Republic of the Philippines

SUPREME COURT
Manila
SECOND DIVISION
G.R. No. 126780

February 17, 2005

YHT REALTY CORPORATION, ERLINDA LAINEZ and ANICIA PAYAM, petitioners,

vs.
THE COURT OF APPEALS and MAURICE McLOUGHLIN, respondents.
DECISION
TINGA, J.:
The primary question of interest before this Court is the only legal issue in the
case: It is whether a hotel may evade liability for the loss of items left with it for
safekeeping by its guests, by having these guests execute written waivers
holding the establishment or its employees free from blame for such loss in light
of Article 2003 of the Civil Code which voids such waivers.
Before this Court is a Rule 45 petition for review of the Decision1 dated 19
October 1995 of the Court of Appeals which affirmed the Decision2 dated 16
December 1991 of the Regional Trial Court (RTC), Branch 13, of Manila, finding
YHT Realty Corporation, Brunhilda Mata-Tan (Tan), Erlinda Lainez (Lainez) and
Anicia Payam (Payam) jointly and solidarily liable for damages in an action filed
by Maurice McLoughlin (McLoughlin) for the loss of his American and Australian
dollars deposited in the safety deposit box of Tropicana Copacabana Apartment
Hotel, owned and operated by YHT Realty Corporation.
The factual backdrop of the case follow.
Private respondent McLoughlin, an Australian businessman-philanthropist, used
to stay at Sheraton Hotel during his trips to the Philippines prior to 1984 when
he met Tan. Tan befriended McLoughlin by showing him around, introducing
him to important people, accompanying him in visiting impoverished street

children and assisting him in buying gifts for the children and in distributing the
same to charitable institutions for poor children. Tan convinced McLoughlin to
transfer from Sheraton Hotel to Tropicana where Lainez, Payam and Danilo
Lopez were employed. Lopez served as manager of the hotel while Lainez and
Payam had custody of the keys for the safety deposit boxes of Tropicana. Tan
took care of McLoughlin's booking at the Tropicana where he started staying
during his trips to the Philippines from December 1984 to September 1987.3
On 30 October 1987, McLoughlin arrived from Australia and registered with
Tropicana. He rented a safety deposit box as it was his practice to rent a safety
deposit box every time he registered at Tropicana in previous trips. As a tourist,
McLoughlin was aware of the procedure observed by Tropicana relative to its
safety deposit boxes. The safety deposit box could only be opened through the
use of two keys, one of which is given to the registered guest, and the other
remaining in the possession of the management of the hotel. When a registered
guest wished to open his safety deposit box, he alone could personally request
the management who then would assign one of its employees to accompany
the guest and assist him in opening the safety deposit box with the two keys.4
McLoughlin allegedly placed the following in his safety deposit box: Fifteen
Thousand US Dollars (US$15,000.00) which he placed in two envelopes, one
envelope containing Ten Thousand US Dollars (US$10,000.00) and the other
envelope Five Thousand US Dollars (US$5,000.00); Ten Thousand Australian
Dollars (AUS$10,000.00) which he also placed in another envelope; two (2)
other envelopes containing letters and credit cards; two (2) bankbooks; and a
checkbook, arranged side by side inside the safety deposit box.5
On 12 December 1987, before leaving for a brief trip to Hongkong, McLoughlin
opened his safety deposit box with his key and with the key of the management
and took therefrom the envelope containing Five Thousand US Dollars
(US$5,000.00), the envelope containing Ten Thousand Australian Dollars
(AUS$10,000.00), his passports and his credit cards.6 McLoughlin left the other
items in the box as he did not check out of his room at the Tropicana during his
short visit to Hongkong. When he arrived in Hongkong, he opened the envelope
which contained Five Thousand US Dollars (US$5,000.00) and discovered upon
1

counting that only Three Thousand US Dollars (US$3,000.00) were enclosed

therein.7 Since he had no idea whether somebody else had tampered with his
safety deposit box, he thought that it was just a result of bad accounting since
he did not spend anything from that envelope.8
After returning to Manila, he checked out of Tropicana on 18 December 1987
and left for Australia. When he arrived in Australia, he discovered that the
envelope with Ten Thousand US Dollars (US$10,000.00) was short of Five
Thousand US Dollars (US$5,000). He also noticed that the jewelry which he
bought in Hongkong and stored in the safety deposit box upon his return to
Tropicana was likewise missing, except for a diamond bracelet.9
When McLoughlin came back to the Philippines on 4 April 1988, he asked Lainez
if some money and/or jewelry which he had lost were found and returned to
her or to the management. However, Lainez told him that no one in the hotel
found such things and none were turned over to the management. He again
registered at Tropicana and rented a safety deposit box. He placed therein one
(1) envelope containing Fifteen Thousand US Dollars (US$15,000.00), another
envelope containing Ten Thousand Australian Dollars (AUS$10,000.00) and
other envelopes containing his traveling papers/documents. On 16 April 1988,
McLoughlin requested Lainez and Payam to open his safety deposit box. He
noticed that in the envelope containing Fifteen Thousand US Dollars
(US$15,000.00), Two Thousand US Dollars (US$2,000.00) were missing and in
the envelope previously containing Ten Thousand Australian Dollars
(AUS$10,000.00), Four Thousand Five Hundred Australian Dollars
(AUS$4,500.00) were missing.10
When McLoughlin discovered the loss, he immediately confronted Lainez and
Payam who admitted that Tan opened the safety deposit box with the key
assigned to him.11 McLoughlin went up to his room where Tan was staying and
confronted her. Tan admitted that she had stolen McLoughlin's key and was
able to open the safety deposit box with the assistance of Lopez, Payam and
Lainez.12 Lopez also told McLoughlin that Tan stole the key assigned to
McLoughlin while the latter was asleep.13

McLoughlin requested the management for an investigation of the incident.

Lopez got in touch with Tan and arranged for a meeting with the police and
McLoughlin. When the police did not arrive, Lopez and Tan went to the room of
McLoughlin at Tropicana and thereat, Lopez wrote on a piece of paper a
promissory note dated 21 April 1988. The promissory note reads as follows:
I promise to pay Mr. Maurice McLoughlin the amount of AUS$4,000.00 and
US$2,000.00 or its equivalent in Philippine currency on or before May 5, 1988.14
Lopez requested Tan to sign the promissory note which the latter did and Lopez
also signed as a witness. Despite the execution of promissory note by Tan,
McLoughlin insisted that it must be the hotel who must assume responsibility
for the loss he suffered. However, Lopez refused to accept the responsibility
relying on the conditions for renting the safety deposit box
entitled "Undertaking For the Use Of Safety Deposit Box,"15specifically
paragraphs (2) and (4) thereof, to wit:
2. To release and hold free and blameless TROPICANA APARTMENT HOTEL from
any liability arising from any loss in the contents and/or use of the said deposit
box for any cause whatsoever, including but not limited to the presentation or
use thereof by any other person should the key be lost;
...
4. To return the key and execute the RELEASE in favor of TROPICANA
APARTMENT HOTEL upon giving up the use of the box.16
On 17 May 1988, McLoughlin went back to Australia and he consulted his
lawyers as to the validity of the abovementioned stipulations. They opined that
the stipulations are void for being violative of universal hotel practices and
customs. His lawyers prepared a letter dated 30 May 1988 which was signed by
McLoughlin and sent to President Corazon Aquino.17 The Office of the President
referred the letter to the Department of Justice (DOJ) which forwarded the
same to the Western Police District (WPD).18

After receiving a copy of the indorsement in Australia, McLoughlin came to the

Philippines and registered again as a hotel guest of Tropicana. McLoughlin went
to Malacaang to follow up on his letter but he was instructed to go to the DOJ.
The DOJ directed him to proceed to the WPD for documentation. But
McLoughlin went back to Australia as he had an urgent business matter to
attend to.
For several times, McLoughlin left for Australia to attend to his business and
came back to the Philippines to follow up on his letter to the President but he
failed to obtain any concrete assistance.19
McLoughlin left again for Australia and upon his return to the Philippines on 25
August 1989 to pursue his claims against petitioners, the WPD conducted an
investigation which resulted in the preparation of an affidavit which was
forwarded to the Manila City Fiscal's Office. Said affidavit became the basis of
preliminary investigation. However, McLoughlin left again for Australia without
receiving the notice of the hearing on 24 November 1989. Thus, the case at the
Fiscal's Office was dismissed for failure to prosecute. Mcloughlin requested the
reinstatement of the criminal charge for theft. In the meantime, McLoughlin and
his lawyers wrote letters of demand to those having responsibility to pay the
damage. Then he left again for Australia.
Upon his return on 22 October 1990, he registered at the Echelon Towers at
Malate, Manila. Meetings were held between McLoughlin and his lawyer which
resulted to the filing of a complaint for damages on 3 December 1990 against
YHT Realty Corporation, Lopez, Lainez, Payam and Tan (defendants) for the loss
of McLoughlin's money which was discovered on 16 April 1988. After filing the
complaint, McLoughlin left again for Australia to attend to an urgent business
matter. Tan and Lopez, however, were not served with summons, and trial
proceeded with only Lainez, Payam and YHT Realty Corporation as defendants.
After defendants had filed their Pre-Trial Brief admitting that they had
previously allowed and assisted Tan to open the safety deposit box, McLoughlin
filed an Amended/Supplemental Complaint20 dated 10 June 1991 which included
another incident of loss of money and jewelry in the safety deposit box rented

by McLoughlin in the same hotel which took place prior to 16 April 1988.21 The
trial court admitted the Amended/Supplemental Complaint.
During the trial of the case, McLoughlin had been in and out of the country to
attend to urgent business in Australia, and while staying in the Philippines to
attend the hearing, he incurred expenses for hotel bills, airfare and other
transportation expenses, long distance calls to Australia, Meralco power
expenses, and expenses for food and maintenance, among others.22
After trial, the RTC of Manila rendered judgment in favor of McLoughlin, the
dispositive portion of which reads:
WHEREFORE, above premises considered, judgment is hereby rendered by this
Court in favor of plaintiff and against the defendants, to wit:
1. Ordering defendants, jointly and severally, to pay plaintiff the sum of
US$11,400.00 or its equivalent in Philippine Currency of P342,000.00, more or
less, and the sum of AUS$4,500.00 or its equivalent in Philippine Currency
of P99,000.00, or a total of P441,000.00, more or less, with 12% interest from
April 16 1988 until said amount has been paid to plaintiff (Item 1, Exhibit CC);
2. Ordering defendants, jointly and severally to pay plaintiff the sum
of P3,674,238.00 as actual and consequential damages arising from the loss of
his Australian and American dollars and jewelries complained against and in
prosecuting his claim and rights administratively and judicially (Items II, III, IV, V,
VI, VII, VIII, and IX, Exh. "CC");
3. Ordering defendants, jointly and severally, to pay plaintiff the sum
of P500,000.00 as moral damages (Item X, Exh. "CC");
4. Ordering defendants, jointly and severally, to pay plaintiff the sum
of P350,000.00 as exemplary damages (Item XI, Exh. "CC");
5. And ordering defendants, jointly and severally, to pay litigation expenses in
the sum of P200,000.00 (Item XII, Exh. "CC");

6. Ordering defendants, jointly and severally, to pay plaintiff the sum

of P200,000.00 as attorney's fees, and a fee of P3,000.00 for every appearance;
and
7. Plus costs of suit.
SO ORDERED.23
The trial court found that McLoughlin's allegations as to the fact of loss and as
to the amount of money he lost were sufficiently shown by his direct and
straightforward manner of testifying in court and found him to be credible and
worthy of belief as it was established that McLoughlin's money, kept in
Tropicana's safety deposit box, was taken by Tan without McLoughlin's consent.
The taking was effected through the use of the master key which was in the
possession of the management. Payam and Lainez allowed Tan to use the
master key without authority from McLoughlin. The trial court added that if
McLoughlin had not lost his dollars, he would not have gone through the trouble
and personal inconvenience of seeking aid and assistance from the Office of the
President, DOJ, police authorities and the City Fiscal's Office in his desire to
recover his losses from the hotel management and Tan.24
As regards the loss of Seven Thousand US Dollars (US$7,000.00) and jewelry
worth approximately One Thousand Two Hundred US Dollars (US$1,200.00)
which allegedly occurred during his stay at Tropicana previous to 4 April 1988,
no claim was made by McLoughlin for such losses in his complaint dated 21
November 1990 because he was not sure how they were lost and who the
responsible persons were. But considering the admission of the defendants in
their pre-trial brief that on three previous occasions they allowed Tan to open
the box, the trial court opined that it was logical and reasonable to presume
that his personal assets consisting of Seven Thousand US Dollars (US$7,000.00)
and jewelry were taken by Tan from the safety deposit box without
McLoughlin's consent through the cooperation of Payam and Lainez.25
The trial court also found that defendants acted with gross negligence in the
performance and exercise of their duties and obligations as innkeepers and
were therefore liable to answer for the losses incurred by McLoughlin.26

Moreover, the trial court ruled that paragraphs (2) and (4) of the "Undertaking
For The Use Of Safety Deposit Box" are not valid for being contrary to the
express mandate of Article 2003 of the New Civil Code and against public
policy.27 Thus, there being fraud or wanton conduct on the part of defendants,
they should be responsible for all damages which may be attributed to the nonperformance of their contractual obligations.28
The Court of Appeals affirmed the disquisitions made by the lower court except
as to the amount of damages awarded. The decretal text of the appellate court's
decision reads:
THE FOREGOING CONSIDERED, the appealed Decision is hereby AFFIRMED but
modified as follows:
The appellants are directed jointly and severally to pay the plaintiff/appellee the
following amounts:
1) P153,200.00 representing the peso equivalent of US$2,000.00 and
AUS$4,500.00;
2) P308,880.80, representing the peso value for the air fares from Sidney [sic] to
Manila and back for a total of eleven (11) trips;
3) One-half of P336,207.05 or P168,103.52 representing payment to Tropicana
Apartment Hotel;
4) One-half of P152,683.57 or P76,341.785 representing payment to Echelon
Tower;
5) One-half of P179,863.20 or P89,931.60 for the taxi xxx transportation from
the residence to Sidney [sic] Airport and from MIA to the hotel here in Manila,
for the eleven (11) trips;
6) One-half of P7,801.94 or P3,900.97 representing Meralco power expenses;
7) One-half of P356,400.00 or P178,000.00 representing expenses for food and
maintenance;
4

8) P50,000.00 for moral damages;

9) P10,000.00 as exemplary damages; and
10) P200,000 representing attorney's fees.
With costs.
SO ORDERED.29
Unperturbed, YHT Realty Corporation, Lainez and Payam went to this Court in
this appeal by certiorari.
Petitioners submit for resolution by this Court the following issues: (a) whether
the appellate court's conclusion on the alleged prior existence and subsequent
loss of the subject money and jewelry is supported by the evidence on record;
(b) whether the finding of gross negligence on the part of petitioners in the
performance of their duties as innkeepers is supported by the evidence on
record; (c) whether the "Undertaking For The Use of Safety Deposit Box"
admittedly executed by private respondent is null and void; and (d) whether the
damages awarded to private respondent, as well as the amounts thereof, are
proper under the circumstances.30
The petition is devoid of merit.
It is worthy of note that the thrust of Rule 45 is the resolution only of questions
of law and any peripheral factual question addressed to this Court is beyond the
bounds of this mode of review.
Petitioners point out that the evidence on record is insufficient to prove the fact
of prior existence of the dollars and the jewelry which had been lost while
deposited in the safety deposit boxes of Tropicana, the basis of the trial court
and the appellate court being the sole testimony of McLoughlin as to the
contents thereof. Likewise, petitioners dispute the finding of gross negligence
on their part as not supported by the evidence on record.
We are not persuaded.l^vvphi1.net We adhere to the findings of the trial court as
affirmed by the appellate court that the fact of loss was established by the

credible testimony in open court by McLoughlin. Such findings are factual and
therefore beyond the ambit of the present petition.1awphi1.nt
The trial court had the occasion to observe the demeanor of McLoughlin while
testifying which reflected the veracity of the facts testified to by him. On this
score, we give full credence to the appreciation of testimonial evidence by the
trial court especially if what is at issue is the credibility of the witness. The oftrepeated principle is that where the credibility of a witness is an issue, the
established rule is that great respect is accorded to the evaluation of the
credibility of witnesses by the trial court.31 The trial court is in the best position
to assess the credibility of witnesses and their testimonies because of its unique
opportunity to observe the witnesses firsthand and note their demeanor,
conduct and attitude under grilling examination.32
We are also not impressed by petitioners' argument that the finding of gross
negligence by the lower court as affirmed by the appellate court is not
supported by evidence. The evidence reveals that two keys are required to open
the safety deposit boxes of Tropicana. One key is assigned to the guest while the
other remains in the possession of the management. If the guest desires to
open his safety deposit box, he must request the management for the other key
to open the same. In other words, the guest alone cannot open the safety
deposit box without the assistance of the management or its employees. With
more reason that access to the safety deposit box should be denied if the one
requesting for the opening of the safety deposit box is a stranger. Thus, in case
of loss of any item deposited in the safety deposit box, it is inevitable to
conclude that the management had at least a hand in the consummation of the
taking, unless the reason for the loss is force majeure.
Noteworthy is the fact that Payam and Lainez, who were employees of
Tropicana, had custody of the master key of the management when the loss
took place. In fact, they even admitted that they assisted Tan on three separate
occasions in opening McLoughlin's safety deposit box.33 This only proves that
Tropicana had prior knowledge that a person aside from the registered guest
had access to the safety deposit box. Yet the management failed to notify
McLoughlin of the incident and waited for him to discover the taking before it
5

disclosed the matter to him. Therefore, Tropicana should be held responsible

for the damage suffered by McLoughlin by reason of the negligence of its
employees.
The management should have guarded against the occurrence of this incident
considering that Payam admitted in open court that she assisted Tan three
times in opening the safety deposit box of McLoughlin at around 6:30 A.M. to
7:30 A.M. while the latter was still asleep.34 In light of the circumstances
surrounding this case, it is undeniable that without the acquiescence of the
employees of Tropicana to the opening of the safety deposit box, the loss of
McLoughlin's money could and should have been avoided.
The management contends, however, that McLoughlin, by his act, made its
employees believe that Tan was his spouse for she was always with him most of
the time. The evidence on record, however, is bereft of any showing that
McLoughlin introduced Tan to the management as his wife. Such an inference
from the act of McLoughlin will not exculpate the petitioners from liability in the
absence of any showing that he made the management believe that Tan was his
wife or was duly authorized to have access to the safety deposit box. Mere close
companionship and intimacy are not enough to warrant such conclusion
considering that what is involved in the instant case is the very safety of
McLoughlin's deposit. If only petitioners exercised due diligence in taking care of
McLoughlin's safety deposit box, they should have confronted him as to his
relationship with Tan considering that the latter had been observed opening
McLoughlin's safety deposit box a number of times at the early hours of the
morning. Tan's acts should have prompted the management to investigate her
relationship with McLoughlin. Then, petitioners would have exercised due
diligence required of them. Failure to do so warrants the conclusion that the
management had been remiss in complying with the obligations imposed upon
hotel-keepers under the law.
Under Article 1170 of the New Civil Code, those who, in the performance of
their obligations, are guilty of negligence, are liable for damages. As to who shall
bear the burden of paying damages, Article 2180, paragraph (4) of the same
Code provides that the owners and managers of an establishment or enterprise

are likewise responsible for damages caused by their employees in the service
of the branches in which the latter are employed or on the occasion of their
functions. Also, this Court has ruled that if an employee is found negligent, it is
presumed that the employer was negligent in selecting and/or supervising him
for it is hard for the victim to prove the negligence of such employer.35 Thus,
given the fact that the loss of McLoughlin's money was consummated through
the negligence of Tropicana's employees in allowing Tan to open the safety
deposit box without the guest's consent, both the assisting employees and YHT
Realty Corporation itself, as owner and operator of Tropicana, should be held
solidarily liable pursuant to Article 2193.36
The issue of whether the "Undertaking For The Use of Safety Deposit Box"
executed by McLoughlin is tainted with nullity presents a legal question
appropriate for resolution in this petition. Notably, both the trial court and the
appellate court found the same to be null and void. We find no reason to
reverse their common conclusion. Article 2003 is controlling, thus:
Art. 2003. 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 200137 is suppressed
or diminished shall be void.
Article 2003 was incorporated in the New Civil Code as an expression of public
policy precisely to apply to situations such as that presented in this case. The
hotel business like the common carrier's business is imbued with public interest.
Catering to the public, hotelkeepers are bound to provide not only lodging for
hotel guests and security to their persons and belongings. The twin duty
constitutes the essence of the business. The law in turn does not allow such
duty to the public to be negated or diluted by any contrary stipulation in socalled "undertakings" that ordinarily appear in prepared forms imposed by hotel
keepers on guests for their signature.
In an early case,38 the Court of Appeals through its then Presiding Justice (later
Associate Justice of the Court) Jose P. Bengzon, ruled that to hold hotelkeepers
6

or innkeeper liable for the effects of their guests, it is not necessary that they be
actually delivered to the innkeepers or their employees. It is enough that such
effects are within the hotel or inn.39 With greater reason should the liability of
the hotelkeeper be enforced when the missing items are taken without the
guest's knowledge and consent from a safety deposit box provided by the hotel
itself, as in this case.
Paragraphs (2) and (4) of the "undertaking" manifestly contravene Article 2003
of the New Civil Code for they allow Tropicana to be released from liability
arising from any loss in the contents and/or use of the safety deposit box
for any cause whatsoever.40 Evidently, the undertaking was intended to bar any
claim against Tropicana for any loss of the contents of the safety deposit box
whether or not negligence was incurred by Tropicana or its employees. The New
Civil Code is explicit that the responsibility of the hotel-keeper shall extend to
loss of, or injury to, the personal property of the guests even if caused by
servants or employees of the keepers of hotels or inns as well as by strangers,
except as it may proceed from any force majeure.41 It is the loss through force
majeure that may spare the hotel-keeper from liability. In the case at bar, there
is no showing that the act of the thief or robber was done with the use of arms
or through an irresistible force to qualify the same as force majeure.42
Petitioners likewise anchor their defense on Article 200243 which exempts the
hotel-keeper from liability if the loss is due to the acts of his guest, his family, or
visitors. Even a cursory reading of the provision would lead us to reject
petitioners' contention. The justification they raise would render nugatory the
public interest sought to be protected by the provision. What if the negligence
of the employer or its employees facilitated the consummation of a crime
committed by the registered guest's relatives or visitor? Should the law
exculpate the hotel from liability since the loss was due to the act of the visitor
of the registered guest of the hotel? Hence, this provision presupposes that the
hotel-keeper is not guilty of concurrent negligence or has not contributed in any
degree to the occurrence of the loss. A depositary is not responsible for the loss
of goods by theft, unless his actionable negligence contributes to the loss.44

