerned agree to a new contract; (3) the old contract is

extinguished; and (4) there is a valid new contract.16

We reject these contentions. Clearly, the requisites of

novation are present in this case. The 1989 Loan Agreement

extinguished the obligation18

obtained under the 1980 credit

accomodation. This is evident from its explicit provision to

"liquidate" the principal and the interest of the earlier indebtedness,

as the following shows:

"1.02. Purpose. The First Loan shall be applied

to liquidate the principal portion of the Borrowers present total

outstanding Indebtedness to the Lender (the "Indebtedness") while

the Second Loan shall be applied to liquidatethe past due interest

and penalty portion of the Indebtedness.

Since the 1989 Loan Agreement had extinguished the

original credit accommodation, the Indemnity Agreement

1) NOT mere renewal/ Extension

1989 Loan Agreement expressly stipulated that its purpose was to

"liquidate," not to renew or extend, the outstanding indebtedness.

Moreover, respondent did not sign or consent to the 1989 Loan

Agreement, which had allegedly extended the original P8 million

credit facility. Hence, his obligation as a surety should be deemed

extinguished, "[a]n extension granted to the debtor by the creditor

without the consent of the guarantor extinguishes the guaranty. x x

x."

2) Binding Nature of the Credit Approval Memorandum

Bank objects to the appellate courts reliance on that document,

contending that it was not a binding agreement because it was not

signed by the parties. It adds that it was merely for its internal use.

Indeed, it cannot take advantage of that document by agreeing to be

bound only by those portions that are favorable to it, while denying

those that are disadvantageous.

B. NO Waiver of Consent

In the Indemnity Agreement, while respondent held

himself liable for the credit accommodation or any modification

thereof, such clause should be understood in the context of the P8

million limit and the November 30, 1981 term. It did not give the

bank or Sta. Ines any license to modify the nature and scope of the

original credit accommodation, without informing or getting the

consent of respondent who was solidarily liable.

A contract of surety "cannot extend to more than what is

stipulated. It is strictly construed against the creditor, every doubt

being resolved against enlarging the liability of the

surety."31

Likewise, the Court has ruled that "it is a well-settled legal

principle that if there is any doubt on the terms and conditions of

the surety agreement, the doubt should be resolved in favor of the

surety x x x. Ambiguous contracts are construed against the party

who caused the ambiguity.32

In the absence of an unequivocal

provision that respondent waived his right to be notified of or to

give consent to any alteration of the credit accommodation, we

cannot sustain petitioners view that there was such a waiver.

It should also be observed that the Credit Approval

Memorandum clearly shows that the bank did not have absolute

authority to unilaterally change the terms of the loan

accommodation. At most, the alleged basis of respondents waiver

is vague and uncertain. It confers no clear authorization on the bank

or Sta. Ines to modify or extend the original obligation without the

consent of the surety or notice thereto.

1) NOT Continuing Surety

That the Indemnity Agreement is a continuing surety does not

authorize the bank to extend the scope of the principal obligation

inordinately.

To repeat, in the present case, the Indemnity Agreement

was subject to the two limitations of the credit accommodation: (1)

that the obligation should not exceed P8 million, and (2) that the

accommodation should expire not later than November 30, 1981.

Hence, it was a continuing surety only in regard to loans obtained on

or before the aforementioned expiry date and not exceeding the

total of P8 million.

NO PROVISION: each suretyship is a continuing one which

shall remain in full force and effect until this bank is notified of its

revocation.

2) Special Nature of the JSS

It is a common banking practice to require the JSS ("joint and

solidary signature") of a major stockholder or corporate officer, as

an additional security for loans granted to corporations. There are

at least two reasons for this. First, in case of default, the creditors


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recourse, which is normally limited to the corporate properties

under the veil of separate corporate personality, would extend to

the personal assets of the surety. Second, such surety would be

compelled to ensure that the loan would be used for the purpose

agreed upon, and that it would be paid by the corporation.

Following this practice, it was therefore logical and

reasonable for the bank to have required the JSS of respondent,

who was the chairman and president of Sta. Ines in 1980 when the

credit accommodation was granted. There was no reason or logic,

however, for the bank or Sta. Ines to assume that he would still

agree to act as surety in the 1989 Loan Agreement, because at that

time, he was no longer an officer or a stockholder of the debtor-

corporation. Verily, he was not in a position then to ensure the

payment of the obligation. Neither did he have any reason to bind

himself further to a bigger and more onerous obligation.

PALMARES vs CA & MB LENDING CORP

Gr. No. 126490, March 31, 1998, 288 SCRA 422

Facts:

Private respondent M.B. Lending Corporation extended a

loan to the spouses Osmea and Merlyn Azarraga, together with

petitioner Estrella Palmares, in the amount of P30,000.00 payable

on or before May 12, 1990, with compounded interest at the rate of

6% per annum to be computed every 30 days from the date thereof.

1 On four occasions after the execution of the promissory note and

even after the loan matured, petitioner and the Azarraga spouses

were able to pay a total of P16,300.00, thereby leaving a balance of

P13,700.00. No payments were made after the last payment on

September 26, 1991. 2

Consequently, on the basis of petitioner's solidary liability

under the promissory note, respondent corporation filed a

complaint 3 against petitioner Palmares as the lone party-

defendant, to the exclusion of the principal debtors, allegedly by

reason of the insolvency of the latter.

Issue:

Whether or not Palmares is liable

Held:

Yes. If a person binds himself solidarily with the principal

debtor, the provisions of Section 4, Chapter 3, Title I of this Book

shall be observed. In such case the contract is called a suretyship. It

is a cardinal rule in the interpretation of contracts that if the terms

of a contract are clear and leave no doubt upon the intention of the

contracting parties, the literal meaning of its stipulation shall

control. In the case at bar, petitioner expressly bound herself to be

jointly and severally or solidarily liable with the principal maker of

the note. The terms of the contract are clear, explicit and

unequivocal that petitioner's liability is that of a surety.

E. ZOBEL INC. vs CA

Gr. No. 113931, May 6, 1998, 290 SCRA 1

Facts:

Private respondent spouses Raul and Elea Claveria, doing

business under the name "Agro Brokers," applied for a loan with

respondent Consolidated Bank and Trust Corporation (now

SOLIDBANK) to finance the purchase of two maritime barges and

one tugboat which would be used in their molasses business.

The loan was granted subject to the condition that

respondent spouses will execute a chattel mortgage over the three

vessels to be acquired and that a continuing guarantee be executed

by Ayala International Philippines, Inc., now petitioner E. Zobel, Inc.

in favor of SOLIDBANK. Respondent spouses defaulted in the

payment of the entire obligation upon maturity.

Hence, SOLIDBANK filed a complaint for sum of money

with a prayer for a writ of preliminary attachment against

respondent spouses and petitioner. Petitioner moved for dismissal.

The trial court denied the motion to dismiss and required petitioner

to file an answer. Petitioner assailed the trial courts order. The

appellate court dismissed the petition.

Issue:

Whether or not petitioner E. Zobel Inc., under the

continuing guaranty obligated itself to SOLIDBANK as a guarantor or

a surety.