In the case at bar, the responsibility of securing the safety deposit box was
shared not only by the guest himself but also by the management since two
keys are necessary to open the safety deposit box. Without the assistance of
hotel employees, the loss would not have occurred. Thus, Tropicana was guilty
of concurrent negligence in allowing Tan, who was not the registered guest, to
open the safety deposit box of McLoughlin, even assuming that the latter was
also guilty of negligence in allowing another person to use his key. To rule
otherwise would result in undermining the safety of the safety deposit boxes in
hotels for the management will be given imprimatur to allow any person, under
the pretense of being a family member or a visitor of the guest, to have access
to the safety deposit box without fear of any liability that will attach thereafter
in case such person turns out to be a complete stranger. This will allow the hotel
to evade responsibility for any liability incurred by its employees in conspiracy
with the guest's relatives and visitors.
Petitioners contend that McLoughlin's case was mounted on the theory of
contract, but the trial court and the appellate court upheld the grant of the
claims of the latter on the basis of tort.45 There is nothing anomalous in how the
lower courts decided the controversy for this Court has pronounced a
jurisprudential rule that tort liability can exist even if there are already
contractual relations. The act that breaks the contract may also be tort.46
As to damages awarded to McLoughlin, we see no reason to modify the
amounts awarded by the appellate court for the same were based on facts and
law. It is within the province of lower courts to settle factual issues such as the
proper amount of damages awarded and such finding is binding upon this Court
especially if sufficiently proven by evidence and not unconscionable or
excessive. Thus, the appellate court correctly awarded McLoughlin Two
Thousand US Dollars (US$2,000.00) and Four Thousand Five Hundred Australian
dollars (AUS$4,500.00) or their peso equivalent at the time of payment,47 being
the amounts duly proven by evidence.48The alleged loss that took place prior to
16 April 1988 was not considered since the amounts alleged to have been taken
were not sufficiently established by evidence. The appellate court also correctly
awarded the sum ofP308,880.80, representing the peso value for the air fares
from Sydney to Manila and back for a total of eleven (11) trips;49 one-half
7

of P336,207.05 or P168,103.52 representing payment to Tropicana;50 one-half

ofP152,683.57 or P76,341.785 representing payment to Echelon Tower;51 onehalf of P179,863.20 or P89,931.60 for the taxi or transportation expenses from
McLoughlin's residence to Sydney Airport and from MIA to the hotel here in
Manila, for the eleven (11) trips;52 one-half of P7,801.94 or P3,900.97
representing Meralco power expenses;53 one-half of P356,400.00
or P178,000.00 representing expenses for food and maintenance.54

(5) One-half of P179,863.20 or P89,931.60 for the taxi or transportation expense

from McLoughlin's residence to Sydney Airport and from MIA to the hotel here
in Manila, for the eleven (11) trips;

The amount of P50,000.00 for moral damages is reasonable. Although trial

courts are given discretion to determine the amount of moral damages, the
appellate court may modify or change the amount awarded when it is palpably
and scandalously excessive.l^vvphi1.net Moral damages are not intended to enrich
a complainant at the expense of a defendant.l^vvphi1.net They are awarded only
to enable the injured party to obtain means, diversion or amusements that will
serve to alleviate the moral suffering he has undergone, by reason of
defendants' culpable action.55

(8) P50,000.00 for moral damages;

(6) One-half of P7,801.94 or P3,900.97 representing Meralco power expenses;

(7) One-half of P356,400.00 or P178,200.00 representing expenses for food and
maintenance;

(9) P10,000.00 as exemplary damages; and

(10) P200,000 representing attorney's fees.
With costs.
SO ORDERED.

The awards of P10,000.00 as exemplary damages and P200,000.00 representing

attorney's fees are likewise sustained.
WHEREFORE, foregoing premises considered, the Decision of the Court of
Appeals dated 19 October 1995 is hereby AFFIRMED. Petitioners are directed,
jointly and severally, to pay private respondent the following amounts:
(1) US$2,000.00 and AUS$4,500.00 or their peso equivalent at the time of
payment;
(2) P308,880.80, representing the peso value for the air fares from Sydney to
Manila and back for a total of eleven (11) trips;
(3) One-half of P336,207.05 or P168,103.52 representing payment to Tropicana
Copacabana Apartment Hotel;
(4) One-half of P152,683.57 or P76,341.785 representing payment to Echelon
Tower;

before the RTC] Vicente Justimbaste x x x. [Respondent averred] that: it is the

insurer for loss and damage of Jeffrey S. Sees *the insureds+ 2001 Suzuki Grand

Republic of the Philippines

Supreme Court
Manila
SECOND DIVISION
DECISION

NACHURA, J.:
For review is the Decision[1] of the Court of Appeals (CA) in CA-G.R. CV No.
86869, which affirmed the decision[2] of the Regional Trial Court (RTC), Branch
66, Makati City, in Civil Case No. 03-857, holding petitioner Durban Apartments
Corporation solely liable to respondent Pioneer Insurance and Surety
Corporation for the loss of Jeffrey Sees (Sees) vehicle.

The facts, as found by the CA, are simple.

On July 22, 2003, [respondent] Pioneer Insurance and Surety Corporation x

x x, by right of subrogation, filed [with the RTC of Makati City] a Complaint for
Recovery of Damages against [petitioner] Durban Apartments Corporation,
doing business under the name and style of City Garden Hotel, and [defendant

Vitara x x x with Plate No. XBH-510 under Policy No. MC-CV-HO010003846-00-D in the amount ofP1,175,000.00; on April 30, 2002, See arrived
and checked in at the City Garden Hotel in Makati corner Kalayaan Avenues,
Makati City before midnight, and its parking attendant, defendant x x x
Justimbaste got the key to said Vitara from See to park it[. O]n May 1, 2002, at
about 1:00 oclock in the morning, See was awakened in his room by
[a] telephone call from the Hotel Chief Security Officer who informed him that
his Vitara was carnapped while it was parked unattended at the parking area of
Equitable PCI Bank along Makati Avenue between the hours of 12:00 [a.m.] and
1:00 [a.m.]; See went to see the Hotel Chief Security Officer, thereafter reported
the incident to the Operations Division of the Makati City Police Anti-Carnapping
Unit, and a flash alarm was issued; the Makati City Police Anti-Carnapping Unit
investigated Hotel Security Officer, Ernesto T. Horlador, Jr. x x x and defendant x
x x Justimbaste; See gave his Sinumpaang Salaysay to the police investigator,
and filed a Complaint Sheet with the PNP Traffic Management Group in Camp
Crame, Quezon City; the Vitara has not yet been recovered since July 23, 2002
as evidenced by a Certification of Non- Recovery issued by the PNP TMG; it paid
the P1,163,250.00 money claim of See and mortgagee ABN AMRO Savings Bank,
Inc. as indemnity for the loss of the Vitara; the Vitara was lost due to the
negligence of [petitioner] Durban Apartments and [defendant] Justimbaste
because it was discovered during the investigation that this was the second time
that a similar incident of carnapping happened in the valet parking service of
[petitioner] Durban Apartments and no necessary precautions were taken to
prevent its repetition; [petitioner] Durban Apartments was wanting in due
diligence in the selection and supervision of its employees particularly
defendant x x x Justimbaste; and defendant x x x Justimbaste and [petitioner]
Durban Apartments failed and refused to pay its valid, just, and lawful claim
despite written demands.
Upon service of Summons, [petitioner] Durban Apartments and
[defendant] Justimbaste filed their Answer with Compulsory Counterclaim
alleging that: See did not check in at its hotel, on the contrary, he was a guest of
9

a certain Ching Montero x x x; defendant x x x Justimbaste did not get the

ignition key of Sees Vitara, on the contrary, it was See who requested a parking
attendant to park the Vitara at any available parking space, and it was parked at
the Equitable Bank parking area, which was within Sees view, while he and
Montero were waiting in front of the hotel; they made a written denial of the
demand of [respondent] Pioneer Insurance for want of legal basis; valet parking
services are provided by the hotel for the convenience of its customers looking
for a parking space near the hotel premises; it is a special privilege that it gave
to Montero and See; it does not include responsibility for any losses or damages
to motor vehicles and its accessories in the parking area; and the same holds
true even if it was See himself who parked his Vitara within the premises of the
hotel as evidenced by the valet parking customers claim stub issued to him; the
carnapper was able to open the Vitara without using the key given earlier to the
parking attendant and subsequently turned over to See after the Vitara was
stolen; defendant x x x Justimbaste saw the Vitara speeding away from the place
where it was parked; he tried to run after it, and blocked its possible path but to
no avail; and See was duly and immediately informed of the carnapping of his
Vitara; the matter was reported to the nearest police precinct; and defendant x
x x Justimbaste, and Horlador submitted themselves to police investigation.
During the pre-trial conference on November 28, 2003, counsel for
[respondent] Pioneer Insurance was present. Atty. Monina Lee x x x, counsel of
record of [petitioner] Durban Apartments and Justimbaste was absent, instead,
a certain Atty. Nestor Mejia appeared for [petitioner] Durban Apartments and
Justimbaste, but did not file their pre-trial brief.
On November 5, 2004, the lower court granted the motion of
[respondent] Pioneer Insurance, despite the opposition of [petitioner] Durban
Apartments and Justimbaste, and allowed [respondent] Pioneer Insurance to
present its evidence ex parte before the Branch Clerk of Court.
See testified that: on April 30, 2002, at about 11:30 in the evening, he
drove his Vitara and stopped in front of City Garden Hotel in Makati Avenue,
Makati City; a parking attendant, whom he had later known to be defendant x x
x Justimbaste, approached and asked for his ignition key, told him that the latter

would park the Vitara for him in front of the hotel, and issued him a valet
parking customers claim stub; he and Montero, thereafter, checked in at the
said hotel; on May 1, 2002, at around 1:00 in the morning, the Hotel Security
Officer whom he later knew to be Horlador called his attention to the fact that
his Vitara was carnapped while it was parked at the parking lot of Equitable PCI
Bank which is in front of the hotel; his Vitara was insured with [respondent]
Pioneer Insurance; he together with Horlador and defendant x x x Justimbaste
went to Precinct 19 of the Makati City Police to report the carnapping incident,
and a police officer came accompanied them to the Anti-Carnapping Unit of the
said station for investigation, taking of their sworn statements, and flashing of a
voice alarm; he likewise reported the said incident in PNP TMG in Camp Crame
where another alarm was issued; he filed his claim with [respondent] Pioneer
Insurance, and a representative of the latter, who is also an adjuster of Vesper
Insurance Adjusters-Appraisers [Vesper], investigated the incident; and
[respondent] Pioneer Insurance required him to sign a Release of Claim and
Subrogation Receipt, and finally paid him the sum of P1,163,250.00 for his
claim.
Ricardo F. Red testified that: he is a claims evaluator of [petitioner]
Pioneer Insurance tasked, among others, with the receipt of claims and
documents from the insured, investigation of the said claim, inspection of
damages, taking of pictures of insured unit, and monitoring of the processing of
the claim until its payment; he monitored the processing of Sees claim when
the latter reported the incident to [respondent] Pioneer Insurance;
*respondent+ Pioneer Insurance assigned the case to Vesper who verified Sees
report, conducted an investigation, obtained the necessary documents for the
processing of the claim, and tendered a settlement check to See; they evaluated
the case upon receipt of the subrogation documents and the adjusters report,
and eventually recommended for its settlement for the sum of P1,163,250.00
which was accepted by See; the matter was referred and forwarded to their
counsel, R.B. Sarajan & Associates, who prepared and sent demand letters to
[petitioner] Durban Apartments and [defendant] Justimbaste, who did not pay
[respondent] Pioneer Insurance notwithstanding their receipt of the demand
letters; and the services of R.B. Sarajan & Associates were engaged,
10

for P100,000.00 as attorneys fees plus P3,000.00 per court appearance, to

prosecute the claims of [respondent] Pioneer Insurance against [petitioner]
Durban Apartments and Justimbaste before the lower court.

Ferdinand Cacnio testified that: he is an adjuster of Vesper; [respondent]

Pioneer Insurance assigned to Vesper the investigation of Sees case, and he was
the one actually assigned to investigate it; he conducted his investigation of the
matter by interviewing See, going to the City Garden Hotel, required
subrogation documents from See, and verified the authenticity of the same; he
learned that it is the standard procedure of the said hotel as regards its valet
parking service to assist their guests as soon as they get to the lobby entrance,
park the cars for their guests, and place the ignition keys in their safety key box;
considering that the hotel has only twelve (12) available parking slots, it has an
agreement with Equitable PCI Bank permitting the hotel to use the parking
space of the bank at night; he also learned that a Hyundai Starex van was
carnapped at the said place barely a month before the occurrence of this
incident because Liberty Insurance assigned the said incident to Vespers, and
Horlador and defendant x x x Justimbaste admitted the occurrence of the same
in their sworn statements before the Anti-Carnapping Unit of the Makati City
Police; upon verification with the PNP TMG [Unit] in Camp Crame, he learned
that Sees Vitara has not yet been recovered; upon evaluation, Vesper
recommended to *respondent+ Pioneer Insurance to settle Sees claim
for P1,045,750.00; See contested the recommendation of Vesper by reasoning
out that the 10% depreciation should not be applied in this case considering the
fact that the Vitara was used for barely eight (8) months prior to its loss; and
*respondent+ Pioneer Insurance acceded to Sees contention, tendered the sum
of P1,163,250.00 as settlement, the former accepted it, and signed a release of
claim and subrogation receipt.
The lower court denied the Motion to Admit Pre-Trial Brief and Motion
for Reconsideration field by [petitioner] Durban Apartments and Justimbaste in
its Orders dated May 4, 2005 and October 20, 2005, respectively, for being
devoid of merit.[3]

Thereafter, on January 27, 2006, the RTC rendered a decision, disposing,

as follows:
WHEREFORE, judgment is hereby rendered ordering [petitioner Durban
Apartments Corporation] to pay [respondent Pioneer Insurance and Surety
Corporation] the sum of P1,163,250.00 with legal interest thereon from July 22,
2003 until the obligation is fully paid and attorneys fees and litigation expenses
amounting to P120,000.00.

SO ORDERED.[4]

On appeal, the appellate court affirmed the decision of the trial court, viz.:

WHEREFORE, premises considered, the Decision dated January 27, 2006 of

the RTC, Branch 66, Makati City in Civil Case No. 03-857 is hereby
AFFIRMED insofar as it holds [petitioner] Durban Apartments Corporation solely
liable to [respondent] Pioneer Insurance and Surety Corporation for the loss of
Jeffrey Sees Suzuki Grand Vitara.

SO ORDERED.[5]
Hence, this recourse by petitioner.

The issues for our resolution are:

1.
Whether the lower courts erred in declaring petitioner as in default
for failure to appear at the pre-trial conference and to file a pre-trial brief;
11

2.
Corollary thereto, whether the trial court correctly allowed
respondent to present evidenceex-parte;

3.
Whether petitioner is liable to respondent for attorneys fees in the
amount ofP120,000.00; and

4.
Ultimately, whether petitioner is liable to respondent for the loss of
Sees vehicle.

issues of the case, or fail to notice certain relevant facts which, if properly
considered, will justify a different conclusion; (5) when there is a
misappreciation of facts; (6) when the findings of fact are conclusions without
mention of the specific evidence on which they are based, are premised on the
absence of evidence, or are contradicted by evidence on record.[7] None of the
foregoing exceptions permitting a reversal of the assailed decision exists in this
instance.

Petitioner urges us, however, that strong *and+ compelling reason*s+

such as the prevention of miscarriage of justice warrant a suspension of the
rules and excuse its and its counsels non-appearance during the pre-trial
conference and their failure to file a pre-trial brief.

The petition must fail.

We are not persuaded.
We are in complete accord with the common ruling of the lower courts
that petitioner was in default for failure to appear at the pre-trial conference
and to file a pre-trial brief, and thus, correctly allowed respondent to present
evidence ex-parte. Likewise, the lower courts did not err in holding petitioner
liable for the loss of Sees vehicle.

Well-entrenched in jurisprudence is the rule that factual findings of the

trial court, especially when affirmed by the appellate court, are accorded the
highest degree of respect and are considered conclusive between the
parties.[6] A review of such findings by this Court is not warranted except upon a
showing of highly meritorious circumstances, such as: (1) when the findings of a
trial court are grounded entirely on speculation, surmises, or conjectures; (2)
when a lower courts inference from its factual findings is manifestly mistaken,
absurd, or impossible; (3) when there is grave abuse of discretion in the
appreciation of facts; (4) when the findings of the appellate court go beyond the

Rule 18 of the Rules of Court leaves no room for equivocation; appearance

of parties and their counsel at the pre-trial conference, along with the filing of a
corresponding pre-trial brief, is mandatory, nay, their duty. Thus, Section 4 and
Section 6 thereof provide:

SEC. 4. Appearance of parties.It shall be the duty of the parties and

their counsel to appear at the pre-trial. The non-appearance of a party may be
excused only if a valid cause is shown therefor or if a representative shall appear
in his behalf fully authorized in writing to enter into an amicable settlement, to
submit to alternative modes of dispute resolution, and to enter into stipulations
or admissions of facts and documents.

12

SEC. 6. Pre-trial brief.The parties shall file with the court and serve on
the adverse party, in such manner as shall ensure their receipt thereof at least
three (3) days before the date of the pre-trial, their respective pre-trial briefs
which shall contain, among others:

and Atty. Mejia should have discussed which lawyer would appear at the pretrial conference with petitioner, armed with the appropriate authority therefor.
Sadly, petitioner failed to comply with not just one rule; it also did not proffer a
reason why it likewise failed to file a pre-trial brief. In all, petitioner has not
shown any persuasive reason why it should be exempt from abiding by the
rules.

xxxx

Failure to file the pre-trial brief shall have the same effect as failure to
appear at the pre-trial.

Contrary to the foregoing rules, petitioner and its counsel of record were
not present at the scheduled pre-trial conference. Worse, they did not file a pretrial brief. Their non-appearance cannot be excused as Section 4, in relation to
Section 6, allows only two exceptions: (1) a valid excuse; and (2) appearance of
a representative on behalf of a party who is fully authorized in writing to enter
into an amicable settlement, to submit to alternative modes of dispute
resolution, and to enter into stipulations or admissions of facts and documents.

Petitioner is adamant and harps on the fact that November 28, 2003 was
merely the first scheduled date for the pre-trial conference, and a certain Atty.
Mejia appeared on its behalf. However, its assertion is belied by its own
admission that, on said date, this Atty. Mejia did not have in his possession the
Special Power of Attorney issued by petitioners Board of Directors.

As pointed out by the CA, petitioner, through Atty. Lee, received the
notice of pre-trial on October 27, 2003, thirty-two (32) days prior to the
scheduled conference. In that span of time, Atty. Lee, who was charged with the
duty of notifying petitioner of the scheduled pre-trial conference,[8]petitioner,

The appearance of Atty. Mejia at the pre-trial conference, without a pretrial brief and with only his bare allegation that he is counsel for petitioner, was
correctly rejected by the trial court. Accordingly, the trial court, as affirmed by
the appellate court, did not err in allowing respondent to present evidence exparte.

Former Chief Justice Andres R. Narvasas words continue to resonate,

thus:

Everyone knows that a pre-trial in civil actions is mandatory, and has

been so since January 1, 1964. Yet to this day its place in the scheme of things is
not fully appreciated, and it receives but perfunctory treatment in many courts.
Some courts consider it a mere technicality, serving no useful purpose save
perhaps, occasionally to furnish ground for non-suiting the plaintiff, or declaring
a defendant in default, or, wistfully, to bring about a compromise. The pre-trial
device is not thus put to full use. Hence, it has failed in the main to accomplish
the chief objective for it: the simplification, abbreviation and expedition of the
trial, if not indeed its dispensation. This is a great pity, because the objective is
attainable, and with not much difficulty, if the device were more intelligently
and extensively handled.

xxxx
13

Consistently with the mandatory character of the pre-trial, the Rules oblige not
only the lawyers but the parties as well to appear for this purpose before the
Court, and when a party fails to appear at a pre-trial conference (he) may be
non-suited or considered as in default. The obligation to appear denotes not
simply the personal appearance, or the mere physical presentation by a party of
ones self, but connotes as importantly, preparedness to go into the different
subject assigned by law to a pre-trial. And in those instances where a party may
not himself be present at the pre-trial, and another person substitutes for him,
or his lawyer undertakes to appear not only as an attorney but in substitution of
the clients person, it is imperative for that representative of the lawyer to have
special authority to make such substantive agreements as only the client
otherwise has capacity to make. That special authority should ordinarily be in
writing or at the very least be duly established by evidence other than the selfserving assertion of counsel (or the proclaimed representative) himself.
Without that special authority, the lawyer or representative cannot be deemed
capacitated to appear in place of the party; hence, it will be considered that the
latter has failed to put in an appearance at all, and he *must+ therefore be nonsuited or considered as in default, notwithstanding his lawyers or delegates
presence.[9]

We are not unmindful that defendants (petitioners) preclusion from

presenting evidence during trial does not automatically result in a judgment in
favor of plaintiff (respondent). The plaintiff must still substantiate the
allegations in its complaint.[10] Otherwise, it would be inutile to continue with
the plaintiffs presentation of evidence each time the defendant is declared in
default.

In this case, respondent substantiated the allegations in its

complaint, i.e., a contract of necessary deposit existed between the insured See
and petitioner. On this score, we find no error in the following disquisition of
the appellate court:

[The] records also reveal that upon arrival at the City Garden Hotel, See gave
notice to the doorman and parking attendant of the said hotel, x x x
Justimbaste, about his Vitara when he entrusted its ignition key to the latter. x x
x Justimbaste issued a valet parking customer claim stub to See, parked the
Vitara at the Equitable PCI Bank parking area, and placed the ignition key inside
a safety key box while See proceeded to the hotel lobby to check in. The
Equitable PCI Bank parking area became an annex of City Garden Hotel when
the management of the said bank allowed the parking of the vehicles of hotel
guests thereat in the evening after banking hours.[11]

Article 1962, in relation to Article 1998, of the Civil Code defines a contract
of deposit and a necessary deposit made by persons in hotels or inns:

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 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.

Art. 1998. The deposit of effects made by travelers in hotels or inns shall
also be regarded as necessary. The keepers of hotels or inns shall be responsible
for them as depositaries, provided that notice was given to them, or to their
employees, of the effects brought by the guests and that, on the part of the
14

latter, they take the precautions which said hotel-keepers or their substitutes
advised relative to the care and vigilance of their effects.

Plainly, from the facts found by the lower courts, the insured See
deposited his vehicle for safekeeping with petitioner, through the latters
employee, Justimbaste. In turn, Justimbaste issued a claim stub to See. Thus,
the contract of deposit was perfected from Sees delivery, when he handed over
to Justimbaste the keys to his vehicle, which Justimbaste received with the
obligation of safely keeping and returning it. Ultimately, petitioner is liable for
the loss of Sees vehicle.

WHEREFORE, the petition is DENIED. The Decision of the Court of Appeals in CAG.R. CV No. 86869 is AFFIRMED with the MODIFICATION that the award of
attorneys fees is reduced to P60,000.00. Costs against petitioner.

SO ORDERED.

Lastly, petitioner assails the lower courts award of attorneys fees to

respondent in the amount of P120,000.00. Petitioner claims that the award is
not substantiated by the evidence on record.

We disagree.

While it is a sound policy not to set a premium on the right to litigate,[12] we find
that respondent is entitled to reasonable attorneys fees. Attorneys fees may
be awarded when a party is compelled to litigate or incur expenses to protect its
interest,[13] or when the court deems it just and equitable.[14] In this case,
petitioner refused to answer for the loss of Sees vehicle, which was deposited
with it for safekeeping. This refusal constrained respondent, the insurer of See,
and subrogated to the latters right, to litigate and incur expenses. However, we
reduce the award ofP120,000.00 to P60,000.00 in view of the simplicity of the
issues involved in this case.

15

Republic of the Philippines

SUPREME COURT
Manila
EN BANC
G.R. No. L-16568

November 30, 1962

GREGORIO DE GUZMAN, petitioner,

vs.
GUILLERMO E. SANTOS, in his capacity as Executive Judge of Agrarian
Relations, and MANUEL PANER,respondents.
Josefina S. Nepomuceno for respondent Manuel Paner.
Nostratis and Ipac for respondent Guillermo Santos.
PAREDES, J.:
Gregorio de Guzman (herein petitioner), was owner of a parcel of agricultural
land (rice land), of about balitangs, situated in Antipolo, Rizal, admit only
property belonging to him. He was personally cultivating the land, when he
mortgaged it in favor of his brother Florentino de Guzman, who, as creditor,
land cultivated, thru his own tenants, one of whom Nicolas Angeles, father-inlaw of respondent herein, Manuel Paner, who, upon the former's death on
1957, succeeded him.
Sometime in February, 1959, petitioner redeemed the land from his brother and
expressed his desire to cultivate it personally beginning the agricultural years
1959-1960. Informed of such desire, Paner voluntarily surrendered the
possession of the land to petitioner, who thereafter commenced the
preparation of the land for the said agricultural year.
On August 7, 1959, respondent Paner filed a complaint dated July 31, 1959),
before the respondent Court of Agrarian Relations (CAR), Case No. 77 (Rizal '59),
alleging that he was dispossessed, for no legal or justifiable reason at all, in the

cultivation of the land, beginning said agricultural year, and prayed that he be
restored in the possession thereof and awarded the sum of P300.00 as
attorney's fees. Answer was filed and after due trial on December 11, 1959, a
decision was rendered, ordering Gregorio de Guzman to reinstate petitioner
Manuel Paner in the landholding, with all the rights accorded and obligations
imposed upon said petitioner, by R. A. 1199, as amended by R. A. 2263; to pay
Paner thirty-eight (38) cavans of palay or its equivalent in money at P10.00 per
cavan or P380.00; and to pay to petitioner the amount of P100.00 as attorney's
fees. A motion for reconsideration and/or new trial was denied. Hence, the
present petition for certiorari, asking that the decision of the lower court be set
aside and the complaint dismissed.
In his brief, the petitioner alleged that the Court of Agrarian Relations erred (1)
In declaring that the tenancy relation between the respondent Paner and the
petitioner was not extinguished and/or terminated when said Paner
surrendered the possession of the landholding in question to the petitioner; (2)
In declaring that petitioner acted in bad faith and with fraudulent
representation when he informed respondent Paner that he (petitioner) was
personally going to cultivate the land, beginning the agricultural years 19591960; (3) In declaring that petitioner did not personally cultivate the landholding
in question, during the same period; and (4) In awarding damages to
respondent Paner
The trial court found as fully established that the petitioner did not commit an
unlawful act of dispossession, as contemplated in Section 49, R. A. 1199, the
land was voluntarily surrendered to petitioner Paner but he failed to comply
with the condition the land himself; for instead of personally work land, and
performing the labor which should devolve upon the tenant he displaced,
petitioner entrusted the major phases of farm labor to other persons, his
(petitioner's) only participation in the cultivation of the holding, consisted of the
superficial task of repairing and the dikes and ditches and that in inducing
petitioner surrender the holding, herein petitioner acted in bad faith and
committed fraudulent representations

16

While as a general rule, the actual findings trial court should not be disturbed,
We are, however, constrained to deviate from said rule in this particular case,
because the record does not sustain with substantial evidence, the pretensions
of respondent Paner. The pertinent provision of law which governs the situation
at hand, is the following section of Act No. 1199:
SEC. 50. Causes for the Dispossession of a Tenant. Any of the following shall
be a sufficient cause for the dispossession of a tenant of his holdings:
(a) The bona fide intention of the landholder to cultivate the land himself
personally or through the employment of farm machinery and implements:
Provided, however, That should the landholder not cultivate the land himself or
should fail to mechanical farm implements for a period of one year after the
dispossession of the tenant, it shall be presumed that the acted in bad faith and
the tenant shall have the right to demand possession of the land and damages
for any loss incurred by him because of said dispossession: . . . .
The imputation of bad faith and fraudulent representations is premised on the
fact that when the landholding in question was plowed and harrowed,
preparatory planting, petitioner was aided by his cousins Eugenio de la Rosa and
Pastor Legaspi, and their sons, and by Aquilino Podia, a member of petitioner's
household. It has, however, been fully shown, that the working animals and
agricultural implements employed by them, the harrowing and plowing stages,
belonged to the petitioner and that during the plowing and harrowing the
petitioner was within the premises, and subsequent to the planting of the land,
petitioner personally attended to the care of the growing plants. The
respondent Court stated that the petitioner's work was confined merely to
repairing and weeding the dikes and irrigation canals. Cultivation, however, is
not limited to the plowing and harrowing the land alone. Among the various
phases of farm labor provided by law, the maintenance, repair and wedding of
dikes, paddies and irrigation canals in the holding, are included (Sec. 38, R.A. No.
1199, No. 3). The findings made by the trial court that petitioner had appointed
new tenants to the landholding are not supported by competent, reliable or
preponderant evidence. Respondent Paner himself declared that said de la Rosa
and Legaspi worked in the land, but he was "not in a position to state whether

they were hired tenants or helpers of Gregorio de Guzman" (Test of Paner, Sept.
18, 1959, t.s.n. p. 16), and "did not know if they were working in the form
of bayanis" (t.s.n. p. 4, Nov. 4, 1959). And they were only seen to have worked
three times. On the other hand, De la Rosa testified that he was not a tenant of
the petitioner; that he was not paid and that if he and Legaspi ever helped in
the plowing and harrowing of the land, it was because of previous favors
extended to them, and their families by said petitioner and under the
"Bayanihan" or cooperative system of farm labor. Petitioner testified to the
same effect.
The "bayanihan" is a laudible Philippine cooperative practice, specially true in
rustic areas. The members of thebayanihan are not tenants, they do not receive
pay and their work are utilized on temporary basis. The law does not prohibit
the practice of bayanihan, either on the part of a tenant or the landholder. As
appropriately commented by a well known author:
The mere fact that respondent did not do all the work himself but temporarily
utilized the services of others to help him, does not mean that he violated the
condition imposed by the Court; it would have been otherwise had the
respondent entirely entrusted the work to other persons and employed laborers
on a permanent basis. The law does not prohibit the tenant or the landowner
who works the land himself to avail occasionally of the help of the others (The
Law on Agricultural Tenancy by Judge G. S. Santos, pp. 28-29, emphasis ours).
The requirement that the landholder must work the land himself personally
does not preclude him from entrusting cultivation of the holding to another
person or persons, in case of illness or temporary incapacity, or to avail himself
of the labor of the members of his farm household or the use universal Filipino
practice of exchange labor system, commonly known as the "amuyo" or
"tagnawa" in the Ilocos regions, "palusong" or "bayanihan" to the Tagalogs and
"Salibot" or "ayon-ayon" in the Western Visayas. . . . (The Law on Agricultural
Tenancy by Santos, 1959 ed., p. 108.)
Moreover, if a tenant is allowed to cultivate the land by himself or by the
immediate members of his family or immediate farm household, there can be
17

no plausible reason why the owner or landholder, if he cultivates the land

himself, should not be permitted to do the thing (Saclolo, et al. v. Court of
Agrarian Relations, G.R. No. L-13274, Jan. 30, 1960).
Because of the failure of respondent Paner to satisfactorily show that petitioner
acted in bad faith in his dealings with him, the award of damages in his favor,
made by the respondent Court, is unauthorized and constitutes a grave abuse of
discretion. Furthermore, respondent Paner did not ask for damages, and even if
he did, he failed to prove the same. Whether arising from a breach of contract
or whether the result of some provision of the law, judgment for damages
suffered, must rest upon satisfactory proof thereof.
The writ is granted, and the decision, subject of the present appeal, is reversed,
without pronouncement as to costs

It appears from the evidence that on July 17, 1916, one Romulo Machetti, by a
written agreement undertook to construct a building on Calle Rosario in the city
of Manila for the Hospicio de San Jose, the contract price being P64,000. One of
the conditions of the agreement was that the contractor should obtain the
"guarantee" of the Fidelity and Surety Company of the Philippine Islands to the
amount of P128,800 and the following endorsement in the English language
appears upon the contract:
MANILA, July 15, 1916.
For value received we hereby guarantee compliance with the terms and
conditions as outlined in the above contract.
FIDELITY AND SURETY COMPANY OF THE PHILIPPINE ISLANDS.
(Sgd) OTTO VORSTER,
Vice-President.

Republic of the Philippines

SUPREME COURT
Manila
EN BANC
G.R. No. L-16666

April 10, 1922

ROMULO MACHETTI, plaintiff-appelle,

vs.
HOSPICIO DE SAN JOSE, defendant-appellee, and
FIDELITY & SURETY COMPANY OF THE PHILIPPINE ISLANDS, defendantappellant
Ross and Laurence and Wolfson & Scwarzkopf for appellant.
Gabriel La O for appellee Hospicio de San Jose.
No appearance for the other appellee.
OSTRAND, J.:

Machetti constructed the building under the supervision of architects

representing the Hospicio de San Jose and, as the work progressed, payments
were made to him from time to time upon the recommendation of the
architects, until the entire contract price, with the exception of the sum of the
P4,978.08, was paid. Subsequently it was found that the work had not been
carried out in accordance with the specifications which formed part of the
contract and that the workmanship was not of the standard required, and the
Hospicio de San Jose therefore answered the complaint and presented a
counterclaim for damages for the partial noncompliance with the terms of the
agreement abovementioned, in the total sum of P71,350. After issue was thus
joined, Machetti, on petition of his creditors, was, on February 27, 1918,
declared insolvent and on March 4, 1918, an order was entered suspending the
proceeding in the present case in accordance with section 60 of the Insolvency
Law, Act No. 1956.
The Hospicio de San Jose on January 29, 1919, filed a motion asking that the
Fidelity and Surety Company be made cross-defendant to the exclusion of
Machetti and that the proceedings be continued as to said company, but still
18

remain suspended as to Machetti. This motion was granted and on February 7,

1920, the Hospicio filed a complaint against the Fidelity and Surety Company
asking for a judgement for P12,800 against the company upon its guaranty.
After trial, the Court of First Instance rendered judgment against the Fidelity
and Surety Company for P12,800 in accordance with the complaint. The case is
now before this court upon appeal by the Fidelity and Surety Company form
said judgment.
As will be seen, the original action which Machetti was the plaintiff and the
Hospicio de San Jose defendant, has been converted into an action in which the
Hospicio de San Jose is plaintiff and the Fidelity and Surety Company, the
original plaintiff's guarantor, is the defendant, Machetti having been practically
eliminated from the case.
But in this instance the guarantor's case is even stronger than that of an
ordinary surety. The contract of guaranty is written in the English language and
the terms employed must of course be given the signification which ordinarily
attaches to them in that language. In English the term "guarantor" implies an
undertaking of guaranty, as distinguished from suretyship. It is very true that
notwithstanding the use of the words "guarantee" or "guaranty" circumstances
may be shown which convert the contract into one of suretyship but such
circumstances do not exist in the present case; on the contrary it appear
affirmatively that the contract is the guarantor's separate undertaking in which
the principal does not join, that its rests on a separate consideration moving
from the principal and that although it is written in continuation of the contract
for the construction of the building, it is a collateral undertaking separate and
distinct from the latter. All of these circumstances are distinguishing features of
contracts of guaranty.
Now, while a surety undertakes to pay if the principal does not pay, the
guarantor only binds himself to pay if the principal cannot pay. The one is the
insurer of the debt, the other an insurer of the solvency of the debtor.
(Saintvs. Wheeler & Wilson Mfg. Co., 95 Ala., 362; Campbell, vs. Sherman, 151
Pa. St., 70; Castellvi de Higgins and Higgins vs. Sellner, 41 Phil., 142;
;U.S. vs. Varadero de la Quinta, 40 Phil., 48.) This latter liability is what the

Fidelity and Surety Company assumed in the present case. The undertaking is
perhaps not exactly that of afianza under the Civil Code, but is a perfectly valid
contract and must be given the legal effect if ordinarily carries. The Fidelity and
Surety Company having bound itself to pay only the event its principal,
Machetti, cannot pay it follows that it cannot be compelled to pay until it is
shown that Machetti is unable to pay. Such ability may be proven by the return
of a writ of execution unsatisfied or by other means, but is not sufficiently
established by the mere fact that he has been declared insolvent in insolvency
proceedings under our statutes, in which the extent of the insolvent's inability
to pay is not determined until the final liquidation of his estate.
The judgment appealed from is therefore reversed without costs and without
prejudice to such right of action as the cross-complainant, the Hospicio de San
Jose, may have after exhausting its remedy against the plaintiff Machetti. So
ordered.