Held:

Yes. Petitioner under the continuing guaranty obligated

itself to SOLIDBANK as a surety. A surety is distinguished from a

guaranty in that a guarantor is the insurer of the solvency of the

debtor and thus binds himself to pay if the principal is unable to pay,

it is the guarantor's own separate undertaking, in which the principal

does not join while a surety is the insurer of the debt, and he

obligates himself to pay if the principal does not pay and is usually

bound with his principal by the same instrument, executed at the

same time, and on the same consideration. The contract clearly

discloses that petitioner assumed liability to SOLIDBANK, as a regular

party to the undertaking and obligated itself as an original

promissor. It bound itself jointly and severally to the obligation with

the respondent spouses. The use of the term "guarantee" does

not ipso facto mean that the contract is one of guaranty. Authorities

recognize that the word "guarantee" is frequently employed in

business transactions to describe not the security of the debt but an

intention to be bound by a primary or independent obligation. The

trial court has observed that the interpretation of a contract is not

limited to the title alone but to the contents and intention of the

parties.


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INTERNATIONAL FINANCE CORPORATION vs IMPERIAL TEXTILE

MILLS, INC.


Facts:

Petitioner International Finance Corporation (IFC) and

respondent Philippine Polyamide Industrial Corporation (PPIC)

entered into a loan agreement wherein IFC extended to PPIC a loan

payable in 16 semi-annual installments with interest at the rate of

10% per annum on the principal amount of the loan advanced and

outstanding from time to time.

A guarantee agreement was executed with Imperial Textile

Mills, Inc. (ITM), Grand Textile Manufacturing Corporation

(Grandtex) and IFC as parties. ITM and Grandtex agreed to

guarantee PPICs obligations under the loan agreement. There was a

reschedule of payments as requested by PPIC. Despite the

rescheduling of the installment payments, however, PPIC defaulted.

Hence, IFC served a written notice of default to PPIC

demanding the latter to pay the outstanding principal loan and all its

accrued interests. Despite such notice, PPIC failed to pay the loan

and its interests. IFC, together with DBP, applied for the extrajudicial

foreclosure of mortgages on the real estate, buildings, machinery,

equipment plant and all improvements owned by PPIC. IFC and DBP

were the only bidders during the auction sale. PPIC failed to pay the

remaining balance, thus, IFC demanded ITM and Grandtex, as

guarantors of PPIC, to pay the outstanding balance.

However, despite the demand made by IFC, the

outstanding balance remained unpaid. Consequently, IFC filed a

complaint against PPIC and ITM for the payment of the outstanding

balance plus interests and attorneys fees. The trial court held PPIC

liable for the payment of the outstanding loan plus interests and

attorneys fees. However, the trial court relieved ITM of its

obligation as guarantor.

On appeal of the case, the Court of Appeals reversed the

decision of the trial court. The CA, however, held that ITMs liability

as a guarantor would arise only if and when PPIC could not pay.

Since PPICs inability to comply with its obligation was not

sufficiently established, ITM could not immediately be made to

assume the liability. Hence, this petition.

Issue:

Whether or not ITM is a surety, and thus solidarily liable

with PPIC for the payment of the loan.

Held:

Yes. ITM is a surety, and thus solidarily liable with PPIC for

the payment of the loan. As Article 2047 provides, a suretyship is

created when a guarantor binds itself solidarily with the principal

obligor. While referring to ITM as a guarantor, the agreement

specifically stated that the corporation was jointly and severally

liable. It further stated that ITM was a primary obligor, not a mere

surety. ITM thereby brought itself to the level of PPIC and could not

be deemed merely secondarily liable. Those words emphasize the

nature of their liability, which the law characterizes as a suretyship.

Therefore, ITM bound itself to be solidarily liable with PPIC for the

latters obligations under the loan agreement with IFC.

PHILIPPINE BLOOMING MILLS INC & CHING vs CA


Facts:

Petitioner Philippine Blooming Mills, Inc. (PBM) obtained a

loan from Traders Royal Bank (TRB). Ching, the Senior Vice-President

of PBM, signed Deed of Suretyship in his personal capacity and not

as mere guarantors but as primary obligors. PBM and Ching filed a

petition for suspension of payments with the SEC, and eventually

placed under rehabilitation receivership. Consequently, TRB

dismissed complaint as to PBM. Ching then alleged that the Deed

of Suretyship executed in 1977 could not answer for obligations not

yet in existence at the time of its execution. It could not answer for

debts contracted by petitioner PBM in 1980 and 1981. No accessory

contract of suretyship could arise without an existing principal

contract of loan.

Issue:

Whether or not Ching is liable for credit obligations

contracted by Philippine Blooming Mills Inc. against Traders Royal

Bank before and after the execution of the Deed of Suretyship.

Held:

Yes. Ching is liable for credit obligations contracted by

Philippine Blooming Mills Inc. against Traders Royal Bank before and

after the execution of the Deed of Suretyship. This is evident from

the tenor of the deed itself, referring to amounts to PBM may now

be indebted or may hereafter become indebted to Traders Royal

Bank. The law expressly allows a suretyship for future debts. Article

2053 provides that a guaranty may also be given as security for

future debts, the amount of which is not yet known, there can be no

claim against the guarantor until the debt is liquidated.


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ESCANO & SILOS vs ORTIGAS JR.

Gr. No. 151953, June 29, 2007, 526 SCRA 26

Facts:

Private Development Corporation of the Philippines

(PDCP) entered into a loan agreement with Falcon Minerals, Inc.

whereby PDCP agreed to make available and lend to Falcon a sum

certain. Respondent Rafael Ortigas, Jr., et al., stockholder officers of

Falcon, executed an Assumption of Solidary Liability whereby they

agreed to assume in their individual capacity, solidary liability with

Falcon for the due and punctual payment of the loan contracted by

Falcon with PDCP.

Two separate guaranties were executed to guarantee the

payment of the same loan by other stockholders and officers of

Falcon, acting in their personal and individual capacities. One

Guaranty was executed by petitioner Salvador Escao, while the

other by petitioners Mario M. Silos, Ricardo C. Silverio, et al. Two

years later, an agreement developed to cede control of Falcon to

Escao, Silos and Joseph M. Matti. Thus, contracts were executed

whereby Ortigas, George A. Scholey, Inductivo and the heirs of then

already deceased George T. Scholey assigned their shares of stock in

Falcon to Escao, Silos and Matti. Part of the consideration that

induced the sale of stock was a desire by Ortigas, et al., to relieve

themselves of all liability arising from their previous joint and several

undertakings with Falcon, including those related to the loan with

PDCP.

Thus, an Undertaking was executed by the concerned

parties with Escao, Silos and Matti identified in the document as

sureties, on one hand, and Ortigas, Inductivo and the Scholeys as

obligors, on the other. However, Falcon subsequently defaulted in

its payments.

After PDCP foreclosed on the chattel mortgage, there

remained a subsisting deficiency of P5,000,000, which Falcon did not

satisfy despite demand. In order to recover the indebtedness, PDCP

filed a complaint for sum of money against Falcon, Ortigas, Escao,

Silos, Silverio and Inductivo. Ortigas filed together with his answer a

cross-claim against his co-defendants Falcon, Escao and Silos, and

also manifested his intent to file a third-party complaint against the

Scholeys and Matti.