Republic of the Philippines

SUPREME COURT
Manila
FIRST DIVISION

G.R. No. L-29587 November 28, 1975

19

PHILIPPINE NATIONAL BANK, petitioner,

vs.
LUZON SURETY CO., INC. and THE HONORABLE COURT OF
APPEALS, respondent.

to recover accrued interest at the rate of 5% per annum from December 24,
1953, from the defendants bonding companies.

Medina and Magtalas for petitioner.

... sometime prior to 27 November 1951, defendant Augusto R. Villarosa, a

sugar planter adhered to the Lopez Sugar Central Milling Company, Inc. applied
for a crop loan with the plaintiff, Philippine National Bank, Exhibit A; this
application was approved on 6 March, 1952 in the amount of P32,400,
according to the complaint; but the document of approval has not been
exhibited; at any rate, the planter Villarosa executed a Chattel Mortgage on
standing crops to guarantee the crop loan, Exhibit B and as shown in Exhibits C
to C-30 on various dates from 28 January, 1952 to 9 January, 1953, in
consideration of periodical sums of money by him received from PNB, planter
Villarosa executed these promissory notes from which will be seen that the
credit line was that the original amount of P32,400 and was thus maintained up
to the promissory note Exhibit C-9 dated 30 May, 1952 but afterwards it was
increased and promissory notes Exhibits C-10 to C-30 were based on the
increased credit line; and as of 27 September, 1953 as shown in the accounts,
Exhibits D and D-1, there was a balance of P63,222.78 but as of the date when
the complaint was filed on 8 June, 1960, because of the interest accrued, it had
reached a much higher sum; that was why due to its non-payment, plaintiff filed
this complaint, as has been said, on 8 June, 1960; now the complaint sought
relief not only against the planter but also against the three (3) bondsmen,
Luzon Surety, Central Surety and Associated Surety because Luzon Surety had
filed the bond Exhibit E dated 18 February, 1952 in the sum of P10,000; Central
Surety Exhibit F dated 24 February, 1952 in the sum of P20,000 and Associated
Surety the bond Exhibit G dated 11 September, 1952 in the sum of P15,000; in
gist, the obligation of each of the bondsmen being to guarantee the faithful
performance of the obligation of the planter with PNB; now each of the
defendants in their answers raised various defenses but as far as principal
defendant Augusto R. Villarosa and other defendants Central Surety and
Associated Surety are concerned, their liability is no longer material because
they have not appealed; and in the trial of the case, plaintiff submitted Exhibits
A to J-1 and witness Romanito Brillantes; but the defense of Luzon Surety thru

Tolentino, Garcia, Cruz and Reyes for private respondent.

ESGUERRA, J.:
Petitioner Philippine National Bank seeks a review and reversal of the decision
dated June 26, 1968, of the Court of Appeals in its case CA-G.R. No. 30282-R,
absolving Luzon Surety Co., Inc. of its liability to said petitioner and thus
reversing the decision of the Court of First Instance of Negros Occidental, the
dispositive portion of which reads as follows:
IN VIEW THEREOF, judgment is hereby rendered ordering defendant Augusto R.
Villarosa to pay plaintiff PHILIPPINE NATIONAL BANK the sum of P81,200.00 plus
accrued interest of 5% per annum on P63,222.78 from August 31, 1959; to pay
10% of said amount as attorney's fees and to pay the costs. Defendant Luzon
Surety Co., Inc. is hereby ordered to pay jointly and severally with defendant
Villarosa to the plaintiff the sum of P10,000.00; defendant Central Surety and
Insurance Company jointly and severally with defendant Villarosa the sum of
P20,000 to the plaintiff, and Associated Surety And Insurance Co. jointly and
severally with defendant Villarosa the sum of P15,000.00 to the plaintiff, with
the understanding that should said bonding companies pay the aforementioned
amounts of their respective bonds to the plaintiff, said amounts should be
deducted from the total outstanding obligation of defendant Villarosa in favor
of the plaintiff.
Above-quoted decision was modified in an order of the Court of First Instance
dated June 5, 1961, granting petitioner Philippine National Bank (PNB) the right

The facts as found by the Court of Appeals are as follows:

20

its witness Jose Arroyo and Exhibits 1 to 3 being 1st that the evidence of the
plaintiff did not establish a cause of action to make Luzon Surety liable and
2ndly, in any case that there had been material alteration in the principal
obligation, if any, guaranteed by it; ... .
Unable to obtain reconsideration of the decision of the Appellate Court, PNB
came to this Court and alleged the following errors.
1. The Court of Appeals erred in the application of the law involved by invoking
Article 2055 of the New Civil Code, which properly should have been the law on
suretyship which are covered by Section 4, Chapter 3, Title 1, Book IV of the
New Civil Code;
2. Consequently, when the Court of Appeals released the surety from liability, it
committed a grave or gross misappreciation of facts amounting to an error of
law;
3. The Court of Appeals erred when it held that there must have been a
principal crop loan contract, guaranteed by the surety bonds;
4. The Court of Appeals erred when it released the surety from liability. The
above assigned errors boil down to the single question of whether or not the
Court of Appeals was justified in absolving Luzon Surety Co., Inc., from liability
to petitioner Philippine National Bank. We have examined the record
thoroughly and found the appealed decision to be erroneous.
Excerpt of the Chattel Mortgage executed to guarantee the crop loan clearly
provided as follows:
xxx xxx xxx
1. That the Mortgagor does by these presents grant, cede and convey unto the
Mortgagee by way of First Mortgage free from any encumbrances, all the crops
of the absolute property of the Mortgagor, corresponding to the 1952-53 and
subsequent yearly sugar crops agricultural season at present growing in the
Hda. known as San Antonio, Washington (P) Audit 24-124 and 24-16 la and Hda.
Aliwanay (non-quota land); milling with LSMC and CAD Municipality of Sagay,

and Escalante, Province of Negros Occidental covered by cadastral lots no.

Various of the Cadastral Survey at the Municipality of Sagay, Escalante
particularly bounded and described in Transfer Certificate of Title No. Various
issued by the Register of Deeds of said province. The said mortgage crops
consist of all the Mortgagor's first available entire net share of the 1952-53 and
subsequent yearly sugar crops thereafter conservatively estimated at but not
less than Three Thousand Four Hundred Twenty and 14/00 (3,420.14) piculs of
export and domestic sugar, including whatever addition thereto, and such aids,
subsidies, indemnity payments and other benefits as maybe awarded to the
Mortgagor, coming from any source, governmental or otherwise.
xxx xxx xxx
4. This Mortgage is executed to secure payment by the Mortgagor to the
Mortgagee at the latter's office of a loan herein granted to the Mortgagor in the
sum of Thirty Two Thousand Four Hundred (P32,400.00) Pesos, Philippine
Currency, with interest at the rate of five per cent per annum, which loan shall
be given to the Mortgagor either in lump sum or in installments as the
mortgagee may determine. The Mortgagee may increase or decrease the
amount of the loan as well as the installments as it may deem convenient and
the Mortgagor shall submit such periodical reports on the crops mortgaged as
the Mortgagee may require. In the event that the loan is increased such increase
shall likewise be secured by Mortgage. This Mortgage shall also secure any other
loans or advances that the Mortgagee may extend to the Mortgagor, including
interest and expenses or any other obligation owing to the Mortgagee, whether
direct or indirect, principal or secondary as appears in the account books and
records of the Mortgagee.
xxx xxx xxx
Likewise an extract from the Surety Bond executed by and between the PNB on
one hand and Augusto Villarosa and respondent Luzon Surety Company, Inc. on
the other, is hereby reproduced, viz:
That we Augusto Villarosa of Bacolod City, as principal and Luzon Surety
Company, Inc. a corporation duly organized and existing under and by virtue of
21

the laws of the Philippines, as surety, are held firmly bound unto Philippine
National Bank, Bacolod City, Philippines, in the sum of Ten Thousand Pesos
(P10,000.00) Philippine Currency, for the payment of which sum, well and truly
to be made, we bind ourselves, our heirs, executors, administrators, successors,
and assigns jointly and severally, firmly by these presents:
The condition of the obligation are as follows:
WHEREAS, the above bounden principal, on the day of February, 1952,
entered into a crop loan contract with obligee Philippine National Bank, Bacolod
Branch of Bacolod City, Philippines to fully and faithfully
Comply with all the terms and condition stipulated in said crop loan contract
which are hereby incorporated as essential parts hereof, and principally to meet
and pay from the proceeds of the sugar produced from his Hda. Antonio and
Hda. Aliwanay, Escalante, Occidental Negros credit advances made by the
Philippine National Bank Bacolod Branch not to exceed P32,800 as stated in said
contract. Provided further that the liability under this bond shall not exceed the
amount of P10,000.00
WHEREAS, said Philippine National Bank Bacolod Branch requires said principal
to give a good and sufficient bond in the above stated sum to secure the full and
faithful performance on his part of said crop loan contract.
NOW, THEREFORE, if the principal shall well and truly perform and fulfill all the
undertakings, covenants, terms and conditions and agreement stipulated in said
crop loan contract then, this obligation shall be null and void, otherwise it shall
remain in full force and effect.
xxx xxx xxx
The foregoing evidences clearly the liability of Luzon Surety to petitioner
Philippine National Bank not merely as a guarantor but as surety-liable as a
regular party to the undertaking (Castelvi de Higgins vs. Sellner 41 Phil. 142).
The Court of Appeals, however, in absolving the bonding company ratiocinates
that the Surety Bond executed on February 18, 1952, made specific references

to a crop loan contract executed by Augusto Villarosa sometime in February

1952. And, therefore, the Chattel Mortgage, Exhibit B dated March 6, 1952,
could not have been the obligations guaranteed by the surety bond. Thus the
Court of Appeals stated:
... one is really at a loss to impose any liability upon Luzon Surety in the absence
of the principal obligation which was a crop loan contract executed in February,
1952, and to which there was made an express reference in the surety bond,
Exhibit E; let it not be overlooked further that one can secure a crop loan
without executing a Chattel Mortgage on his crops because the crop loan is the
principal obligation while the Chattel Mortgage is only an ancillary and
secondary contract to guarantee fulfillment of a crop loan; stated otherwise and
as Luzon Surety never intervened in the execution of the Chattel Mortgage,
Exhibit B, there is no way under the evidence from which it can be made to
answer for liability to Augusto Villarosa under Exhibit E; ... "
The Court of Appeals, to Our mind did not give credence to an otherwise
significant and unrebutted testimony of petitioner's witness, Romanito
Brillantes, that Exhibit B was the only chattel mortgage executed by Augusto
Villarosa evidencing the crop loan contract and upon which Luzon Surety agreed
to assume liability up to the amount of P10,000 by posting the said surety bond.
Moreover Article 1354 of our New Civil Code which provides:
Art. 1354. Although the cause is not stated in the contract., it is presumed
that it exist and is lawful, unless the debtor proves the contrary.
bolster petitioner's stand. Considering too that Luzon Surety company is
engaged in the business of furnishing guarantees, for a consideration, there is
no reason that it should be entitled to a rule of strictissimi juris or a strained and
over-strict interpretation of its undertaking. The presumption indulged in by the
law in favor of guarantors was premised on the fact that guarantees were
originally gratuitous obligations, which is not true at present, at least in the
great majority of cases. (Aurelio Montinola vs. Alejo Gatila, et al, G.R. No L-7558,
October 31, 1955).

22

We have likewise gone over the answer of Luzon Surety Company dated June
17, 1960 (p. 73 Record on Appeal) and noted the following:
xxx xxx xxx
3. Defendant LUZON admits the portion of paragraph 3 referring to the grant of
P32,400 secured by a Chattel Mortgage dated March 6, 1952, copy of which is
attached as Annex "A" of the complaint.
xxx xxx xxx
As special defenses:
8. The terms and conditions of the surety bond as well as the contract it
guaranteed was materially altered and or novated without the knowledge and
consent of the surety thereby releasing the latter from liability.
11. The maximum liability, if any, of defendant LUZON is P10.000.00.
The principal obligation, therefore, has never been put in issue by then
defendant now respondent Luzon Surety Co., Inc. On the other hand it raised as
its defense the alleged material alteration of the terms and conditions of the
contract as the basis of its prayer for release. Even this defense of respondent
Luzon Surety Co., Inc. is untenable under the facts obtaining. As a surety, said
bonding company is charged as an original promissory and is an insurer of the
debt. While it is an accepted rule in our jurisdiction that an alteration of the
contract is a ground for release, this alteration, We stress must be material. A
cursory examination of the record shows that the alterations in the form of
increases were made with the full consent of Luzon Surety Co., Inc. Paragraph 4
of the Chattel Mortgage explicitly provided for this increase(s), viz:

It has been decided in many cases that the consideration named in a mortgage
for future advancements does not limit the amount for which such contract may
stand as security, if from the four corners of the document, the intent to secure
future indebtedness is apparent. Where, by the plain terms of the contract, such
an intent is evident, it will control. ...
The next question to take up is the liability of Luzon Surety Co. for interest
which, it contends, would increase its liability to more than P10,000 which is the
maximum of its bond. We cannot agree to this reasoning. In the cases
of Tagawa vs. Aldanese, 43 Phil. 852, 859; Plaridel Surety Insurance Co. vs. P. L.
Galang Machinery Co., 100 Phil. 679, 682, cited in Paras Civil Code of the
Philippines, Vol. V, 7th Ed. 1972, p. 772, it was held:
If a surety upon demand fails to pay, he can be held liable for interest, even if in
thus paying, the liability becomes more than that in the principal obligation. The
increased liability is not because of the contract but because of the default and
the necessity of judicial collection. It should be noted, however, that the interest
runs from the time the complaint is filed, not from the time the debt becomes
due and demandable.
PREMISES CONSIDERED, the judgment appealed from is reversed and set aside.
In lieu thereof another is rendered reinstating the judgment of the Court of First
Instance of Negros Occidental, 12th Judicial District, dated March 29, 1961,
holding Luzon Surety liable for the amount of P10,000.00 with the modification
that interest thereon shall be computed at the legal rate from June 8, 1960
when the complaint was filed.
SO ORDERED.

... the Mortgagee may increase or decrease the amount of the loan as well as
the installment as it may deem convenient ...
and this contract, Exhibit "B", was precisely referred to and mentioned in the
Surety Bond itself. In the case of Lim Julian vs. Tiburcio Lutero, et al No. 25235,
49 Phil. 703, 717, 718, this Court held:
23

The facts: Baliwag Mahogany Corporation (BMC) is a domestic corporation

engaged in the manufacture and export of finished wood products. Petitionersspouses Alfredo and Susana Ong are its President and Treasurer, respectively.
On April 20, 1992, respondent Philippine Commercial International Bank (now
Equitable-Philippine Commercial International Bank or E-PCIB) filed a case for
collection of a sum of money1 against petitioners-spouses. Respondent bank
sought to hold petitioners-spouses liable as sureties on the three (3) promissory
notes they issued to secure some of BMCs loans, totalling five million pesos
(P5,000,000.00).

Republic of the Philippines

SUPREME COURT
Manila
SECOND DIVISION
G.R. No. 160466

January 17, 2005

SPOUSES ALFREDO and SUSANA ONG, petitioners,

vs.
PHILIPPINE COMMERCIAL INTERNATIONAL BANK, respondent.
DECISION
PUNO, J.:
This is a petition for review on certiorari under Rule 45 of the Rules of Court to
set aside the Decision of the Court of Appeals in CA-G.R. SP No. 39255, dated
February 17, 2003, affirming the decision of the trial court denying petitioners
motion to dismiss.

The complaint alleged that in 1991, BMC needed additional capital for its
business and applied for various loans, amounting to a total of five million
pesos, with the respondent bank. Petitioners-spouses acted as sureties for these
loans and issued three (3) promissory notes for the purpose. Under the terms of
the notes, it was stipulated that respondent bank may consider debtor BMC in
default and demand payment of the remaining balance of the loan upon the
levy, attachment or garnishment of any of its properties, or upon BMCs
insolvency, or if it is declared to be in a state of suspension of payments.
Respondent bank granted BMCs loan applications.
On November 22, 1991, BMC filed a petition for rehabilitation and suspension of
payments with the Securities and Exchange Commission (SEC) after its
properties were attached by creditors. Respondent bank considered debtor
BMC in default of its obligations and sought to collect payment thereof from
petitioners-spouses as sureties. In due time, petitioners-spouses filed their
Answer.1awphi1.nt
On October 13, 1992, a Memorandum of Agreement (MOA)2 was executed by
debtor BMC, the petitioners-spouses as President and Treasurer of BMC, and
the consortium of creditor banks of BMC (of which respondent bank is
included). The MOA took effect upon its approval by the SEC on November 27,
1992.3
Thereafter, petitioners-spouses moved to dismiss4 the complaint. They argued
that as the SEC declared the principal debtor BMC in a state of suspension of
24

payments and, under the MOA, the creditor banks, including respondent bank,
agreed to temporarily suspend any pending civil action against the debtor BMC,
the benefits of the MOA should be extended to petitioners-spouses who acted
as BMCs sureties in their contracts of loan with respondent bank. Petitionersspouses averred that respondent bank is barred from pursuing its collection
case filed against them.
The trial court denied the motion to dismiss. Petitioners-spouses appealed to
the Court of Appeals which affirmed the trial courts ruling that a creditor can
proceed against petitioners-spouses as surety independently of its right to
proceed against the principal debtor BMC.
Hence this appeal.
Petitioners-spouses claim that the collection case filed against them by
respondent bank should be dismissed for three (3) reasons: First, the MOA
provided that during its effectivity, there shall be a suspension of filing or
pursuing of collection cases against the BMC and this provision should benefit
petitioners as sureties. Second, principal debtor BMC has been placed under
suspension of payment of debts by the SEC; petitioners contend that it would
prejudice them if the principal debtor BMC would enjoy the suspension of
payment of its debts while petitioners, who acted only as sureties for some of
BMCs debts, would be compelled to make the payment; petitioners add that
compelling them to pay is contrary to Article 2063 of the Civil Code which
provides that a compromise between the creditor and principal debtor benefits
the guarantor and should not prejudice the latter. Lastly, petitioners rely
on Article 2081 of the Civil Code which provides that: "the guarantor may set up
against the creditor all the defenses which pertain to the principal debtor and
are inherent in the debt; but not those which are purely personal to the
debtor." Petitioners aver that if the principal debtor BMC can set up the defense
of suspension of payment of debts and filing of collection suits against
respondent bank, petitioners as sureties should likewise be allowed to avail of
these defenses.
We find no merit in petitioners contentions.

Reliance of petitioners-spouses on Articles 2063 and 2081 of the Civil Code is

misplaced as these provisions refer to contracts of guaranty. They do not
apply to suretyship contracts. Petitioners-spouses are not guarantors but
sureties of BMCs debts. There is a sea of difference in the rights and liabilities
of a guarantor and a surety. A guarantor insures the solvency of the debtor
while a surety is an insurer of the debt itself. A contract of guaranty gives rise
to a subsidiary obligation on the part of the guarantor. It is only after the
creditor has proceeded against the properties of the principal debtor and the
debt remains unsatisfied that a guarantor can be held liable to answer for any
unpaid amount. This is the principle of excussion. In a suretyship contract,
however, the benefit of excussion is not available to the surety as he is
principally liable for the payment of the debt. As the surety insures the debt
itself, he obligates himself to pay the debt if the principal debtor will not pay,
regardless of whether or not the latter is financially capable to fulfill his
obligation. Thus, a creditor can go directly against the surety although the
principal debtor is solvent and is able to pay or no prior demand is made on the
principal debtor. A surety is directly, equally and absolutely bound with the
principal debtor for the payment of the debt and is deemed as an original
promissor and debtor from the beginning.5
Under the suretyship contract entered into by petitioners-spouses with
respondent bank, the former obligated themselves to be solidarily bound with
the principal debtor BMC for the payment of its debts to respondent bank
amounting to five million pesos (P5,000,000.00). Under Article 1216 of the Civil
Code,6 respondent bank as creditor may proceed against petitioners-spouses as
sureties despite the execution of the MOA which provided for the suspension of
payment and filing of collection suits against BMC. Respondent banks right to
collect payment from the surety exists independently of its right to proceed
directly against the principal debtor. In fact, the creditor bank may go against
the surety alone without prior demand for payment on the principal debtor.7
The provisions of the MOA regarding the suspension of payments by BMC and
the non-filing of collection suits by the creditor banks pertain only to the
property of the principal debtor BMC. Firstly, in the rehabilitation receivership
filed by BMC, only the properties of BMC were mentioned in the petition with
25

the SEC.8 Secondly, there is nothing in the MOA that involves the liabilities of the
sureties whose properties are separate and distinct from that of the debtor
BMC. Lastly, it bears to stress that the MOA executed by BMC and signed by the
creditor-banks was approved by the SEC whose jurisdiction is limited only to
corporations and corporate assets. It has no jurisdiction over the properties of
BMCs officers or sureties.1awphi1.nt

Petitioner,

Present:

Panganiban, J.,
Chairman,
Sandoval-Gutierrez,*

- versus -

Clearly, the collection suit filed by respondent bank against petitioners-spouses

as sureties can prosper. The trial courts denial of petitioners motion to dismiss
was proper.