The cross-claim lodged against Escao and Silos was

predicated on the 1982 Undertaking, wherein they agreed to

assume the liabilities of Ortigas with respect to the PDCP loan.

Escao, Ortigas and Silos each sought to seek a settlement with

PDCP. The first to come to terms with PDCP was Escao, who

entered into a compromise agreement. In exchange, PDCP waived or

assigned in favor of Escao 1/3 of its entire claim in the complaint

against all of the other defendants in the case.

Then Ortigas entered into his own compromise agreement

with PDCP, allegedly without the knowledge of Escao, Matti and

Silos. Thereby, Ortigas agreed to pay PDCP P1.3M as full satisfaction

of the PDCPs claim against Ortigas. Silos and PDCP entered into a

Partial Compromise Agreement whereby he agreed to pay P500k in

exchange for PDCPs waiver of its claims against him.

In the meantime, after having settled with PDCP, Ortigas

pursued his claims against Escao, Silos and Matti, on the basis of

the 1982 Undertaking. He initiated a third-party complaint against

Matti and Silos, while he maintained his cross-claim against Escao.

RTC issued the Summary Judgment, ordering Escao, Silos and Matti

to pay Ortigas, jointly and severally, the amount of P1.3M, as well as

P20K in attorneys fees. The trial court ratiocinated that none of the

third-party defendants disputed the 1982 Undertaking.

Issue:

Whether or not petitioners are solidarily liable to

respondent Ortigas.

Held:

No. Petitioners are not solidarily liable to respondent

Ortigas. In case there is a concurrence of two or more creditors or of

two or more debtors in one and the same obligation, Article 1207 of

the Civil Code states that among them, there is a solidary liability

only when the obligation expressly so states, or when the law or the

nature of the obligation requires solidarity.

Article 1210 supplies further that the indivisibility of an

obligation does not necessarily give rise to solidarity. Nor does

solidarity of itself imply indivisibility. Thus, the presumption is that

the obligation is only joint. It thus becomes incumbent upon the

party alleging that the obligation is indeed solidary in character to

prove such fact with a preponderance of evidence.

The Undertaking does not contain any express stipulation

that the petitioners agreed to bind themselves jointly and

severally in their obligations to the Ortigas group, or any such terms

to that effect. Hence, such obligation established in the Undertaking

is presumed only to be joint. Ortigas, as the party alleging that the

obligation is in fact solidary, bears the burden to overcome the

presumption of jointness of obligations. He has failed to discharge

such burden.

The term surety has a specific meaning under our Civil

Code. As provided in Article 2047 in a surety agreement the surety

undertakes to be bound solidarily with the principal debtor.

Thus, a surety agreement is an ancillary contract as it

presupposes the existence of a principal contract. It appears that

Ortigas argument rests solely on the solidary nature of the

obligation of the surety under Article2047.

In tandem with the nomenclature sureties accorded to

petitioners and Matti in the Undertaking, however, this argument

can only be viable if the obligations established in the Undertaking

do partake of the nature of a suretyship as defined under Article

2047 in the first place. That clearly is not the case here,

notwithstanding the use of the nomenclature sureties in the

Undertaking.

FULL TEXT CASES Guaranty and Suretyship CREDIT TRANSACTIONS

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G.R. No. 145578 November 18, 2005

JOSE C. TUPAZ IV and PETRONILA C. TUPAZ, Petitioners, vs. THE COURT OF APPEALS and BANK OF THE PHILIPPINE ISLANDS, Respondents.

DECISION

CARPIO, J.:

The Case

This is a petition for review1 of the Decision

2 of the Court of Appeals

dated 7 September 2000 and its Resolution dated 18 October 2000. The 7 September 2000 Decision affirmed the ruling of the Regional Trial Court, Makati, Branch 144 in a case for estafa under Section 13, Presidential Decree No. 115. The Court of Appeals Resolution of 18 October 2000 denied petitioners motion for reconsideration.

The Facts

Petitioners Jose C. Tupaz IV and Petronila C. Tupaz ("petitioners") were Vice-President for Operations and Vice-President/Treasurer, respectively, of El Oro Engraver Corporation ("El Oro Corporation"). El Oro Corporation had a contract with the Philippine Army to supply the latter with "survival bolos."

To finance the purchase of the raw materials for the survival bolos, petitioners, on behalf of El Oro Corporation, applied with respondent Bank of the Philippine Islands ("respondent bank") for two commercial letters of credit. The letters of credit were in favor of El Oro Corporations suppliers, Tanchaoco Manufacturing Incorporated

3("Tanchaoco Incorporated") and Maresco Rubber and

Retreading Corporation4 ("Maresco Corporation"). Respondent bank

granted petitioners application and issued Letter of Credit No. 2-00896-3 for P564,871.05 to Tanchaoco Incorporated and Letter of Credit No. 2-00914-5 for P294,000 to Maresco Corporation.

Simultaneous with the issuance of the letters of credit, petitioners signed trust receipts in favor of respondent bank. On 30 September 1981, petitioner Jose C. Tupaz IV ("petitioner Jose Tupaz") signed, in his personal capacity, a trust receipt corresponding to Letter of Credit No. 2-00896-3 (for P564,871.05). Petitioner Jose Tupaz bound himself to sell the goods covered by the letter of credit and to remit the proceeds to respondent bank, if sold, or to return the goods, if not sold, on or before 29 December 1981.

On 9 October 1981, petitioners signed, in their capacities as officers of El Oro Corporation, a trust receipt corresponding to Letter of Credit No. 2-00914-5 (for P294,000). Petitioners bound themselves to sell the goods covered by that letter of credit and to remit the proceeds to respondent bank, if sold, or to return the goods, if not sold, on or before 8 December 1981.

After Tanchaoco Incorporated and Maresco Corporation delivered the raw materials to El Oro Corporation, respondent bank paid the former P564,871.05 and P294,000, respectively.

Petitioners did not comply with their undertaking under the trust receipts. Respondent bank made several demands for payments but

El Oro Corporation made partial payments only. On 27 June 1983 and 28 June 1983, respondent banks counsel

5 and its

representative6 respectively sent final demand letters to El Oro

Corporation. El Oro Corporation replied that it could not fully pay its debt because the Armed Forces of the Philippines had delayed paying for the survival bolos.

Respondent bank charged petitioners with estafa under Section 13, Presidential Decree No. 115 ("Section 13")

7or Trust Receipts Law

("PD 115"). After preliminary investigation, the then Makati Fiscals Office found probable cause to indict petitioners. The Makati Fiscals Office filed the corresponding Informations (docketed as Criminal Case Nos. 8848 and 8849) with the Regional Trial Court, Makati, on 17 January 1984 and the cases were raffled to Branch 144 ("trial court") on 20 January 1984. Petitioners pleaded not guilty to the charges and trial ensued. During the trial, respondent bank presented evidence on the civil aspect of the cases.

The Ruling of the Trial Court

On 16 July 1992, the trial court rendered judgment acquitting petitioners of estafa on reasonable doubt. However, the trial court found petitioners solidarily liable with El Oro Corporation for the balance of El Oro Corporations principal debt under the trust receipts. The dispositive portion of the trial courts Decision provides:

WHEREFORE, judgment is hereby rendered ACQUITTING both accused Jose C. Tupaz, IV and Petronila Tupaz based upon reasonable doubt.

However, El Oro Engraver Corporation, Jose C. Tupaz, IV and Petronila Tupaz, are hereby ordered, jointly and solidarily, to pay the Bank of the Philippine Islands the outstanding principal obligation of P624,129.19 (as of January 23, 1992) with the stipulated interest at the rate of 18% per annum; plus 10% of the total amount due as attorneys fees; P5,000.00 as expenses of litigation; and costs of the suit.

8

In holding petitioners civilly liable with El Oro Corporation, the trial court held:

[S]ince the civil action for the recovery of the civil liability is deemed impliedly instituted with the criminal action, as in fact the prosecution thereof was actively handled by the private prosecutor, the Court believes that the El Oro Engraver Corporation and both accused Jose C. Tupaz and Petronila Tupaz, jointly and solidarily should be held civilly liable to the Bank of the Philippine Islands. The mere fact that they were unable to collect in full from the AFP and/or the Department of National Defense the proceeds of the sale of the delivered survival bolos manufactured from the raw materials covered by the trust receipt agreements is no valid defense to the civil claim of the said complainant and surely could not wipe out their civil obligation. After all, they are free to institute an action to collect the same.

9

Petitioners appealed to the Court of Appeals. Petitioners contended that: (1) their acquittal "operates to extinguish [their] civil liability" and (2) at any rate, they are not personally liable for El Oro Corporations debts.

The Ruling of the Court of Appeals


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In its Decision of 7 September 2000, the Court of Appeals affirmed the trial courts ruling. The appellate court held:

It is clear from [Section 13, PD 115] that civil liability arising from the violation of the trust receipt agreement is distinct from the criminal liability imposed therein. In the case of Vintola vs. Insular Bank of Asia and America, our Supreme Court held that acquittal in the estafa case (P.D. 115) is no bar to the institution of a civil action for collection. This is because in such cases, the civil liability of the accused does not arise ex delicto but rather basedex contractu and as such is distinct and independent from any criminal proceedings and may proceed regardless of the result of the latter. Thus, an independent civil action to enforce the civil liability may be filed against the corporation aside from the criminal action against the responsible officers or employees.

xxx

[W]e hereby hold that the acquittal of the accused-appellants from the criminal charge of estafa did not operate to extinguish their civil liability under the letter of credit-trust receipt arrangement with plaintiff-appellee, with which they dealt both in their personal capacity and as officers of El Oro Engraver Corporation, the letter of credit applicant and principal debtor.

Appellants argued that they cannot be held solidarily liable with their corporation, El Oro Engraver Corporation, alleging that they executed the subject documents including the trust receipt agreements only in their capacity as such corporate officers. They said that these instruments are mere pro-forma and that they executed these instruments on the strength of a board resolution of said corporation authorizing them to apply for the opening of a letter of credit in favor of their suppliers as well as to execute the other documents necessary to accomplish the same.

Such contention, however, is contradicted by the evidence on record. The trust receipt agreement indicated in clear and unmistakable terms that the accused signed the same as surety for the corporation and that they bound themselves directly and immediately liable in the event of default with respect to the obligation under the letters of credit which were made part of the said agreement, without need of demand. Even in the application for the letter of credit, it is likewise clear that the undertaking of the accused is that of a surety as indicated [in] the following words: "In consideration of your establishing the commercial letter of credit herein applied for substantially in accordance with the foregoing, the undersigned Applicant and Surety hereby agree, jointly and severally, to each and all stipulations, provisions and conditions on the reverse side hereof."

xxx

Having contractually agreed to hold themselves solidarily liable with El Oro Engraver Corporation under the subject trust receipt agreements with appellee Bank of the Philippine Islands, herein accused-appellants may not, therefore, invoke the separate legal personality of the said corporation to evade their civil liability under the letter of credit-trust receipt arrangement with said appellee, notwithstanding their acquittal in the criminal cases filed against them. The trial court thus did not err in holding the appellants solidarily liable with El Oro Engraver Corporation for the outstanding principal obligation of P624,129.19 (as of January 23, 1992) with the

stipulated interest at the rate of 18% per annum, plus 10% of the total amount due as attorneys fees, P5,000.00 as expenses of litigation and costs of suit.

10

Hence, this petition. Petitioners contend that:

1. A JUDGMENT OF ACQUITTAL OPERATE[S] TO EXTINGUISH THE CIVIL LIABILITY OF PETITIONERS[;]

2. GRANTING WITHOUT ADMITTING THAT THE QUESTIONED OBLIGATION WAS INCURRED BY THE CORPORATION, THE SAME IS NOT YET DUE AND PAYABLE;

3. GRANTING THAT THE QUESTIONED OBLIGATION WAS ALREADY DUE AND PAYABLE, xxx PETITIONERS ARE NOT PERSONALLY LIABLE TO xxx RESPONDENT BANK, SINCE THEY SIGNED THE LETTER[S] OF CREDIT AS SURETY AS OFFICERS OF EL ORO, AND THEREFORE, AN EXCLUSIVE LIABILITY OF EL ORO; [AND]

4. IN THE ALTERNATIVE, THE QUESTIONED TRANSACTIONS ARE SIMULATED AND VOID.

11

The Issues

The petition raises these issues:

(1) Whether petitioners bound themselves personally liable for El Oro Corporations debts under the trust receipts;

(2) If so

(a) whether petitioners liability is solidary with El Oro Corporation; and

(b) whether petitioners acquittal of estafa under Section 13, PD 115 extinguished their civil liability.

The Ruling of the Court

The petition is partly meritorious. We affirm the Court of Appeals ruling with the modification that petitioner Jose Tupaz is liable as guarantor of El Oro Corporations debt under the trust receipt dated 30 September 1981.

On Petitioners Undertaking Under

the Trust Receipts

A corporation, being a juridical entity, may act only through its directors, officers, and employees. Debts incurred by these individuals, acting as such corporate agents, are not theirs but the direct liability of the corporation they represent.

12 As an exception,

directors or officers are personally liable for the corporations debts only if they so contractually agree or stipulate.

13

Here, the dorsal side of the trust receipts contains the following stipulation:

To the Bank of the Philippine Islands


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In consideration of your releasing to under the terms of this Trust Receipt the goods described herein, I/We, jointly and severally, agree and promise to pay to you, on demand, whatever sum or sums of money which you may call upon me/us to pay to you, arising out of, pertaining to, and/or in any way connected with, this Trust Receipt, in the event of default and/or non-fulfillment in any respect of this undertaking on the part of the said . I/we further agree that my/our liability in this guarantee shall be DIRECT AND IMMEDIATE, without any need whatsoever on your part to take any steps or exhaust any legal remedies that you may have against the said . before making demand upon me/us.