Corona,
Carpio Morales, and

IN VIEW WHEREOF, the petition is DISMISSED for lack of merit. No

pronouncement as to costs.

Garcia, JJ

SO ORDERED.
IMPERIAL TEXTILE MILLS,

Promulgated:

INC.,**
Respondent.

November 15, 2005

x -- -- -- -- -- -- -- -- -- -- -- -- -- -- -- -- -- -- -- -- -- -- -- -- -- -- -- -- x

DECISION

THIRD DIVISION
PANGANIBAN, J.:

INTERNATIONAL FINANCE

G.R. No. 160324

CORPORATION,
26

T he terms of a contract govern the rights and obligations of the contracting

parties. When the obligor undertakes to be jointly and severally liable, it
means that the obligation is solidary. If solidary liability was instituted to
guarantee a principal obligation, the law deems the contract to be one of
suretyship.

The creditor in the present Petition was able to show convincingly that,
although denominated as a Guarantee Agreement, the Contract was actually
a surety. Notwithstanding the use of the words guarantee and guarantor,
the subject Contract was indeed a surety, because its terms were clear and left
no doubt as to the intention of the parties.

The Case

Before us is a Petition for Review[1] under Rule 45 of the Rules of Court, assailing
the February 28, 2002 Decision[2] and September 30, 2003 Resolution[3] of the
Court of Appeals (CA) in CA-GR CV No. 58471. The challenged Decision disposed
as follows:

(a) US$2,833,967.00 with accrued interests as provided in the Loan

Agreement;

(b) Interest of 12% per annum on accrued interest, which shall be counted
from the date of filing of the instant action up to the actual payment;

(c)

P73,340.00 as attorneys fees;

(d)

Costs of suit.

2. The guarantor Imperial Textile Mills, Inc. together with Grandtex

is HELDsecondarily liable to pay the amount herein adjudged to [Petitioner]
International Finance Corporation.[4]

The assailed Resolution denied both parties respective Motions for

Reconsideration.

WHEREFORE, the appeal is PARTIALLY GRANTED. The decision of the trial

court is MODIFIED to read as follows:
The Facts
1. Philippine Polyamide Industrial Corporation is ORDERED to pay
[Petitioner] International Finance Corporation, the following amounts:

The facts are narrated by the appellate court as follows:

27

On December 17, 1974, *Petitioner+ International Finance Corporation (IFC)

and [Respondent] Philippine Polyamide Industrial Corporation (PPIC) entered
into a loan agreement wherein IFC extended to PPIC a loan of US$7,000,000.00,
payable in sixteen (16) semi-annual installments of US$437,500.00 each,
beginning June 1, 1977 to December 1, 1984, with interest at the rate of 10%
per annum on the principal amount of the loan advanced and outstanding from
time to time. The interest shall be paid in US dollars semi-annually on June 1
and December 1 in each year and interest for any period less than a year shall
accrue and be pro-rated on the basis of a 360-day year of twelve 30-day
months.

On December 17, 1974, a Guarantee Agreement was executed with x x x

Imperial Textile Mills, Inc. (ITM), Grand Textile Manufacturing Corporation
(Grandtex) and IFC as parties thereto. ITM and Grandtex agreed to guarantee
PPICs obligations under the loan agreement.

PPIC paid the installments due on June 1, 1977, December 1, 1977 and June 1,
1978. The payments due on December 1, 1978, June 1, 1979 and December 1,
1979 were rescheduled as requested by PPIC. Despite the rescheduling of the
installment payments, however, PPIC defaulted. Hence, on April 1, 1985, IFC
served a written notice of default to PPIC demanding the latter to pay the
outstanding principal loan and all its accrued interests. Despite such notice,
PPIC failed to pay the loan and its interests.

By virtue of PPICs failure to pay, IFC, together with DBP, applied for the
extrajudicial foreclosure of mortgages on the real estate, buildings, machinery,
equipment plant and all improvements owned by PPIC, located at Calamba,
Laguna, with the regional sheriff of Calamba, Laguna. On July 30, 1985, the
deputy sheriff of Calamba, Laguna issued a notice of extrajudicial sale. IFC and
DBP were the only bidders during the auction sale. IFCs bid was

for P99,269,100.00 which was equivalent to US$5,250,000.00 (at the prevailing

exchange rate of P18.9084 = US$1.00). The outstanding loan, however,
amounted to US$8,083,967.00 thus leaving a balance of US$2,833,967.00. PPIC
failed to pay the remaining balance.

Consequently, IFC demanded ITM and Grandtex, as guarantors of PPIC, to pay

the outstanding balance. However, despite the demand made by IFC, the
outstanding balance remained unpaid.

Thereafter, on May 20, 1988, IFC filed a complaint with the RTC of Manila
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. It also ordered PPIC to pay IFC its claimed attorneys fees. However,
the trial court relieved ITM of its obligation as guarantor. Hence, the trial court
dismissed IFCs complaint against ITM.

x x x

x x x

x x x

Thus, apropos the decision dismissing the complaint against ITM, IFC appealed
*to the CA+.[5]

28

Ruling of the Court of Appeals

The CA reversed the Decision of the trial court, insofar as the latter
exonerated ITM from any obligation to IFC. According to the appellate court, ITM
bound itself under the Guarantee Agreement to pay PPICs obligation upon
default.[6] ITM was not discharged from its obligation as guarantor when PPIC
mortgaged the latters properties to IFC.[7] 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.[8]

The main issue is whether ITM is a surety, and thus solidarily liable with PPIC for
the payment of the loan.

The Courts Ruling

The Petition is meritorious

The September 30, 2003 Resolution of the CA denied reconsideration.
Hence, this Petition.[10]

[9]

The Issues

Main Issue:
Liability of Respondent Under

Petitioner states the issues in this wise:

I. Whether or not ITM and Grandtex[11] are sureties and therefore, jointly and
severally liable with PPIC, for the payment of the loan.

II.

Whether or not the Petition raises a question of law.

III. Whether or not the Petition raises a theory not raised in the lower
court.[12]

the Guarantee Agreement

The present controversy arose from the following Contracts: (1) the Loan
Agreement dated December 17, 1974, between IFC and PPIC;[13] and (2) the
Guarantee Agreement dated December 17, 1974, between ITM and Grandtex,
on the one hand, and IFC on the other.[14]

IFC claims that, under the Guarantee Agreement, ITM bound itself as a surety to
PPICs obligations proceeding from the Loan Agreement.[15] For its part, ITM
asserts that, by the terms of the Guarantee Agreement, it was merely a
29

guarantor[16] and not a surety. Moreover, any ambiguity in the Agreement

should be construed against IFC -- the party that drafted it.[17]

The obligations of the guarantors are meticulously expressed in the following

provision:

Language of the

Section 2.01. The Guarantors jointly and severally, irrevocably, absolutely and
unconditionally guarantee, as primary obligors and not as sureties merely, the
due and punctual payment of the principal of, and interest and commitment
charge on, the Loan, and the principal of, and interest on, the Notes, whether at
stated maturity or upon prematuring, all as set forth in the Loan Agreement and
in the Notes.[19]

Contract
The premise of the Guarantee Agreement is found in its preambular clause,
which reads:

Whereas,

(A) By an Agreement of even date herewith between IFC and PHILIPPINE

POLYAMIDE INDUSTRIAL CORPORATION (herein called the Company), which
agreement is herein called the Loan Agreement, IFC agrees to extend to the
Company a loan (herein called the Loan) of seven million dollars ($7,000,000) on
the terms therein set forth, including a provision that all or part of the Loan may
be disbursed in a currency other than dollars, but only on condition that the
Guarantors agree to guarantee the obligations of the Company in respect of the
Loan as hereinafter provided.

(B) The Guarantors, in order to induce IFC to enter into the Loan Agreement,
and in consideration of IFC entering into said Agreement, have agreed so to
guaranteesuch obligations of the Company.[18]

The Agreement uses guarantee and guarantors, prompting ITM to base its
argument on those words.[20] This Court is not convinced that the use of the two
words limits the Contract to a mere guaranty. The specific stipulations in the
Contract show otherwise.

Solidary Liability
Agreed to by ITM

While referring to ITM as a guarantor, the Agreement specifically stated that the
corporation was jointly and severally liable. To put emphasis on the nature of
that liability, the Contract further stated that ITM was a primary obligor, not
a mere surety. Those stipulations meant only one thing: that at bottom, and to
all legal intents and purposes, it was a surety.

30

Indubitably therefore, ITM bound itself to be solidarily[21] liable with PPIC for the
latters obligations under the Loan Agreement with IFC. ITM thereby brought
itself to the level of PPIC and could not be deemed merely secondarily liable.
Initially, ITM was a stranger to the Loan Agreement between PPIC and IFC.
ITMs liability commenced only when it guaranteed PPICs obligation. It became
a surety when it bound itself solidarily with the principal obligor. Thus, the
applicable law is as follows:

Article 2047. By guaranty, a person, called the guarantor binds himself to the
creditor to fulfill the obligation of the principal in case the latter should fail to do
so.

If a person binds himself solidarily with the principal debtor, the provisions of
Section 4, Chapter 3, Title I of this Book shall be observed. In such case the
contract shall be called suretyship.[22]

The aforementioned provisions refer to Articles 1207 to 1222 of the Civil Code
on Joint and Solidary Obligations. Relevant to this case is Article 1216, which
states:
The creditor may proceed against any one of the solidary debtors or some or
all of them simultaneously. The demand made against one of them shall not be
an obstacle to those which may subsequently be directed against the others, so
long as the debt has not been fully collected.
Pursuant to this provision, petitioner (as creditor) was justified in taking action
directly against respondent.

No Ambiguity in the
Undertaking

The Court does not find any ambiguity in the provisions of the Guarantee
Agreement. When qualified by the term jointly and severally, the use of the
word guarantor to refer to a surety does not violate the law.[23] As Article
2047 provides, a suretyship is created when a guarantor binds itself solidarily
with the principal obligor. Likewise, the phrase in the Agreement -- as primary
obligor and not merely as surety -- stresses that ITM is being placed on the
same level as PPIC. Those words emphasize the nature of their liability, which
the law characterizes as a suretyship.

The use of the word guarantee does not ipso facto make the contract
one of guaranty.[24] This Court has recognized that the word is frequently
employed in business transactions to describe the intention to be bound by a
primary or an independent obligation.[25] The very terms of a contract govern
the obligations of the parties or the extent of the obligors liability. Thus, this
Court has ruled in favor of suretyship, even though contracts were denominated
as a Guarantors Undertaking [26] or a Continuing Guaranty.[27]

Contracts have the force of law between the parties,[28] who are free to stipulate
any matter not contrary to law, morals, good customs, public order or public
policy.[29] None of these circumstances are present, much less alleged by
respondent. Hence, this Court cannot give a different meaning to the plain
language of the Guarantee Agreement.

31

Indeed, the finding of solidary liability is in line with the premise provided in the
Whereas clause of the Guarantee Agreement. The execution of the
Agreement was a condition precedent for the approval of PPICs loan from IFC.
Consistent with the position of IFC as creditor was its requirement of a higher
degree of liability from ITM in case PPIC committed a breach. ITM agreed with
the stipulation in Section 2.01 and is now estopped from feigning ignorance of
its solidary liability. The literal meaning of the stipulations control when the
terms of the contract are clear and there is no doubt as to the intention of the
parties.[30]

In addition to the main issue, ITM raised procedural infirmities allegedly

justifying the denial of the present Petition. Before the trial court and the CA,
IFC had allegedly instituted different arguments that effectively changed the
corporations theory on appeal, in violation of this Courts previous
pronouncements.[37] ITM further claims that the main issue in the present case
is a question of fact that is not cognizable by this Court.[38]

These contentions deserve little consideration.

We note that the CA denied solidary liability, on the theory that the parties
would not have executed a Guarantee Agreement if they had intended to name
ITM as a primary obligor.[31] The appellate court opined that ITMs undertaking
was collateral to and distinct from the Loan Agreement. On this point, the Court
stresses that a suretyship is merely an accessory or a collateral to a principal
obligation.[32] Although a surety contract is secondary to the principal obligation,
the liability of the surety is direct, primary and absolute; or equivalent to that of
a regular party to the undertaking.[33] A surety becomes liable to the debt and
duty of the principal obligor even without possessing a direct or personal
interest in the obligations constituted by the latter.[34]

ITMs Liability as Surety

With the present finding that ITM is a surety, it is clear that the CA erred in
declaring the former secondarily liable.[35] A surety is considered in law to be on
the same footing as the principal debtor in relation to whatever is adjudged
against the latter.[36] Evidently, the dispositive portion of the assailed Decision
should be modified to require ITM to pay the amount adjudged in favor of IFC.

Alleged Change of
Theory on Appeal

Petitioners arguments before the trial court (that ITM was a primary obligor)
and before the CA (that ITM was a surety) were related and intertwined in the
action to enforce the solidary liability of ITM under the Guarantee Agreement.
We emphasize that the terms primary obligor and surety were premised on
the same stipulations in Section 2.01 of the Agreement. Besides, both terms
had the same legal consequences. There was therefore effectively no change of
theory on appeal. At any rate, ITM failed to show to this Court a disparity
between IFCs allegations in the trial court and those in the CA. Bare allegations
without proof deserve no credence.

Review of Factual
Findings Necessary

Peripheral Issues
32

August 14, 1941

As to the issue that only questions of law may be raised in a Petition for
Review,[39]the Court has recognized exceptions,[40] one of which applies to the
present case. The assailed Decision was based on a misapprehension of
facts,[41] which particularly related to certain stipulations in the Guarantee
Agreement -- stipulations that had not been disputed by the parties. This
circumstance compelled the Court to review the Contract firsthand and to make
its own findings and conclusions accordingly.
WHEREFORE, the Petition is hereby GRANTED, and the assailed Decision and
Resolution MODIFIED in the sense that Imperial Textile Mills, Inc. is declared a
surety to Philippine Polyamide Industrial Corporation. ITM is ORDERED to pay
International Finance Corporation the same amounts adjudged against PPIC in
the assailed Decision. No costs.

SO ORDERED.

G.R. No. 47495

THE TEXAS COMPANY (PHIL.), INC.,

petitioner,

vs.
TOMAS ALONSO,

respondent.

C. D. Johnston & A. P. Deen for petitioner.

Tomas Alonso in his own behalf.
LAUREL, J.:

On November 5, 1935 Leonor S. Bantug and Tomas Alonso were sued by the
Texas Company (P.I.), Inc. in the Court of First Instance of Cebu for the recovery
of the sum of P629, unpaid balance of the account of Leonora S. Bantug in
connection with the agency contract with the Texas Company for the faithful
performance of which Tomas Alonso signed the following:
For value received, we jointly and severally do hereby bind ourselves and each
of us, in solidum, with Leonor S. Bantug the agent named in the within and
foregoing agreement, for full and complete performance of same hereby
waiving notice of non-performance by or demand upon said agent, and the
consent to any and all extensions of time for performance. Liability under this
undertaking, however, shall not exceed the sum of P2,000, Philippine currency.
Witness the hand and seal of the undersigned affixed in the presence of two
witness, this 12th day of August, 1929.

Republic of the Philippines

SUPREME COURT

Manila
EN BANC

Leonor S. Bantug was declared in default as a result of her failure to appear or

answer, but Tomas Alonso filed an answer setting up a general denial and the
special defenses that Leonor S. Bantug made him believe that he was merely a
co-security of one Vicente Palanca and he was never notified of the acceptance
of his bond by the Texas Company. After trial, the Court of First Instance of Cebu
rendered judgment on July 10, 1973, which was amended on February 1, 1938,
sentencing Leonor S. Bantug and Tomas Alonso to pay jointly and severally to
the Texas Company the sum of P629, with interest at the rate of six per cent
(6%) from the date of filing of the complaint, and with proportional costs. Upon
33

appeal by Tomas Alonso, the Court of Appeals modified the judgment of the
Court of First Instance of Cebu in the sense that Leonor S. Bantug was held
solely liable for the payment of the aforesaid sum of P629 to the Texas
Company, with the consequent absolution of Tomas Alonso. This case is now
before us on petition for review bycertiorari of the decision of the Court of
Appeals. It is contended by the petitioner that the Court of Appeals erred in
holding that there was merely an offer of guaranty on the part of the
respondent, Tomas Alonso, and that the latter cannot be held liable thereunder
because he was never notified by the Texas Company of its acceptance.
The Court of Appeals has placed reliance upon our decision in National Bank vs.
Garcia (47 Phil., 662), while the petitioner invokes the case of National Bank vs. Escueta,
(50 Phil., 991). In the first case, it was held that there was merely an offer to give
bond and, as there was no acceptance of the offer, this court refused to give
effect to the bond. In the second case, the sureties were held liable under their
surety agreement which was found to have been accepted by the creditor, and
it was therein ruled that an acceptance need not always be express or in writing.
For the purpose of this decision, it is not indispensable for us to invoke one or
the other case above cited. The Court of Appeals found as a fact, and this is
conclusive in this instance, that the bond in question was executed at the
request of the petitioner by virtue of the following clause of the agency
contract:
Additional Security. The Agent shall whenever requested by the Company in
addition to the guaranty herewith provided, furnish further guaranty or bond,
conditioned upon the Agent's faithful performance of this contract, in such
individuals of firms as joint and several sureties as shall be satisfactory to the
Company.
In view of the foregoing clause which should be the law between the parties, it
is obvious that, before a bond is accepted by the petitioner, it has to be in such
form and amount and with such sureties as shall be satisfactory hereto; in other
words, the bond is subject to petitioner's approval. The logical implication
arising from this requirement is that, if the petitioner is satisfied with any such
bond, notice of its acceptance or approval should necessarily be given to the

property party in interest, namely, the surety or guarantor. In this connection,

we are likewise bound by the finding of the Court of Appeals that there is no
evidence in this case tending to show that the respondent, Tomas Alonso, ever
had knowledge of any act on the part of petitioner amounting to an implied
acceptance, so as to justify the application of our decision in National Bank vs.
Escueta (50 Phil., 991).
While unnecessary to this decision, we choose to add a few words explanatory
of the rule regarding the necessity of acceptance in case of bonds. Where there
is merely an offer of, or proposition for, a guaranty, or merely a conditional
guaranty in the sense that it requires action by the creditor before the
obligation becomes fixed, it does not become a binding obligation until it is
accepted and, unless there is a waiver of notice of such acceptance is given to,
or acquired by, the guarantor, or until he has notice or knowledge that the
creditor has performed the conditions and intends to act upon the guaranty.
(National Bank vs. Garcia, 47 Phil., 662; C. J., sec. 21, p. 901; 24 Am. Jur., sec. 37, p.
899.) The acceptance need not necessarily be express or in writing, but may be
indicated by acts amounting to acceptance. (National Bank vs. Escueta, 50 Phil., 991.)
Where, upon the other hand, the transaction is not merely an offer of guaranty
but amounts to direct or unconditional promise of guaranty, unless notice of
acceptance is made a condition of the guaranty, all that is necessary to make
the promise binding is that the promise should act upon it, and notice of
acceptance is not necessary (28 C. J., sec. 25, p. 904; 24 Am. Jur., sec 37, p. 899),
the reason being that the contract of guaranty is unilateral (Visayan Surety and
Insurance Corporation vs. Laperal, G.R. No. 46515, promulgated June 14, 1940).
The decision appealed from will be, as the same is hereby, affirmed, with costs
of this instance against the petitioner. So ordered.
Avancea, C.J., Abad Santos, and Diaz, JJ., concur.
Separate Opinions
OZAETA, J., with whom concur MORAN and HORRILENO, JJ., dissenting:

We concede that the statement of fact made by the Court of Appeals is

conclusive upon this Court in a petition for review on certiorari. But when it
34

appears from the decision of the Court of Appeals itself that such a statement is
but a conclusion drawn by that Court from the facts found by it, and that such
conclusion is patently erroneous, we hold that this Court should disregard it.
Of the nature, we believe, is the following statement made by the Court of
Appeals in the course of its ratiocination:
La fianza prestada por el apelante se otorgo a requerimiento de la demandante
en virtud de la siguiente clausula (15) del contrato de agencia Exhibit A, que dice
asi:
"ADDITIONAL SECURITY. The Agent shall, whenever requested by the
Company in addition to the guaranty herewith provided, furnish further
guaranty or bond, conditioned upon the agent's faithful performance of this
contract, in such form and amount and with such bank as surety or with such
individuals or firms as joint and several sureties as shall be satisfactory to the
Company." (Pages 8-9, appendix to petitioner's brief.)
It is important to note that the above-quoted statement forms part of the
court's ratio decidendiand not of its findings of fact. Its findings of fact appear in the
first three paragraphs of its decision, which we quote as follows:
El 12 de agosto de 1929 la demandante y el demandado Leonor S. Bantug
celebraron un contrato, (Exhibit A) por virtud del cual aquella nombro a este
Agente vendedor de sus productos petroliferos en el Municipio de Maasin,
Provincia de Leyte, mediante pago de una comision sobre el valor de todos los
efectos que llegase a vender, obligandose por su parte Leonor S. Bantug como
Agente, a ingresar y pagar a la compaia el importe neto de las ventas
realizadas, despues de deducir su comision y los demas gastos de agencia que se
estipularon en el referido contrato.
En el mismo documento Exhibit A, el otro demandado Tomas Alonso suscribio
una fianza, obligandose mancomunada y solidariamente con el Agente Leonor S.
Bantug a cumplir fielmente las condiciones del contrato de Agencia hasta la
suma de P2,000.