14(Capitalization in the original)

In the trust receipt dated 9 October 1981, petitioners signed below this clause as officers of El Oro Corporation. Thus, under petitioner Petronila Tupazs signature are the words "Vice-PresTreasurer" and under petitioner Jose Tupazs signature are the words "Vice-PresOperations." By so signing that trust receipt, petitioners did not bind themselves personally liable for El Oro Corporations obligation. In Ong v. Court of Appeals,

15 a corporate representative signed a

solidary guarantee clause in two trust receipts in his capacity as corporate representative. There, the Court held that the corporate representative did not undertake to guarantee personally the payment of the corporations debts, thus:

[P]etitioner did not sign in his personal capacity the solidary guarantee clause found on the dorsal portion of the trust receipts. Petitioner placed his signature after the typewritten words "ARMCO INDUSTRIAL CORPORATION" found at the end of the solidary guarantee clause. Evidently, petitioner did not undertake to guaranty personally the payment of the principal and interest of ARMAGRIs debt under the two trust receipts.

Hence, for the trust receipt dated 9 October 1981, we sustain petitioners claim that they are not personally liable for El Oro Corporations obligation.

For the trust receipt dated 30 September 1981, the dorsal portion of which petitioner Jose Tupaz signed alone, we find that he did so in his personal capacity. Petitioner Jose Tupaz did not indicate that he was signing as El Oro Corporations Vice-President for Operations. Hence, petitioner Jose Tupaz bound himself personally liable for El Oro Corporations debts. Not being a party to the trust receipt dated 30 September 1981, petitioner Petronila Tupaz is not liable under such trust receipt.

The Nature of Petitioner Jose Tupazs Liability

Under the Trust Receipt Dated 30 September 1981

As stated, the dorsal side of the trust receipt dated 30 September 1981 provides:

To the Bank of the Philippine Islands

In consideration of your releasing to under the terms of this Trust Receipt the goods described herein, I/We, jointly and severally, agree and promise to pay to you, on demand, whatever sum or sums of money which you may call upon me/us to pay to you, arising out of, pertaining to, and/or in any way connected with, this Trust Receipt, in the event of default and/or non-fulfillment in any respect of this undertaking on the part of the

said . I/we further agree that my/our liability in this guarantee shall be DIRECT AND IMMEDIATE, without any need whatsoever on your part to take any steps or exhaust any legal remedies that you may have against the said . Before making demand upon me/us. (Underlining supplied; capitalization in the original)

The lower courts interpreted this to mean that petitioner Jose Tupaz bound himself solidarily liable with El Oro Corporation for the latters debt under that trust receipt.

This is error.

In Prudential Bank v. Intermediate Appellate Court,16

the Court interpreted a substantially identical clause

17 in a trust receipt signed

by a corporate officer who bound himself personally liable for the corporations obligation. The petitioner in that case contended that the stipulation "we jointly and severally agree and undertake" rendered the corporate officer solidarily liable with the corporation. We dismissed this claim and held the corporate officer liable as guarantor only. The Court further ruled that had there been more than one signatories to the trust receipt, the solidary liability would exist between the guarantors. We held:

Petitioner [Prudential Bank] insists that by virtue of the clear wording of the xxx clause "x x x we jointly and severally agree and undertake x x x," and the concluding sentence on exhaustion, [respondent] Chis liability therein is solidary.

xxx

Our xxx reading of the questioned solidary guaranty clause yields no other conclusion than that the obligation of Chi is only that of a guarantor. This is further bolstered by the last sentence which speaks of waiver of exhaustion, which, nevertheless, is ineffective in this case because the space therein for the party whose property may not be exhausted was not filled up. Under Article 2058 of the Civil Code, the defense of exhaustion (excussion) may be raised by a guarantor before he may be held liable for the obligation. Petitioner likewise admits that the questioned provision is a solidary guaranty clause, thereby clearly distinguishing it from a contract of surety. It, however, described the guaranty as solidary between the guarantors; this would have been correct if two (2) guarantors had signed it. The clause "we jointly and severally agree and undertake" refers to the undertaking of the two (2) parties who are to sign it or to the liability existing between themselves. It does not refer to the undertaking between either one or both of them on the one hand and the petitioner on the other with respect to the liability described under the trust receipt. xxx

Furthermore, any doubt as to the import or true intent of the solidary guaranty clause should be resolved against the petitioner. The trust receipt, together with the questioned solidary guaranty clause, is on a form drafted and prepared solely by the petitioner; Chis participation therein is limited to the affixing of his signature thereon. It is, therefore, a contract of adhesion; as such, it must be strictly construed against the party responsible for its preparation.

18 (Underlining supplied; italicization in the original)

However, respondent banks suit against petitioner Jose Tupaz stands despite the Courts finding that he is liable as guarantor only. First, excussion is not a pre-requisite to secure judgment against a


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guarantor. The guarantor can still demand deferment of the execution of the judgment against him until after the assets of the principal debtor shall have been exhausted.

19 Second, the benefit of

excussion may be waived.20

Under the trust receipt dated 30 September 1981, petitioner Jose Tupaz waived excussion when he agreed that his "liability in [the] guaranty shall be DIRECT AND IMMEDIATE, without any need whatsoever on xxx [the] part [of respondent bank] to take any steps or exhaust any legal remedies xxx." The clear import of this stipulation is that petitioner Jose Tupaz waived the benefit of excussion under his guarantee.

As guarantor, petitioner Jose Tupaz is liable for El Oro Corporations principal debt and other accessory liabilities (as stipulated in the trust receipt and as provided by law) under the trust receipt dated 30 September 1981. That trust receipt (and the trust receipt dated 9 October 1981) provided for payment of attorneys fees equivalent to 10% of the total amount due and an "interest at the rate of 7% per annum, or at such other rate as the bank may fix, from the date due until paid xxx."

21 In the applications for the letters of credit, the

parties stipulated that drafts drawn under the letters of credit are subject to interest at the rate of 18% per annum.

22

The lower courts correctly applied the 18% interest rate per annum considering that the face value of each of the trust receipts is based on the drafts drawn under the letters of credit. Based on the guidelines laid down in

Eastern Shipping Lines, Inc. v. Court of Appeals,23

the accrued stipulated interest earns 12% interest per annum from the time of the filing of the Informations in the Makati Regional Trial Court on 17 January 1984. Further, the total amount due as of the date of the finality of this Decision will earn interest at 18% per annum until fully paid since this was the stipulated rate in the applications for the letters of credit.

24

The accounting of El Oro Corporations debts as of 23 January 1992, which the trial court used, is no longer useful as it does not specify the amounts owing under each of the trust receipts. Hence, in the execution of this Decision, the trial court shall compute El Oro Corporations total liability under each of the trust receipts dated 30 September 1981 and 9 October 1981 based on the following formula:

25

TOTAL AMOUNT DUE = [principal + interest + interest on interest] partial payments made

26

Interest = principal x 18 % per annum x no. of years from due date

27 until finality of judgment

Interest on interest = interest computed as of the filing of the complaint (17 January 1984) x 12% x no. of years until finality of judgment

Attorneys fees is 10% of the total amount computed as of finality of judgment

Total amount due as of the date of finality of judgment will earn an interest of 18% per annum until fully paid.

In so delegating this task, we reiterate what we said in Rizal Commercial Banking Corporation v. Alfa RTW Manufacturing Corporation

28 where we also ordered the trial court to compute the

amount of obligation due based on a formula substantially similar to that indicated above:

The total amount due xxx [under] the xxx contract[] xxx may be easily determined by the trial court through a simple mathematical computation based on the formula specified above. Mathematics is an exact science, the application of which needs no further proof from the parties.

Petitioner Jose Tupazs Acquittal did not

Extinguish his Civil Liability

The rule is that where the civil action is impliedly instituted with the criminal action, the civil liability is not extinguished by acquittal

[w]here the acquittal is based on reasonable doubt xxx as only preponderance of evidence is required in civil cases; where the court expressly declares that the liability of the accused is not criminal but only civil in nature xxx as, for instance, in the felonies of estafa, theft, and malicious mischief committed by certain relatives who thereby incur only civil liability (See Art. 332, Revised Penal Code); and, where the civil liability does not arise from or is not based upon the criminal act of which the accused was acquitted xxx.

29 (Emphasis

supplied)

Here, respondent bank chose not to file a separate civil action30

to recover payment under the trust receipts. Instead, respondent bank sought to recover payment in Criminal Case Nos. 8848 and 8849. Although the trial court acquitted petitioner Jose Tupaz, his acquittal did not extinguish his civil liability. As the Court of Appeals correctly held, his liability arose not from the criminal act of which he was acquitted (ex delito) but from the trust receipt contract (ex contractu) of 30 September 1981. Petitioner Jose Tupaz signed the trust receipt of 30 September 1981 in his personal capacity.

On the other Matters Petitioners Raise

Petitioners raise for the first time in this appeal the contention that El Oro Corporations debts under the trust receipts are not yet due and demandable. Alternatively, petitioners assail the trust receipts as simulated. These assertions have no merit. Under the terms of the trust receipts dated 30 September 1981 and 9 October 1981, El Oro Corporations debts fell due on 29 December 1981 and 8 December 1981, respectively.

Neither is there merit to petitioners claim that the trust receipts were simulated. During the trial, petitioners did not deny applying for the letters of credit and subsequently executing the trust receipts to secure payment of the drafts drawn under the letters of credit.

WHEREFORE, we GRANT the petition in part. We AFFIRM the Decision of the Court of Appeals dated 7 September 2000 and its Resolution dated 18 October 2000 with the following MODIFICATIONS:

1) El Oro Engraver Corporation is principally liable for the total amount due under the trust receipts dated 30 September 1981 and 9 October 1981, as computed by the Regional Trial Court, Makati,


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Branch 144, upon finality of this Decision, based on the formula provided above;

2) Petitioner Jose C. Tupaz IV is liable for El Oro Engraver Corporations total debt under the trust receipt dated 30 September 1981 as thus computed by the Regional Trial Court, Makati, Branch 144; and

3) Petitioners Jose C. Tupaz IV and Petronila C. Tupaz are not liable under the trust receipt dated 9 October 1981.

SO ORDERED.


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G.R. No. 138544 October 3, 2000

SECURITY BANK AND TRUST COMPANY, Inc., petitioner, vs. RODOLFO M. CUENCA, respondent.

D E C I S I O N

PANGANIBAN, J.:

Being an onerous undertaking, a surety agreement is strictly construed against the creditor, and every doubt is resolved in favor of the solidary debtor. The fundamental rules of fair play require the creditor to obtain the consent of the surety to any material alteration in the principal loan agreement, or at least to notify it thereof. Hence, petitioner bank cannot hold herein respondent liable for loans obtained in excess of the amount or beyond the period stipulated in the original agreement, absent any clear stipulation showing that the latter waived his right to be notified thereof, or to give consent thereto. This is especially true where, as in this case, respondent was no longer the principal officer or major stockholder of the corporate debtor at the time the later obligations were incurred. He was thus no longer in a position to compel the debtor to pay the creditor and had no more reason to bind himself anew to the subsequent obligations.

The Case

This is the main principle used in denying the present Petition for Review under Rule 45 of the Rules of Court. Petitioner assails the December 22, 1998 Decision

1 of the Court of Appeals (CA) in CA-GR

CV No. 56203, the dispositive portion of which reads as follows:

"WHEREFORE, the judgment appealed from is hereby amended in the sense that defendant-appellant Rodolfo M. Cuenca [herein respondent] is RELEASED from liability to pay any amount stated in the judgment.

"Furthermore, [Respondent] Rodolfo M. Cuencas counterclaim is hereby DISMISSED for lack of merit.

"In all other respect[s], the decision appealed from is AFFIRMED."2

Also challenged is the April 14, 1999 CA Resolution,3 which denied

petitioners Motion for Reconsideration.

Modified by the CA was the March 6, 1997 Decision4 of the Regional

Trial Court (RTC) of Makati City (Branch 66) in Civil Case No. 93-1925, which disposed as follows:

"WHEREFORE, judgment is hereby rendered ordering defendants Sta. Ines Melale Corporation and Rodolfo M. Cuenca to pay, jointly and severally, plaintiff Security Bank & Trust Company the sum of P39,129,124.73 representing the balance of the loan as of May 10, 1994 plus 12% interest per annum until fully paid, and the sum of P100,000.00 as attorneys fees and litigation expenses and to pay the costs.

SO ORDERED."

The Facts

The facts are narrated by the Court of Appeals as follows:5

"The antecedent material and relevant facts are that defendant-appellant Sta. Ines Melale (Sta. Ines) is a corporation engaged in logging operations. It was a holder of a Timber License Agreement issued by the Department of Environment and Natural Resources (DENR).

"On 10 November 1980, [Petitioner] Security Bank and Trust Co. granted appellant Sta. Ines Melale Corporation [SIMC] a credit line in the amount of [e]ight [m]llion [p]esos (P8,000,000.00) to assist the latter in meeting the additional capitalization requirements of its logging operations.

"The Credit Approval Memorandum expressly stated that the P8M Credit Loan Facility shall be effective until 30 November 1981:

JOINT CONDITIONS:

1. Against Chattel Mortgage on logging trucks and/or inventories (except logs) valued at 200% of the lines plus JSS of Rodolfo M. Cuenca.

2. Submission of an appropriate Board Resolution authorizing the borrowings, indicating therein the companys duly authorized signatory/ies;

3. Reasonable/compensating deposit balances in current account shall be maintained at all times; in this connection, a Makati account shall be opened prior to availment on lines;

4. Lines shall expire on November 30, 1981; and

5. The bank reserves the right to amend any of the aforementioned terms and conditions upon written notice to the Borrower. (Emphasis supplied.)

"To secure the payment of the amounts drawn by appellant SIMC from the above-mentioned credit line, SIMC executed a Chattel Mortgage dated 23 December 1980 (Exhibit A) over some of its machinery and equipment in favor of [Petitioner] SBTC. As additional security for the payment of the loan, [Respondent] Rodolfo M. Cuenca executed an Indemnity Agreement dated 17 December 1980 (Exhibit B) in favor of [Petitioner] SBTC whereby he solidarily bound himself with SIMC as follows:

x x x x x x x x x

Rodolfo M. Cuenca x x x hereby binds himself x x x jointly and severally with the client (SIMC) in favor of the bank for the payment, upon demand and without the benefit of excussion of whatever amount x x x the client may be indebted to the bank x x x by virtue of aforesaid credit accommodation(s) including the substitutions, renewals, extensions, increases, amendments, conversions and revivals of the aforesaid credit accommodation(s) x x x . (Emphasis supplied).