El estado de cuentas de la agencia que se presento en el juicio como Exhibit B,

demuestra que la ultima liquidacion arroja un balance contra el Agente Leonor
S. Bantug por la cantidad de P629; y como esta suma no ha sido pagado ni por
Leonor S. Bantug ni por su fiador Tomas Alonso, a pesar de los requerimientos
que se les ha hecho, de ahi que la demandante, el 18 de noviembre de 1938,
dedujo accion en el Juzgado de Primera Instancia de Cebu para el cobro de dicha
suma y sus intereses legales desde la presentacion de la demanda. (Pages 1-3,
appendix to petitioner's brief.)
Now if, as found by the Court of Appeals itself, the agency contract between the
petitioner and Leonor S. Bantug was Exhibit A, dated August 12, 1929, and that
very same document was on the same date signed by the respondent Tomas
Alonso as bondsman or surety of the agent, how could the bond in question,
which formed part of Exhibit A, be held to have been executed by virtue of
clause 15 of said document providing for additional security? Indeed, that very
clause says that the agent shall furnish further guaranty or bond "in addition to
the guaranty herewith provided," whenever requested by the company. The
"guaranty herewith provided" was obviously the bond or guaranty given by the
respondent on the same date and in the same document. It appears clear to us,
therefore, that the bond Exhibit A, being the original guaranty, could not be the
"additional guaranty" mentioned in clause 15 of said Exhibit A. Moreover, it does
not appear that any bond or guaranty, other than that of the respondent, to
secure the performance of the agency contract in question was in force on and
after August 12, 1929.
Another illogical conclusion drawn by the Court of Appeals is this:
"Por el requerimiento que contiene la clausula preinserta, de que el Agente
puede prestar una garantia adicional a satisfaccion de la compaia, debe
entenderse que la fianza prestada por el apelante era una oferta o proposicion
de garantia, cuya efectividad dependia de la acceptacion de la compaia,
comunicada al garante." (Page 9, appendix to petitioner's brief.)
If, as previously found by the Court of Appeals, the herein respondent executed
the bond in question "a requerimiento de la demandante," how could said bond
35

be understood as an "offer or proposition of guaranty" from Alonso to the

plaintiff?
Yet the judgment of the Court of Appeals, as well as the affirming decision of
the majority of this court, is based on the conclusion that the bond sued upon
was an additional guaranty; that it constituted a mere offer of guaranty and,
therefore, had to be accepted by the petitioner; and that, not having been
accepted, it is inefficacious. We have shown that such conclusion is
unwarranted.
Our vote is to reverse the decision of the Court of Appeals and to affirm that of
Judge Felix Martinez of the Court of First Instance of Cebu, who tried this case.
Republic of the Philippines
SUPREME COURT
Manila
SECOND DIVISION

G.R. No. 107062 February 21, 1994

PHILIPPINE PRYCE ASSURANCE CORPORATION, petitioner,
vs.
THE COURT OF APPEALS, (Fourteenth Division) and GEGROCO,
INC., respondents.
Ocampo, Dizon & Domingo and Rey Nathaniel C. Ifurung for petitioner.
A.M. Sison, Jr. & Associates for private respondent.

NOCON, J.:
Two purely technical, yet mandatory, rules of procedure frustrated petitioner's
bid to get a favorable decision from the Regional Trial Court and then again in
the Court of Appeals. 1 These are non-appearance during the pre-trial despite
36

due notice, and non-payment of docket fees upon filing of its third-party
complaint. Just how strict should these rules be applied is a crucial issue in this
present dispute.
Petitioner, Interworld Assurance Corporation (the company now carries the
corporate name Philippine Pryce Assurance Corporation), was the butt of the
complaint for collection of sum of money, filed on May 13, 1988 by respondent,
Gegroco, Inc. before the Makati Regional Trial Court, Branch 138. The complaint
alleged that petitioner issued two surety bonds (No. 0029, dated July 24, 1987
and No. 0037, dated October 7, 1987) in behalf of its principal Sagum General
Merchandise for FIVE HUNDRED THOUSAND (P500,000.00) PESOS and ONE
MILLION (1,000,000.00) PESOS, respectively.
On June 16, 1988, summons, together with the copy of the complaint, was
served on petitioner. Within the reglementary period, two successive motions
were filed by petitioner praying for a total of thirty (30) days extention within
which to file a responsible pleading.
In its Answer, dated July 29, 1988, but filed only on August 4, 1988, petitioner
admitted having executed the said bonds, but denied liability because allegedly
1) the checks which were to pay for the premiums bounced and were
dishonored hence there is no contract to speak of between petitioner and its
supposed principal; and 2) that the bonds were merely to guarantee payment of
its principal's obligation, thus, excussion is necessary. After the issues had been
joined, the case was set for pre-trial conference on September 29, 1988. the
petitioner received its notice on September 9, 1988, while the notice addressed
to its counsel was returned to the trial court with the notation "Return to
Sender, Unclaimed." 2
On the scheduled date for pre-trial conference, only the counsel for petitioner
appeared while both the representative of respondent and its counsel were
present. The counsel for petitioner manifested that he was unable to contract
the Vice-President for operations of petitioner, although his client intended to
file a third party complaint against its principal. Hence, the pre-trial was re-set
to October 14, 1988. 3

On October 14, 1988, petitioner filed a "Motion with Leave to Admit Third-Party
Complaint" with the Third-Party Complaint attached. On this same day, in the
presence of the representative for both petitioner and respondent and their
counsel, the pre-trial conference was re-set to December 1, 1988. Meanwhile
on November 29, 1988, the court admitted the Third Party Complaint and
ordered service of summons on third party defendants. 4
On scheduled conference in December, petitioner and its counsel did not
appear notwithstanding their notice in open court. 5 The pre-trial was
nevertheless re-set to February 1, 1989. However, when the case was called for
pre-trial conference on February 1, 1989, petitioner was again nor presented by
its officer or its counsel, despite being duly notified. Hence, upon motion of
respondent, petitioner was considered as in default and respondent was
allowed to present evidenceex-parte, which was calendared on February 24,
1989. 6 Petitioner received a copy of the Order of Default and a copy of the
Order setting the reception of respondent's evidence ex-parte, both dated
February 1, 1989, on February 16, 1989. 7
On March 6, 1989, a decision was rendered by the trial court, the dispositive
portion reads:
WHEREFORE, judgment is hereby rendered in favor of the plaintiff and against
the defendant Interworld Assurance Corporation to pay the amount of
P1,500,000.00 representing the principal of the amount due, plus legal interest
thereon from April 7, 1988, until date of payment; and P20,000.00 as and for
attorney's fees. 8
Petitioner's "Motion for Reconsideration and New Trial" dated April 17, 1989,
having been denied it elevated its case to the Court of Appeals which however,
affirmed the decision of the trial court as well as the latter's order denying
petitioner's motion for reconsideration.
Before us, petitioner assigns as errors the following:

37

I. The respondent Court of Appeals gravely erred in declaring that the case was
already ripe for pre-trial conference when the trial court set it for the holding
thereof.
II. The respondent Court of Appeals gravely erred in affirming the decision of the
trial court by relying on the ruling laid down by this Honorable Court in the case
of Manchester Development Corporation v. Court of Appeals, 149 SCRA 562,
and disregarding the doctrine laid down in the case of Sun Insurance Office, Ltd.
(SIOL) v. Asuncion, 170 SCRA 274.
III. The respondent Court of Appeals gravely erred in declaring that it would be
useless and a waste of time to remand the case for further proceedings as
defendant-appellant has no meritorious defense.
We do not find any reversible error in the conclusion reached by the court a
quo.
Relying on Section 1, Rule 20 of the Rules of court, petitioner argues that since
the last pleading, which was supposed to be the third-party defendant's answer
has not been filed, the case is not yet ripe for pre-trial. This argument must fail
on three points. First, the trial court asserted, and we agree, that no answer to
the third party complaint is forthcoming as petitioner never initiated the service
of summons on the third party defendant. The court further said:
. . . Defendant's claim that it was not aware of the Order admitting the thirdparty complaint is preposterous. Sec. 8, Rule 13 of the Rules, provides:
Completeness of service . . . Service by registered mail is complete upon
actual receipt by the addressee, but if he fails to claim his mail from the post
office within five (5) days from the date of first notice of the postmaster, service
shall take effect at the expiration of such time. 9
Moreover, we observed that all copies of notices and orders issued by the court
for petitioner's counsel were returned with the notation "Return to Sender,
Unclaimed." Yet when he chose to, he would appear in court despite supposed
lack of notice.

Second, in the regular course of events, the third-party defendant's answer

would have been regarded as the last pleading referred to in Sec. 1, Rule 20.
However, petitioner cannot just disregard the court's order to be present during
the pre-trial and give a flimsy excuse, such as that the answer has yet to be filed.
The pre-trial is mandatory in any action, the main objective being to simplify,
abbreviate and expedite trial, if not to fully dispense with it. Hence, consistent
with its mandatory character the Rules oblige not only the lawyers but the
parties as well to appear for this purpose before the Court 10 and when a party
fails to appear at a pre-trial conference he may be non-suited or considered as
in default. 11
Records show that even at the very start, petitioner could have been declared
as in default since it was not properly presented during the first scheduled pretrial on September 29, 1988. Nothing in the record is attached which would
show that petitioner's counsel had a special authority to act in behalf of his
client other than as its lawyer.
We have said that in those instances where a party may not himself be present
at the pre-trial, and another person substitutes for him, or his lawyer
undertakes to appear not only as an attorney but in substitution of the client's
person, it is imperative for that representative or the lawyer to have "special
authority" to enter into agreements which otherwise only the client has the
capacity to make. 12
Third, the court of Appeals properly considered the third-party complaint as a
mere scrap of paper due to petitioner's failure to pay the requisite docket fees.
Said the court a quo:
A third-party complaint is one of the pleadings for which Clerks of court of
Regional Trial Courts are mandated to collect docket fees pursuant to Section 5,
Rule 141 of the Rules of Court. The record is bereft of any showing tha(t) the
appellant paid the corresponding docket fees on its third-party complaint.
Unless and until the corresponding docket fees are paid, the trial court would
not acquire jurisdiction over the third-party complaint (Manchester
Development Corporation vs. Court of Appeals, 149 SCRA 562). The third-party
38

complaint was thus reduced to a mere scrap of paper not worthy of the trial
court's attention. Hence, the trial court can and correctly set the case for pretrial on the basis of the complaint, the answer and the answer to the
counterclaim. 13
It is really irrelevant in the instant case whether the ruling in Sun Insurance
Office, Ltd. (SIOL) v. Asuncion 14 or that in Manchester Development Corp. v.
C.A. 15 was applied. Sun Insurance and Manchester are mere reiteration of old
jurisprudential pronouncements on the effect of non-payment of docket
fees. 16 In previous cases, we have consistently ruled that the court cannot
acquire jurisdiction over the subject matter of a case, unless the docket fees are
paid.
Moreover, the principle laid down in Manchester could have very well been
applied in Sun Insurance. We then said:
The principle in Manchester [Manchester Development Corp. v. C.A., 149 SCRA
562 (1987)] could very well be applied in the present case. The pattern and the
intent to defraud the government of the docket fee due it is obvious not only in
the filing of the original complaint but also in the filing of the second amended
complaint.
xxx xxx xxx
In the present case, a more liberal interpretation of the rules is called for
considering that, unlike Manchester, private respondent demonstrated his
willingness to abide by the rules by paying the additional docket fees as
required. The promulgation of the decision in Manchester must have had that
sobering influence on private respondent who thus paid the additional docket
fee as ordered by the respondent court. It triggered his change of stance by
manifesting his willingness to pay such additional docket fees as may be
ordered. 17
Thus, we laid down the rules as follows:

1. It is not simply the filing of the complaint or appropriate initiatory pleading,

but the payment of the prescribed docket fee, that vests a trial court with
jurisdiction over the subject-matter or nature of the action. Where the filing of
the initiatory pleading is not accompanied by payment of the docket fee, the
court may allow payment of the fee within a reasonable time, but in no case
beyond the applicable prescriptive or reglamentary period.
2. The same rule applies to permissive counterclaims, third-party claims and
similar pleadings, which shall not be considered filed until and unless the filing
fee prescribed therefor is paid. The court may also allow payment of said fee
within a prescriptive or reglementary period.
3. Where the trial court acquires jurisdiction over a claim by the filing of the
appropriate pleading and payment of the prescribed filing fee, but
subsequently, the judgment awards a claim nor specified in the pleading, or if
specified the same has not been left for determination by the court, the
additional filing fee therefor shall constitute a lien on the judgment. It shall be
the responsibility of the clerk of court or his duly authorized deputy to enforce
said lien and assess and collect the additional
fee. 18
It should be remembered that both in Manchester and Sun Insurance plaintiffs
therein paid docket fees upon filing of their respective pleadings, although the
amount tendered were found to be insufficient considering the amounts of the
reliefs sought in their complaints. In the present case, petitioner did not and
never attempted to pay the requisite docket fee. Neither is there any showing
that petitioner even manifested to be given time to pay the requisite docket fee,
as in fact it was not present during the scheduled pre-trial on December 1, 1988
and then again on February 1, 1989. Perforce, it is as if the third-party complaint
was never filed.
Finally, there is reason to believe that partitioner does not really have a good
defense. Petitioner hinges its defense on two arguments, namely: a) that the
checks issued by its principal which were supposed to pay for the premiums,
bounced, hence there is no contract of surety to speak of; and 2) that as early as
39

1986 and covering the time of the Surety Bond, Interworld Assurance Company
(now Phil. Pryce) was not yet authorized by the insurance Commission to issue
such bonds.

A. Interworld Assurance Corp. Surety Bond No. 0029 for P500,000 dated July 24,
1987 and Interworld Assurance Corp. Surety Bond No. 0037 for P1,000.000
dated October 7, 1987. 20

The Insurance Code states that:

Likewise attached to the record are exhibits C to C-18 21 consisting of delivery

invoices addressed to Sagum General Merchandise proving that parts were
purchased, delivered and received.

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. . . .
(emphasis added)
The above provision outrightly negates petitioner's first defense. In a desperate
attempt to escape liability, petitioner further asserts that the above provision is
not applicable because the respondent allegedly had not accepted the surety
bond, hence could not have delivered the goods to Sagum Enterprises. This
statement clearly intends to muddle the facts as found by the trial court and
which are on record.

On the other hand, petitioner's defense that it did not have authority to issue a
Surety Bond when it did is an admission of fraud committed against respondent.
No person can claim benefit from the wrong he himself committed. A
representation made is rendered conclusive upon the person making it and
cannot be denied or disproved as against the person relying thereon. 22
WHEREFORE, in view of the foregoing, the decision of the Court of Appeals
dismissing the petition before them and affirming the decision of the trial court
and its order denying petitioner's Motion for Reconsideration are hereby
AFFIRMED. The present petition is DISMISSED for lack of merit.
SO ORDERED.

In the first place, petitioner, in its answer, admitted to have issued the bonds
subject matter of the original action.19 Secondly, the testimony of Mr. Leonardo
T. Guzman, witness for the respondent, reveals the following:
Q. What are the conditions and terms of sales you extended to Sagum General
Merchandise?
A. First, we required him to submit to us Surety Bond to guaranty payment of
the spare parts to be purchased. Then we sell to them on 90 days credit. Also,
we required them to issue post-dated checks.
Q. Did Sagum General merchandise comply with your surety bond requirement?
A. Yes. They submitted to us and which we have accepted two surety bonds.
Q Will you please present to us the aforesaid surety bonds?
40

Republic of the Philippines

SUPREME COURT
Manila
EN BANC
G.R. No. 43486

September 30, 1936

THE MUNICIPALITY OF GASAN, plaintiff-appellee,

vs.
MIGUEL MARASIGAN, ANGEL R. SEVILLA and GONZALO L. LUNA, defendantsappellants.
Luis Atienza Bijis for appellants.
Provincial Fiscal Noel of Marinduque for appellee.
DIAZ, J.:
This is an action brought by the municipality of Gasan of the Province of
Marinduque, against Miguel Marasigan, Angel R. Sevilla and Gonzalo L. Luna, to
recover from them the sum of P3,780, alleging that it forms a part of the license
fees which Miguel Marasigan failed to pay for the privilege granted him of
gathering whitefish spawn (semillas de bagus) in the jurisdictional waters of
the plaintiff municipality during the period from January 1, 1931, to December
31 of said year.
The Court of First Instance of Marinduque, which tried the case, rendered a
decision adverse to the defendants, sentencing them to pay jointly to the
plaintiff said sum of P3,780 with legal interest thereon from August 19, 1932,
until fully paid, plus the costs of the suit. From said judgment, the defendants
appealed to this court, attributing to the lower court the five alleged errors
relied upon in their brief, as follows:
I. The court a quo erred in holding and maintaining that, notwithstanding the
fact that resolution No. 161 of the municipal council of Gasan which gave rise to

the contract and bond, Exhibits A and B, respectively, of the complaint, has been
declared null and void by the provincial board and by the Executive Bureau, the
contract and bond in question are valid and, consequently, enforceable on the
ground that said resolution No. 161 is within or had been adopted within the
powers of the council.
II. The court a quo erred in holding that even granting that the contract Exhibit A
is not valid de jure, it is ade facto contract as to the defendants, particularly the
defendant-grantee Miguel Marasigan.
III. The court a quo erred in not absolving the defendants Angel R. Sevilla and
Gonzalo L. Luna, sureties of the defendant Miguel Marasigan, notwithstanding
the fact that resolution No. 161, by virtue of which said defendant subscribed
the bond Exhibit B of the complaint, had been declared null and void by the
provincial board and by the Executive Bureau.
IV. The court a quo erred in holding that the herein defendant Miguel Marasigan
had taken advantage of the privilege to catch or gather whitefish spawn in the
jurisdictional waters of the municipality of Gasan, during the period from
January 1, to December 31, 1931, notwithstanding the fact that counsel for the
plaintiff municipality failed to present evidence, either documentary or oral, to
justify said fact.
V. The court a quo erred in not absolving each and every one of the herein
defendants from the complaint, and in not ordering the plaintiff municipality to
return to the defendant Miguel Marasigan the sums of four hundred twenty
pesos (P420) and eight hundred forty pesos (P840) deposited with said plaintiff,
with interest thereon from the respective dates of their deposit, until their
return.
The case was tried by the lower court with no other evidence than the
admissions made by the parties in the stipulation of facts mentioned in the body
of the decision, the pertinent parts of which will be discussed later. Said
stipulation and the attached papers forming a part thereof enables this court to
narrate the material facts of the case, as follows:
41

The plaintiff-appellee municipality, on December 9, 1930, put up at auction the

privilege of gathering whitefish spawn in its jurisdictional waters for the period
of one year from January 1, 1931. Two bidders, Graciano Napa and Miguel
Marasigan, appeared at the auction. Both attached to their respective bids the
certificate of not being behind in the payment of any tax, issued by the
municipal treasurer of Gasan, Marinduque, as required by the provisions of
resolution No. 42, series of 1930, of the council of said municipality. Graciano
Napa proposed to accept the privilege by paying P5,000 therefor, Miguel
Marasigan proposed to do likewise, but by paying only P4,200.
The council of the plaintiff-appellee municipality, in its resolution No. 161
(Exhibit 1) of December 11, 1930 rejected Graciano Napa's bid and accepted
that of the appellant Miguel Marasigan, granting and selling to the latter the
privilege put up at auction for the sum of P4,200, payable quarterly in advance
at the rate of P1,050 a quarter (Exhibit A). To secure his compliance with the
terms of the contract which was immediately formalized by him and the
plaintiff, and pursuant to the provisions of section 8 of resolution No. 128, series
of 1925, of the council of said plaintiff, Miguel Marasigan filed the bond, Exhibit
B, subscribed on December 15, 1930, by the defendants-appellants Angel R.
Sevilla and Gonzalo L. Luna, who bound themselves in said document to pay to
the plaintiff the sum of P8,400, if Miguel Marasigan failed to deposit one-fourth
of P4,200 quarterly in advance in the municipal treasury of Gasan, in violation of
the terms of the contract executed and entered into by him and the plaintiff on
December 11, 1930 (Exhibit A), for the compliance with which they became
sureties.
Before the plaintiff municipality and Miguel Marasigan entered into their
contract, and also before the latter's sureties executed the above-stated bond,
Graciano Napa, whose bid was rejected for the reason that he had not attached
thereto the certificate that he is not behind in the payment of any tax which he
should have obtained from the municipal treasurer of Lemery, his native town,
forwarded a protest (Exhibit 4) to the provincial board, which protest was later
indorsed by said provincial board to the Chief of the Executive Bureau, alleging
that the plaintiff municipality violated the provisions of section 2323 of the
Administrative Code in rejecting his bid.

The provincial board, passing upon Graciano Napa's protest and acting under
the authority which, in its opinion, was granted to it by section 2233 of the
Administrative Code, held that resolution No. 161, series of 1930, by virtue of
which the municipal council of Gasan rejected Graciano Napa's bid and accepted
that of Miguel Marasigan, notwithstanding the fact that the latter offered to pay
less, was invalid, and suggested that the privilege should be, awarded to
Graciano Napa who, in its opinion, appeared to be the highest bidder in
accordance with the provisions of sections 2323 and 2319 of the Administrative
Code (Exhibit 9). The Executive Bureau, concurring with the provincial board's
points of view, declared, in turn, that the concession made to Marasigan was
illegal in view of the fact that Graciano Napa was the highest bidder (Exhibit 13).
The plaintiff municipality, through its municipal council, exerted efforts to
obtain the reconsideration of the decisions of the provincial board of
Marinduque and of the Executive Bureau but, as these two entities maintained
their decisions (Exhibits 14, 15, 16, 17 and 18), it decided, in its resolution No.
11, series of 1931 (Exhibit 19), to award the privilege of gathering whitefish
spawn within its waters to Graciano Napa, giving him a period of six days, which
was later extended to seven days, from January 8, 1931 (Exhibit 19-A), to
deposit the sum of P500, equivalent to 10 per cent of his bid of P5,000, with the
municipal treasurer of Gasan, so as to comply with the provisions of section 8 of
the conditions of the public auction at which he was a bidder, warning him that
if he failed to do so, the contract entered into by the plaintiff, through its
president, and the appellant Miguel Marasigan (Exhibit A), would automatically
take effect. Graciano Napa not only failed to make the deposit required by the
plaintiff in its two above-stated resolutions Nos. 11 and 12, series of 1931
(Exhibits 19 and 19-A), but he formally declared, through his duly authorized
representative, that he yielded the privilege granted him to Miguel Marasigan or
to any other person selected by the municipal authorities (Exhibit 20).
One day later, or on January 15, 1931, the president of the plaintiff-appellee
municipality sent the letter Exhibit 21 to Miguel Marasigan, which reads:
SIR:
42

By virtue of Res. No. 11, c. s., as amended by Res. No. 12, same series, and
communication of Mr. J. Zaguirre dated January 14, 1931 copy of which is
hereto attached, you are hereby advised that the contract entered into between
you and the municipality of Gasan for the lease of the bagus fishery privilege
for the year 1931 becomes effective on January 14, 1931, to run until December
31, 1931.
You are hereby requested to appear before the session of the Municipal Council
to be held at the office of the undersigned tomorrow, January 16, 1931, bringing
with yourself the contract and bond executed in your favor for ratification.
You are further informed that you are given 10 days from the date hereof,
within which time you are to pay the amount of P1,050, as per tax
corresponding to the first quarter, 1931.
Prior to this, but after the adoption by the municipal council of Gazan of its
resolution No. 163 (Exhibit 7) on December 16, 1930, and two days before the
provincial board declared said council's resolutions Nos. 161 and 163 invalid, the
president of the plaintiff-appellee municipality notified the appellant Miguel
Marasigan that the contract whereby he was granted the privilege of gathering
whitefish spawn during the year 1931, upon his offer to pay P4,200 a year
therefor, was suspended and that he should consider it ineffective in the
meantime in view of the fact that the question whether he (Miguel Marasigan)
or Graciano Napa was the highest bidder still remained undecided by the
provincial board of Marinduque and by the Executive Bureau. The English
translation of the letter sent by the municipal president to Miguel Marasigan,
which was written in Tagalog (Exhibit 8), reads:
SIR:
In view of the fact that the whitefish (bagus) case has not been decided or
determined by the provincial board and is still pending action to date, and in
view of the instructions given me by the representative of the Executive Bureau,
Mr. Jose Zaguirre, I beg to inform you, with due respect, that you should refrain
from carrying out and giving efficacy to the contract signed by me in the name

of the municipality, relative to the privilege of gathering whitefish in your favor,

from this date until further notice, because this case is still pending action.
Knowing the above-stated facts, let us now turn to the consideration of the
alleged errors attributed to the lower court by the appellants.
The first and third errors should be considered jointly on account of the close
relation existing between them. The determination of one depends upon that of
the other.
This court believes that there is no necessity of even discussing the first error
because the plaintiff itself accepted the conclusions and decision of the
provincial board and of the Executive Bureau, so much so that in its resolution
No. 11, series of 1931, it thereafter considered Graciano Napa as the highest
bidder, going to the extent of requiring him, as it in fact required him, to make
the deposit of P500 prescribed by the conditions of the auction sale in which he
had intervened, and granting him a period of seven days to comply with said
requirement (Exhibits 19 and 19-A). Furthermore, when the plaintiff received
Graciano Napa's notice informing it that he ceded the privilege just granted him
to appellant Miguel Marasigan or to any other person that it might choose, said
plaintiff, through its municipal president, required Miguel Marasigan to appear
before its municipal council to present his formerly prepared contract as well as
his bond in order that both documents might be ratified (Exhibit 21). It should
be added to the foregoing that on December 18, 1930, the plaintiff, also
through its municipal president notified appellant Marasigan that his contract
should, in the meantime, be considered ineffectual and that he should do
nothing to put it in execution because the case was still undecided by the
provincial board and by the Executive Bureau (Exhibit 8). It is clear that it may
be logically inferred from these facts that the contract regarding fishing privilege
entered into between the plaintiff and appellant Marasigan on December 11,
1930 (Exhibit A), not only was not consummated but was cancelled.
Consequently, it now appears useless and futile to discuss whether or not
resolution No. 161 (Exhibit 1) is valid and legal. In either case, it is a fact that,
said contract ceased to have life or force to bind each of the contracting parties.
It ceased to be valid from the time it was cancelled and this being so, neither
43

the appellant Marasigan nor his sureties or the appellants were bound to
comply with the terms of their respective contracts of fishing privilege and
suretyship. This is so, particularly with respect to the sureties-appellants,
because suretyship cannot exist without a valid obligation (art. 1824 of the Civil
Code). The obligation whose compliance by the appellant Marasigan was
guaranteed by the sureties-appellants, was exclusively that appearing in Exhibit
A, which should begin on January 1, 1931, not on the 14th of said month and
year, and end on December 31st next. They intervened in no other subsequent
contract which the plaintiff and Miguel Marasigan might have entered into on
or after January 14, 1931. Guaranty is not, presume; it must be expressed and
cannot be extended beyond its specified limits (art. 1827 of the Civil Code).
Therefore, after eliminating the obligation for which said sureties-appellants
desired to answer with their bond, the bond necessarily ceased and it ceases to
have effects. Consequently, said errors I and III are true and well founded.
As to the second error it must be known that among the stipulations contained
in the stipulation of facts submitted to the court are the following:
21. That on July 20, 1931, Miguel Marasigan paid the sum of P16.20 to the
municipal treasurer of Gasan, as internal revenue tax on sales of whitefish
(bagus) spawn amounting to P1,080 during the months of April, May and June,
1931; and that on August 22, 1931, said Miguel Marasigan presented his sales
book to the municipal treasurer of Gasan, Mr. Gregorio D. Chavez, it appearing
therein that said Miguel Marasigan, in the month of July, 1931, sold whitefish
spawn amounting to P85; in the month of August, 1931, none, and in the month
of September, 1931, none.
22. That Miguel Marasigan is he concessionaire of the privilege to gather
whitefish spawn in the jurisdictional waters of the municipality of Boac,
Marinduque, during the period from January 1, 1931, to December 31 of said
year, and that during said period of time he had paid the sales tax on the
whitefish spawn in question only in the municipality of Gasan, without having
made any payment in the municipality of Boac.

23. That defendant Miguel Marasigan, as bidder at the auction of December 9,

1930, deposited in the municipal treasury of Gasan the sum of P420, equivalent
to 10 per cent of his bid at said auction, and that said sum has not yet been
returned to him to date.
24. That on June 29, 1931, said Miguel Marasigan delivered another sum of
P840 to the municipal treasurer of Gasan, making the total amount delivered by
him to said municipal treasurer P1,260, the corresponding receipt having been
issued to Miguel Marasigan to that effect.
The facts resulting from the stipulations in question warrant and justify the
inference that the appellant Miguel Marasigan practically enjoyed the privilege
of gathering whitefish spawn in the jurisdictional waters of the municipality of
Gasan, under the terms of the contract executed by him on December 11, 1930,
but which was cancelled later by virtue of Graciano Napa's protest, at least from
the month of April to the month of July, 1931, inclusive. If this were not true, he
would not have paid, as he spontaneously paid to the municipal treasurer of
Gasan, the following sums: P840 on June 29, 1931, and P16.20 on July 20 of said
year, nor presented, as he in fact presented to said official for inspection, his
sales book wherein it appears that his sales of whitefish spawn during the
month of July of said year amounted to P85. The stipulation of facts, however, is
silent as to whether or not he enjoyed the privilege in question during the rest
of the year. On the contrary, it states he sold no whitefish spawn in August or
September.
The excuse now offered by appellant Marasigan in his brief that the abovestated amounts were on account of license fees or taxes on the privilege of
gathering whitefish spawn in the jurisdictional waters of Boac, obtained by him
from said municipality, is not supported by the evidence. If the payments made
by him as he claims them to be, he would have so stated in the stipulations of
facts. Not having done so and, furthermore, the practice generally observed
being to pay an obligation in the municipality where the payment is due, the
only conclusion possible is that said appellant made all such payments on
account of the-tacit contract entered into by him and the plaintiff after he had
received the letter of January 15, 1931 (Exhibit 21), sent to him by said plaintiff
44

through its municipal president. This conclusion is all the more logical because
appellant Marasigan insisted in his answer, and still continues to insist in his
brief, that the plaintiff is obliged to refund to him the amount of P1,260 which
he claims to have paid to it, and which is no other than the amount of the two
sums of P420 and P840 stated in the last two paragraphs of the abovestated
stipulation of facts. If it were really true, as said appellant contends, that the
sum of P840 was paid by him on account of his contract for privilege of
gathering whitefish spawn, executed in his favor by the municipality of Boac, he
would not have insisted in his answer, nor would he now insist in his brief, that
said sum be refunded to him, because in the absence of evidence to the
contrary, it must be presumed that it was transmitted by the municipal
treasurer of Gasan to that of Boac, inasmuch as accepting his contention, he
was obliged to pay something to the latter municipality by virtue of his alleged
contract with it.
For the foregoing reasons, the conclusion of this court with respect to the
second error attributed to the lower court by appellant Marasigan is that said
error is without merit. The truth is that between him and the plaintiff, there was
a tacit contract for the privilege of gathering whitefish spawn in he jurisdictional
waters of the municipality of Gasan, based upon Exhibit A but without the
intervention of the sureties-appellants, for the above-stated period, or from
April to July, 1931, inclusive, which is equivalent to one and one-third quarter.
Said contract was one which, by its nature, need not be in writing (sec. 335 of
Act No. 190); but it is binding because it has all the essential requisites of a valid
contract (art. 1278 of the Civil Code).

Summarizing all that has been stated heretofore, this court holds that appellant
Miguel Marasigan owes and is bound to pay to the plaintiff municipality the
proceeds of one and one-third quarter, for the privilege of gathering whitefish
spawn enjoyed by him in 1931, at the rate of P4,200 a year or P1,400 (P1,050
for one quarter and P350 for one-third of a quarter); but he is, in turn, entitled
to be credited with the sum of P420 deposited by him on December 9, 1930,
and P840 paid by him on June 29, 1931, or the total amount of P1,260. In other
words, appellant Marasigan is bound to pay the sum of P140 to the plaintiff.
In view of the foregoing considerations, this court absolves the defendantsappellants Angel R. Sevilla and Gonzalo L. Luna from the complaint and orders
the defendant-appellant Miguel Marasigan to pay the sum of P140 to the
plaintiff municipality.
It is considered unnecessary to expressly mention appellant Miguel Marasigan's
counterclaim because, as may be seen, he is credited in this judgment with the
sum of P1,260 which is all that he claims therein, without special
pronouncement as to costs. So ordered.

The fourth error is practically disposed of by the same reasons stated in passing
upon the second error.
As to the fifth error, it must be stated that appellant Marasigan really deposited
in the municipal treasury of Gasan, as stated in paragraph 23 of the stipulation
of facts, the sum of P420 on account of his cancelled original contract (Exhibit
A), and that said deposit has not yet been returned to him. Therefore, he is
entitled to be credited with said sum.

Republic of the Philippines

SUPREME COURT
Manila
FIRST DIVISION
45

G.R. No. 165662

May 3, 2006

SELEGNA MANAGEMENT AND DEVELOPMENT CORPORATION; and Spouses

EDGARDO and ZENAIDA ANGELES, Petitioners,
vs.
UNITED COCONUT PLANTERS BANK,* Respondent.
DECISION
PANGANIBAN, CJ:
A writ of preliminary injunction is issued to prevent an extrajudicial foreclosure,
only upon a clear showing of a violation of the mortgagors unmistakable right.
Unsubstantiated allegations of denial of due process and prematurity of a loan
are not sufficient to defeat the mortgagees unmistakable right to an
extrajudicial foreclosure.
The Case
Before us is a Petition for Review1 under Rule 45 of the Rules of Court, assailing
the May 4, 2004 Amended Decision2 and the October 12, 2004 Resolution3 of
the Court of Appeals (CA) in CA-GR SP No. 70966. The challenged Amended
Decision disposed thus:
"WHEREFORE, the Motion for Reconsideration is GRANTED. The July 18, 2003
Decision is hereby REVERSED and SET ASIDE and another one entered
GRANTING the petition and REVERSING and SETTING ASIDE the March 15, 2002
Order of the Regional Trial Court, Branch 58, Makati City in Civil Case No. 991061."4

mortgages over several parcels of land located in the cities of Muntinlupa, Las
Pias, Antipolo and Quezon; and over several condominium units in Makati.
Petitioners were likewise required to execute a promissory note in favor of
respondent every time they availed of the credit facility. As required in these
notes, they paid the interest in monthly amortizations.
The parties stipulated in their Credit Agreement dated September 19,
1995,5 that failure to pay "any availment of the accommodation or interest, or
any sum due" shall constitute an event of default,6 which shall consequently
allow respondent bank to "declare [as immediately due and payable] all
outstanding availments
of the accommodation together with accrued interest and any other sum
payable." 7
In need of further business capital, petitioners obtained from UCPB an increase
in their credit facility.8 For this purpose, they executed a Promissory Note for
P103,909,710.82, which was to mature on March 26, 1999.9 In the same note,
they agreed to an interest rate of 21.75 percent per annum, payable by monthly
amortizations.
On December 21, 1998, respondent sent petitioners a demand letter, worded as
follows:
"Gentlemen:

The assailed Resolution denied reconsideration.

"With reference to your loan with principal outstanding balance of

[P103,909,710.82], it appears from the records of United Coconut Planters Bank
that you failed to pay interest amortizations amounting to [P14,959,525.10] on
the Promissory Note on its due date, 30 May 1998.

The Facts

"x x x

On September 19, 1995, Petitioners Selegna Management and Development

Corporation and Spouses Edgardo and Zenaida Angeles were granted a credit
facility in the amount of P70 million by Respondent United Coconut Planters
Bank (UCPB). As security for this credit facility, petitioners executed real estate

"Accordingly, formal demand is hereby made upon you to pay your outstanding
obligations in the total amount of P14,959,525.10, which includes unpaid
interest and penalties as of 21 December 1998 due on the promissory note,
eight (8) days from date hereof."10

xxx

xxx

46

Respondent decided to invoke the acceleration provision in their Credit

Agreement. Accordingly, through counsel, it relayed its move to petitioners on
January 25, 1999 in a letter, which we quote:
"Gentlemen:
"x x x

xxx

xxx

update their accrued interest charges; and to restructure or, in the alternative,
to negotiate for a takeout of their account.14
On May 25, 1999, the Bank denied petitioners request in these words:
"This is to reply to your letter dated May 20, 1999, which confirms the request
you made the previous day when you paid us a visit.

"It appears from the record of [UCPB] that you failed to pay the monthly
interest due on said obligation since May 30, 1998 as well as the penalty charges
due thereon. Despite repeated demands, you refused and continue to refuse to
pay the same. Under the Credit Agreements/Letter Agreements you executed,
failure to pay when due any installments of the loan or interest or any sum due
thereunder, is an event of default.

"As earlier advised, your account has been referred to external counsel for
appropriate legal action. Demand has also been made for the full settlement of
your account.