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"On 26 November 1981, four (4) days prior to the expiration of the period of effectivity of the P8M-Credit Loan Facility, appellant SIMC made a first drawdown from its credit line with [Petitioner] SBTC in the amount of [s]ix [m]illion [o]ne [h]undred [t]housand [p]esos (P6,100,000.00). To cover said drawdown, SIMC duly executed promissory Note No. TD/TLS-3599-81 for said amount (Exhibit C).

"Sometime in 1985, [Respondent] Cuenca resigned as President and Chairman of the Board of Directors of defendant-appellant Sta. Ines. Subsequently, the shareholdings of [Respondent] Cuenca in defendant-appellant Sta. Ines were sold at a public auction relative to Civil Case No. 18021 entitled Adolfo A. Angala vs. Universal Holdings, Inc. and Rodolfo M. Cuenca. Said shares were bought by Adolfo Angala who was the highest bidder during the public auction.

"Subsequently, appellant SIMC repeatedly availed of its credit line and obtained six (6) other loan[s] from [Petitioner] SBTC in the aggregate amount of [s]ix [m]illion [t]hree [h]undred [s]ixty-[n]ine [t]housand [n]ineteen and 50/100 [p]esos (P6,369,019.50). Accordingly, SIMC executed Promissory Notes Nos. DLS/74/760/85, DLS/74773/85, DLS/74/78/85, DLS/74/760/85 DLS/74/12/86, and DLS/74/47/86 to cover the amounts of the abovementioned additional loans against the credit line.

"Appellant SIMC, however, encountered difficulty6 in making the

amortization payments on its loans and requested [Petitioner] SBTC for a complete restructuring of its indebtedness. SBTC accommodated appellant SIMCs request and signified its approval in a letter dated 18 February 1988 (Exhibit G) wherein SBTC and defendant-appellant Sta. Ines, without notice to or the prior consent of [Respondent] Cuenca, agreed to restructure the past due obligations of defendant-appellant Sta. Ines. [Petitioner] Security Bank agreed to extend to defendant-appellant Sta. Ines the following loans:

a. Term loan in the amount of [e]ight [m]illion [e]ight [h]undred [t]housand [p]esos (P8,800,000.00), to be applied to liquidate the principal portion of defendant-appellant Sta. Ines[] total outstanding indebtedness to [Petitioner] Security Bank (cf. P. 1 of Exhibit G, Expediente, at Vol. II, p. 336; Exhibit 5-B-Cuenca, Expediente, et Vol I, pp. 33 to 34) and

b. Term loan in the amount of [t]hree [m]illion [f]our [h]undred [t]housand [p]esos (P3,400,000.00), to be applied to liquidate the past due interest and penalty portion of the indebtedness of defendant-appellant Sta. Ines to [Petitioner] Security Bank (cf. Exhibit G, Expediente, at Vol. II, p. 336; Exhibit 5-B-Cuenca, Expediente, at Vol. II, p. 33 to 34).

"It should be pointed out that in restructuring defendant-appellant Sta. Ines obligations to [Petitioner] Security Bank, Promissory Note No. TD-TLS-3599-81 in the amount of [s]ix [m]illion [o]ne [h]undred [t]housand [p]esos (P6,100,000.00), which was the only loan incurred prior to the expiration of the P8M-Credit Loan Facility on 30 November 1981 and the only one covered by the Indemnity Agreement dated 19 December 1980 (Exhibit 3-Cuenca, Expediente, at Vol. II, p. 331), was not segregated from, but was instead lumped together with, the other loans, i.e., Promissory Notes Nos. DLS/74/12/86, DLS/74/28/86 and DLS/74/47/86 (Exhibits D, E, and F, Expediente, at Vol. II, pp. 333 to 335) obtained by defendant-appellant Sta. Ines which were not secured by said Indemnity Agreement.

"Pursuant to the agreement to restructure its past due obligations to [Petitioner] Security Bank, defendant-appellant Sta. Ines thus executed the following promissory notes, both dated 09 March 1988 in favor of [Petitioner] Security Bank:

PROMISSORY NOTE NO. AMOUNT

RL/74/596/88 P8,800,000.00

RL/74/597/88 P3,400,000.00

TOTAL P12,200,000.00

(Exhibits H and I, Expediente, at Vol. II, pp. 338 to 343).

"To formalize their agreement to restructure the loan obligations of defendant-appellant Sta. Ines, [Petitioner] Security Bank and defendant-appellant Sta. Ines executed a Loan Agreement dated 31 October 1989 (Exhibit 5-Cuenca, Expediente, at Vol. I, pp. 33 to 41). Section 1.01 of the said Loan Agreement dated 31 October 1989 provides:

1.01 Amount - The Lender agrees to grant loan to the Borrower in the aggregate amount of TWELVE MILLION TWO HUNDRED THOUSAND PESOS (P12,200,000.00), Philippines [c]urrency (the Loan). The loan shall be released in two (2) tranches of P8,800,000.00 for the first tranche (the First Loan) and P3,400,000.00 for the second tranche (the Second Loan) to be applied in the manner and for the purpose stipulated hereinbelow.

1.02. Purpose - The First Loan shall be applied to liquidate the principal portion of the Borrowers present total outstanding indebtedness to the Lender (the indebtedness) while the Second Loan shall be applied to liquidatethe past due interest and penalty portion of the Indebtedness. (Underscoring supplied.) (cf. p. 1 of Exhibit 5-Cuenca, Expediente, at Vol. I, p. 33)

"From 08 April 1988 to 02 December 1988, defendant-appellant Sta. Ines made further payments to [Petitioner] Security Bank in the amount of [o]ne [m]illion [s]even [h]undred [f]ifty-[s]even [t]housand [p]esos (P1,757,000.00) (Exhibits 8, 9-P-SIMC up to 9-GG-SIMC, Expediente, at Vol. II, pp. 38, 70 to 165)

"Appellant SIMC defaulted in the payment of its restructured loan obligations to [Petitioner] SBTC despite demands made upon appellant SIMC and CUENCA, the last of which were made through separate letters dated 5 June 1991 (Exhibit K) and 27 June 1991 (Exhibit L), respectively.

"Appellants individually and collectively refused to pay the [Petitioner] SBTC. Thus, SBTC filed a complaint for collection of sum of money on 14 June 1993, resulting after trial on the merits in a decision by the court a quo, x x x from which [Respondent] Cuenca appealed."

Ruling of the Court of Appeals


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In releasing Respondent Cuenca from liability, the CA ruled that the 1989 Loan Agreement had novated the 1980 credit accommodation earlier granted by the bank to Sta. Ines. Accordingly, such novation extinguished the Indemnity Agreement, by which Cuenca, who was then the Board chairman and president of Sta. Ines, had bound himself solidarily liable for the payment of the loans secured by that credit accommodation. It noted that the 1989 Loan Agreement had been executed without notice to, much less consent from, Cuenca who at the time was no longer a stockholder of the corporation.

The appellate court also noted that the Credit Approval Memorandum had specified that the credit accommodation was for a total amount of P8 million, and that its expiry date was November 30, 1981. Hence, it ruled that Cuenca was liable only for loans obtained prior to November 30, 1981, and only for an amount not exceeding P8 million.

It further held that the restructuring of Sta. Ines obligation under the 1989 Loan Agreement was tantamount to a grant of an extension of time to the debtor without the consent of the surety. Under Article 2079 of the Civil Code, such extension extinguished the surety.

The CA also opined that the surety was entitled to notice, in case the bank and Sta. Ines decided to materially alter or modify the principal obligation after the expiry date of the credit accommodation.

Hence, this recourse to this Court.7

The Issues

In its Memorandum, petitioner submits the following for our consideration:

8

"A. Whether or not the Honorable Court of Appeals erred in releasing Respondent Cuenca from liability as surety under the Indemnity Agreement for the payment of the principal amount of twelve million two hundred thousand pesos (P12,200,000.00) under Promissory Note No. RL/74/596/88 dated 9 March 1988 and Promissory Note No. RL/74/597/88 dated 9 March 1988, plus stipulated interests, penalties and other charges due thereon;

i. Whether or not the Honorable Court of Appeals erred in ruling that Respondent Cuencas liability under the Indemnity Agreement covered only availments on SIMCs credit line to the extent of eight million pesos (P8,000,000.00) and made on or before 30 November 1981;

ii. Whether or not the Honorable Court of Appeals erred in ruling that the restructuring of SIMCs indebtedness under the P8 million credit accommodation was tantamount to an extension granted to SIMC without Respondent Cuencas consent, thus extinguishing his liability under the Indemnity Agreement pursuant to Article 2079 of the Civil Code;

iii. Whether or not the Honorable Court of appeals erred in ruling that the restructuring of SIMCs indebtedness under the P8 million credit accommodation constituted a novation of the principal obligation, thus extinguishing

Respondent Cuencas liability under the indemnity agreement;

B. Whether or not Respondent Cuencas liability under the Indemnity Agreement was extinguished by the payments made by SIMC;

C. Whether or not petitioners Motion for Reconsideration was pro-forma;

D. Whether or not service of the Petition by registered mail sufficiently complied with Section 11, Rule 13 of the 1997 Rules of Civil Procedure."

Distilling the foregoing, the Court will resolve the following issues: (a) whether the 1989 Loan Agreement novated the original credit accommodation and Cuencas liability under the Indemnity Agreement; and (b) whether Cuenca waived his right to be notified of and to give consent to any substitution, renewal, extension, increase, amendment, conversion or revival of the said credit accommodation. As preliminary matters, the procedural questions raised by respondent will also be addressed.

The Courts Ruling

The Petition has no merit.

Preliminary Matters: Procedural Questions

Motion for Reconsideration Not Pro Forma

Respondent contends that petitioners Motion for Reconsideration of the CA Decision, in merely rehashing the arguments already passed upon by the appellate court, was pro forma; that as such, it did not toll the period for filing the present Petition for Review.

9 Consequently, the Petition was filed out of time.

10

We disagree. A motion for reconsideration is not pro forma just because it reiterated the arguments earlier passed upon and rejected by the appellate court. The Court has explained that a movant may raise the same arguments, precisely to convince the court that its ruling was erroneous.

11

Moreover, there is no clear showing of intent on the part of petitioner to delay the proceedings. In Marikina Valley Development Corporation v. Flojo,

12 the Court explained that a pro forma motion

had no other purpose than to gain time and to delay or impede the proceedings. Hence, "where the circumstances of a case do not show an intent on the part of the movant merely to delay the proceedings, our Court has refused to characterize the motion as simply pro forma." It held:

"We note finally that because the doctrine relating to pro forma motions for reconsideration impacts upon the reality and substance of the statutory right of appeal, that doctrine should be applied reasonably, rather than literally. The right to appeal, where it exists, is an important and valuable right. Public policy would be better served by according the appellate court an effective opportunity to review the decision of the trial court on the merits, rather than by aborting the right to appeal by a literal application of the procedural rules relating to pro forma motions for reconsideration."


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Service by Registered Mail Sufficiently Explained

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

"SEC. 11. Priorities in modes of service and filing. -- Whenever practicable, the service and filing of pleadings and other papers shall be done personally. Except with respect to papers emanating from the court, a resort to other modes must be accompanied by a written explanation why the service or filing was not done personally. A violation of this Rule may be cause to consider the paper as not filed."

Respondent maintains that the present Petition for Review does not contain a sufficient written explanation why it was served by registered mail.

We do not think so. The Court held in Solar Entertainment v. Ricafort

13 that the aforecited rule was mandatory, and that "only

when personal service or filing is not practicable may resort to other modes be had, which must then be accompanied by a written explanation as to why personal service or filing was not practicable to begin with."

In this case, the Petition does state that it was served on the respective counsels of Sta. Ines and Cuenca "by registered mail in lieu of personal service due to limitations in time and distance."

14 This explanation sufficiently shows that personal service

was not practicable. In any event, we find no adequate reason to reject the contention of petitioner and thereby deprive it of the opportunity to fully argue its cause.

First Issue: Original Obligation Extinguished by Novation

An obligation may be extinguished by novation, pursuant to Article 1292 of the Civil Code, which reads as follows:

"ART. 1292. In order that an obligation may be extinguished by another which substitute the same, it is imperative that it be so declared in unequivocal terms, or that the old and the new obligations be on every point incompatible with each other."

Novation of a contract is never presumed. It has been held that "[i]n the absence of an express agreement, novation takes place only when the old and the new obligations are incompatible on every point."

15 Indeed, the following requisites must be established: (1)

there is a previous valid obligation; (2) the parties concerned agree to a new contract; (3) the old contract is extinguished; and (4) there is a valid new contract.

16

Petitioner contends that there was no absolute incompatibility between the old and the new obligations, and that the latter did not extinguish the earlier one. It further argues that the 1989 Agreement did not change the original loan in respect to the parties involved or the obligations incurred. It adds that the terms of the 1989 Contract were "not more onerous."

17 Since the original credit

accomodation was not extinguished, it concludes that Cuenca is still liable under the Indemnity Agreement.

We reject these contentions. Clearly, the requisites of novation are present in this case. The 1989 Loan Agreement extinguished the obligation

18 obtained under the 1980 credit accomodation. This is

evident from its explicit provision to "liquidate" the principal and the interest of the earlier indebtedness, as the following shows:

"1.02. Purpose. The First Loan shall be applied to liquidate the principal portion of the Borrowers present total outstanding Indebtedness to the Lender (the "Indebtedness") while the Second Loan shall be applied to liquidatethe past due interest and penalty portion of the Indebtedness."

19 (Italics supplied.)

The testimony of an officer20

of the bank that the proceeds of the 1989 Loan Agreement were used "to pay-off" the

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