"Consequently, we hereby inform you that our client has declared your principal
obligation in the amount of [P103,909,710.82], interest and sums payable under
the Credit Agreement/Letter Agreement/Promissory Note to be immediately
due and payable.

In order to forestall the extrajudicial foreclosure scheduled for May 31, 1999,
petitioners filed a Complaint16(docketed as Civil Case No. 99-1061) for
"Damages, Annulment of Interest, Penalty Increase and Accounting with Prayer
for Temporary Restraining Order/Preliminary Injunction." All subsequent
proceedings in the trial court and in the CA involved only the propriety of issuing
a TRO and a writ of preliminary injunction.

"Accordingly, formal demand is hereby made upon you to please pay within five
(5) days from date hereof or up to January 29, 1999 the principal amount of
[P103,909,710.82], with the interest, penalty and other charges due thereon,
which as of January 25, 1999 amounts to [P17,351,478.55]."11
Respondent sent another letter of demand on March 4, 1999. It contained a
final demand on petitioners "to settle in full *petitioners+ said past due
obligation to [UCPB] within five (5) days from *petitioners+ receipt of *the+
letter."12
In response, petitioners paid respondent the amount of P10,199,473.96 as
partial payment of the accrued interests.13 Apparently unsatisfied, UCPB applied
for extrajudicial foreclosure of petitioners mortgaged properties.
When petitioners received the Notice of Extra Judicial Foreclosure Sale on May
18, 1999, they requested UCPB to give them a period of sixty (60) days to

"We regret that the Bank is unable to grant your request unless a definite offer
is made for settlement."15

Judge Josefina G. Salonga,17 then executive judge of the Regional Trial Court
(RTC) of Makati City, denied the Urgent Ex-parte Motion for Immediate Issuance
of a Temporary Restraining Order (TRO), filed by petitioners. Judge Salonga
denied their motion on the ground that no great or irreparable injury would be
inflicted on them if the parties would first be heard.18 Unsatisfied, petitioners
filed an Ex-Parte Motion for Reconsideration, by reason of which the case was
eventually raffled to Branch 148, presided by Judge Oscar B. Pimentel.19
After due hearing, Judge Pimentel issued an Order dated May 31, 1999, granting
a 20-day TRO on the scheduled foreclosure of the Antipolo properties, on the
ground that the Notice of Foreclosure had indicated an inexistent auction
venue.20 To resolve that issue, respondent filed a Manifestation21 that it would
withdraw all its notices relative to the foreclosure of the mortgaged properties,
and that it would re-post or re-publish a new set of notices. Accordingly, in an
47

Order dated September 6, 1999,22 Judge Pimentel denied petitioners

application for a TRO for having been rendered moot by respondents
Manifestation.23
Subsequently, respondent filed new applications for foreclosure in the cities
where the mortgaged properties were located. Undaunted, petitioners filed
another Motion for the Issuance of a TRO/Injunction and a Supplementary
Motion for the Issuance of TRO/Injunction with Motion to Clarify Order of
September 6, 1999.24
On October 27, 1999, Judge Pimentel issued an Order25 granting a 20-day TRO in
favor of petitioners. After several hearings, he issued his November 26, 1999
Order,26 granting their prayer for a writ of preliminary injunction on the
foreclosures, but only for a period of twenty (20) days. The Order states:
"Admitted by defendant witness is the fact that in all the notices of foreclosure
sale of the properties of the plaintiffs x x x it is stated in each notice that the
property will be sold at public auction to satisfy the mortgage indebtedness of
plaintiffs which as of August 31, 1999 amounts to P131,854,773.98.
"x x x

xxx

xxx

"As the court sees it, this is the problem that should be addressed by the
defendant in this case and in the meantime, the notice of foreclosure sale
should be held in abeyance until such time as these matters are clarified and
cleared by the defendants x x x Should the defendant be able to remedy the
situation this court will have no more alternative but to allow the defendant to
proceed to its intended action.
"x x x

xxx

xxx

"WHEREFORE, premises considered, and finding compelling reason at this point

in time to grant the application for preliminary injunction, the same is hereby
granted upon posting of a preliminary injunction bond in the amount of
P3,500,000.00 duly approved by the court, let a writ of preliminary injunction be
issued."27

The corresponding Writ of Preliminary Injunction28 was issued on November 29,

1999.
Respondent moved for reconsideration. On the other hand, petitioners filed a
Motion to Clarify Order of November 26, 1999. Conceding that the November
26 Order had granted an injunction during the pendency of the case,
respondent contended that the injunctive writ merely restrained it for a period
of 20 (twenty) days.
On December 29, 2000, Judge Pimentel issued an Order29 granting respondents
Motion for Reconsideration and clarifying his November 26, 1999 Order in this
manner:
"There may have been an error in the Writ of Preliminary Injunction issued
dated November 29, 1999 as the same [appeared to be actually] an extension of
the TRO issued by this Court dated 27 October 1999 for another 20 days period.
Plaintiffs seeks to enjoin defendants for an indefinite period pending trial of the
case.
"Be that as it may, the Court actually did not have any intention of restraining
the defendants from foreclosing plaintiff*s+ property for an indefinite period
and during the entire proceeding of the case x x x.
"x x x

xxx

xxx

"What the [c]ourt wanted the defendants to do was to merely modify the notice
of [the] auction sale in order that the amount of P131,854,773.98 x x x would
not appear to be the value of each property being sold on auction. x x x.30
"WHEREFORE, premises considered and after finding merit on the arguments
raised by herein defendants to be impressed with merit, and having stated in
the Order dated 26 November 1999 that no other alternative recourse is
available than to allow the defendants to proceed with their intended action,
the Court hereby rules:

48

"1.+ To give due course to defendant*+s motion for reconsideration, as the same
is hereby GRANTED, however, with reservation that this Order shall take effect
upon after its[] finality[.]"31
Consequently, respondent proceeded with the foreclosure sale of some of the
mortgaged properties. On the other hand, petitioners filed an "[O]mnibus
[M]otion [for Reconsideration] and to [S]pecify the [A]pplication of the P92
[M]illion [R]ealized from the [F]oreclosure [S]ale x x x."32 Before this Omnibus
Motion could be resolved, Judge Pimentel inhibited himself from hearing the
case.33
The case was then re-raffled to Branch 58 of the RTC of Makati City, presided by
Judge Escolastico U. Cruz.34The proceedings before him were, however, all
nullified by the Supreme Court in its En Banc Resolution dated September 18,
2001.35 He was eventually dismissed from service.36
The case was re-raffled to the pairing judge of Branch 58, Winlove M. Dumayas.
On March 15, 2002, Judge Dumayas granted petitioners Omnibus Motion for
Reconsideration and Specification of the Foreclosure Proceeds, as follows:
"WHEREFORE, premises considered, the Motion to Reconsider the Order dated
December 29, 2000 is hereby granted and the Order of November 26, 1999
granting the preliminary injunction is reinstated subject however to the
condition that all properties of plaintiffs which were extrajudicially foreclosed
though public bidding are subject to an accounting. [A]nd for this purpose
defendant bank is hereby given fifteen (15) days from notice hereof to render
an accounting on the proceeds realized from the foreclosure of plaintiffs
mortgaged properties located in Antipolo, Makati, Muntinlupa and Las Pias."37
The aggrieved respondent filed before the Court of Appeals a Petition for
Certiorari, seeking the nullification of the RTC Order dated March 15, 2002, on
the ground that it was issued with grave abuse of discretion.38
The Special Fifteenth Division, speaking through Justice Rebecca de GuiaSalvador, affirmed the ruling of Judge Dumayas. It held that petitioners had a
clear right to an injunction, based on the fact that respondent had kept them in

the dark as to how and why their principal obligation had ballooned to almost
P132 million. The CA held that respondents refusal to give them a detailed
accounting had prevented the determination of the maturity of the obligation
and precluded the possibility of a foreclosure of the mortgaged properties.
Moreover, their payment of P10 million had the effect of updating, and thereby
averting the maturity of, the outstanding obligation.39
Respondent filed a Motion for Reconsideration, which was granted by a Special
Division of Five of the Former Special Fifteenth Division.
Ruling of the Court of Appeals
Citing China Banking Corporation v. Court of Appeals,40 the appellate court held
in its Amended Decision41 that the foreclosure proceedings should not be
enjoined in the light of the clear failure of petitioners to meet their obligations
upon maturity.42
Also citing Zulueta v. Reyes,43 the CA, through Justice Jose Catral Mendoza, went
on to say that a pending question on accounting did not warrant an injunction
on the foreclosure.
Parenthetically, the CA added that petitioners were not without recourse or
protection. Further, it noted their pending action for annulment of interest,
damages and accounting. It likewise said that they could protect themselves by
causing the annotation of lis pendens on the titles of the mortgaged or
foreclosed properties.
In his Separate Concurring Opinion,44 Justice Magdangal M. de Leon added that
a prior accounting was not essential to extrajudicial foreclosure. He cited Abaca
Corporation v. Garcia,45 which had ruled that Act No. 3135 did not require
mortgaged properties to be sold by lot or by only as much as would cover just
the obligation. Thus, he concluded that a request for accounting -- for the
purpose of determining whether the proceeds of the auction would suffice to
cover the indebtedness -- would not justify an injunction on the foreclosure.

49

Petitioners filed a Motion for Reconsideration dated May 31, 2004, which the
appellate court denied.46
Hence, this Petition.47
Issues
Petitioners raise the following issues for our consideration:
p align="center">"I
"Whether or not the Honorable Court of Appeals denied the petitioners of due
process.
"II
"Whether or not the Honorable Court of Appeals supported its Amended
Decision by invoking jurisprudence not applicable and completely identical with
the instant case.
"III
"Whether or not the Honorable Court of Appeals failed to establish its finding
that RTC Judge Winlove Dumayas has acted with grave abuse of discretion."48
The resolution of this case hinges on two issues: 1) whether petitioners are in
default; and 2) whether there is basis for preliminarily enjoining the extrajudicial
foreclosure. The other issues raised will be dealt with in the resolution of these
two main questions.

The resolution of the present controversy necessarily begins with a

determination of respondents right to foreclose the mortgaged properties
extrajudicially.
It is a settled rule of law that foreclosure is proper when the debtors are in
default of the payment of their obligation. In fact, the parties stipulated in their
credit agreements, mortgage contracts and promissory notes that respondent
was authorized to foreclose on the mortgages, in case of a default by
petitioners. That this authority was granted is not disputed.
Mora solvendi, or debtors default, is defined as a delay49 in the fulfillment of an
obligation, by reason of a cause imputable to the debtor.50 There are three
requisites necessary for a finding of default. First, the obligation is demandable
and liquidated; second, the debtor delays performance; third, the creditor
judicially or extrajudicially requires the debtors performance.51
Mortgagors Default of Monthly Interest Amortizations
In the present case, the Promissory Note executed on March 29, 1998, expressly
states that petitioners had an obligation to pay monthly interest on the principal
obligation. From respondents demand letter,52 it is clear and undisputed by
petitioners that they failed to meet those monthly payments since May 30,
1998. Their nonpayment is defined as an "event of default" in the parties Credit
Agreement, which we quote:
"Section 8.01. Events of Default. Each of the following events and occurrences
shall constitute an Event of Default of this AGREEMENT:

The Petition has no merit.

"1. The CLIENT shall fail to pay, when due, any availment of the Accommodation
or interest, or any other sum due thereunder in accordance with the terms
thereof;1avvphil.net

First Issue:

"x x x

Default

"Section 8.02. Consequences of Default. (a) If an Event of Default shall occur and
be continuing, the Bank may:

The Courts Ruling

xxx

x x x"

50

"1. By written notice to the CLIENT, declare all outstanding availments of the
Accommodation together with accrued interest and any other sum payable
hereunder to be immediately due and payable without presentment, demand or
notice of any kind, other than the notice specifically required by this Section, all
of which are expressly waived by the CLIENT[.]"53
Considering that the contract is the law between the parties,54 respondent is
justified in invoking the acceleration clause declaring the entire obligation
immediately due and payable.55 That clause obliged petitioners to pay the entire
loan on January 29, 1999, the date fixed by respondent.56
Petitioners failure to pay on that date set into effect Article IX of the Real Estate
Mortgage,57 worded thus:
"If, at any time, an event of default as defined in the credit agreements,
promissory notes and other related loan documents referred to in paragraph 5
of ARTICLE I hereof (sic), or the MORTGAGOR and/or DEBTOR shall fail or refuse
to pay the SECURED OBLIGATIONS, or any of the amortization of such
indebtedness when due, or to comply any (sic) of the conditions and stipulations
herein agreed, x x x then all the obligations of the MORTGAGOR secured by this
MORTGAGE and all the amortizations thereof shall immediately become due,
payable and defaulted and the MORTGAGEE may immediately foreclose this
MORTGAGE judicially in accordance with the Rules of Court, or extrajudicially in
accordance with Act No. 3135, as amended, and Presidential Decree No. 385.
For the purpose of extrajudicial foreclosure, the MORTGAGOR hereby appoints
the MORTGAGEE his/her/its attorney-in-fact to sell the property mortgaged
under Act No. 3135, as amended, to sign all documents and perform any act
requisite and necessary to accomplish said purpose and to appoint its
substitutes as such attorney-in-fact with the same powers as above specified. x
x x[.]"58
The foregoing discussion satisfactorily shows that UCPB had every right to apply
for extrajudicial foreclosure on the basis of petitioners undisputed and
continuing default.
Petitioners Debt Considered Liquidated Despite the Alleged

Lack of Accounting
Petitioners do not even attempt to deny the aforementioned matters. They
assert, though, that they have a right to a detailed accounting before they can
be declared in default. As regards the three requisites of default, they say that
the first requisite -- liquidated debt -- is absent. Continuing with foreclosure on
the basis of an unliquidated obligation allegedly violates their right to due
process. They also maintain that their partial payment of P10 million averted
the maturity of their obligation.59
On the other hand, respondent asserts that questions regarding the running
balance of the obligation of petitioners are not valid reasons for restraining the
foreclosure. Nevertheless, it maintains that it has furnished them a detailed
monthly statement of account.
A debt is liquidated when the amount is known or is determinable by inspection
of the terms and conditions of the relevant promissory notes and related
documentation.60 Failure to furnish a debtor a detailed statement of account
does not ipso facto result in an unliquidated obligation.
Petitioners executed a Promissory Note, in which they stated that their principal
obligation was in the amount of P103,909,710.82, subject to an interest rate of
21.75 percent per annum.61 Pursuant to the parties Credit Agreement,
petitioners likewise know that any delay in the payment of the principal
obligation will subject them to a penalty charge of one percent per month,
computed from the due date until the obligation is paid in full.62
It is in fact clear from the agreement of the parties that when the payment is
accelerated due to an event of default, the penalty charge shall be based on the
total principal amount outstanding, to be computed from the date of
acceleration until the obligation is paid in full.63 Their Credit Agreement even
provides for the application of payments.64 It appears from the agreements that
the amount of total obligation is known or, at the very least, determinable.
Moreover, when they made their partial payment, petitioners did not question
the principal, interest or penalties demanded from them. They only sought
51

additional time to update their interest payments or to negotiate a possible

restructuring of their account.65 Hence, there is no basis for their allegation that
a statement of account was necessary for them to know their obligation. We
cannot impair respondents right to foreclose the properties on the basis of
their unsubstantiated allegation of a violation of due process.
In Spouses Estares v. CA,66 we did not find any justification to grant a
preliminary injunction, even when the mortgagors were disputing the amount
being sought from them. We held in that case that "[u]pon the nonpayment of
the loan, which was secured by the mortgage, the mortgaged property is
properly subject to a foreclosure sale."67
Compared with Estares, the denial of injunctive relief in this case is even more
imperative, because the present petitioners do not even assail the amounts due
from them. Neither do they contend that a detailed accounting would show that
they are not in default. A pending question regarding the due amount was not a
sufficient reason to enjoin the foreclosure in Estares. Hence, with more reason
should injunction be denied in the instant case, in which there is no dispute as
to the outstanding obligation of petitioners.
At any rate, whether respondent furnished them a detailed statement of
account is a question of fact that this Court need not and will not resolve in this
instance. As held in Zulueta v. Reyes,68 in which there was no genuine
controversy as to the amounts due and demandable, the foreclosure should not
be restrained by the unnecessary question of accounting.
Maturity of the Loan Not Averted by Partial Compliance with Respondents
Demand
Petitioners allege that their partial payment of P10 million on March 25, 1999,
had the effect of forestalling the maturity of the loan;69 hence the foreclosure
proceedings are premature. 70 We disagree.
To be sure, their partial payment did not extinguish the obligation. The Civil
Code states that a debt is not paid "unless the thing x x x in which the obligation

consists has been completely delivered x x x."71 Besides, a late partial payment
could not have possibly forestalled a long-expired maturity date.
The only possible legal relevance of the partial payment was to evidence the
mortgagees amenability to granting the mortgagor a grace period. Because the
partial payment would constitute a waiver of the mortgagees vested right to
foreclose, the grant of a grace period cannot be casually assumed;72 the banks
agreement must be clearly shown. Without a doubt, no express agreement was
entered into by the parties. Petitioners only assumed that their partial payment
had satisfied respondents demand and obtained for them more time to update
their account.73
Petitioners are mistaken. When creditors receive partial payment, they are not
ipso facto deemed to have abandoned their prior demand for full payment.
Article 1235 of the Civil Code provides:
"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."
Thus, to imply that creditors accept partial payment as complete performance
of their obligation, their acceptance must be made under circumstances that
indicate their intention to consider the performance complete and to renounce
their claim arising from the defect.74
There are no circumstances that would indicate a renunciation of the right of
respondent to foreclose the mortgaged properties extrajudicially, on the basis
of petitioners continuing default. On the contrary, it asserted its right by filing
an application for extrajudicial foreclosure after receiving the partial payment.
Clearly, it did not intend to give petitioners more time to meet their obligation.
Parenthetically, respondent cannot be reproved for accepting their partial
payment. While Article 1248 of the Civil Code states that creditors cannot be
compelled to accept partial payments, it does not prohibit them from accepting
such payments.

52

Second Issue:
Enjoining the Extrajudicial Foreclosure
A writ of preliminary injunction is a provisional remedy that may be resorted to
by litigants, only to protect or preserve their rights or interests during the
pendency of the principal action. To authorize a temporary injunction, the
plaintiff must show, at least prima facie, a right to the final relief.75 Moreover, it
must show that the invasion of the right sought to be protected is material and
substantial, and that there is an urgent and paramount necessity for the writ to
prevent serious damage.76
In the absence of a clear legal right, the issuance of the injunctive writ
constitutes grave abuse of discretion. Injunction is not designed to protect
contingent or future rights. It is not proper when the complainants right is
doubtful or disputed.77
As a general rule, courts should avoid issuing this writ, which in effect disposes
of the main case without trial.78 In Manila International Airport Authority v.
CA,79 we urged courts to exercise caution in issuing the writ, as follows:
"x x x. We remind trial courts that while generally the grant of a writ of
preliminary injunction rests on the sound discretion of the court taking
cognizance of the case, extreme caution must be observed in the exercise of
such discretion. The discretion of the court a quo to grant an injunctive writ
must be exercised based on the grounds and in the manner provided by law.
Thus, the Court declared in Garcia v. Burgos:
It has been consistently held that there is no power the exercise of which is
more delicate, which requires greater caution, deliberation and sound
discretion, or more dangerous in a doubtful case, than the issuance of an
injunction. It is the strong arm of equity that should never be extended unless to
cases of great injury, where courts of law cannot afford an adequate or
commensurate remedy in damages.

Every court should remember that an injunction is a limitation upon the

freedom of action of the defendant and should not be granted lightly or
precipitately. It should be granted only when the court is fully satisfied that the
law permits it and the emergency demands it."80 (Citations omitted)
Petitioners do not have any clear right to be protected. As shown in our earlier
findings, they failed to substantiate their allegations that their right to due
process had been violated and the maturity of their obligation forestalled. Since
they indisputably failed to meet their obligations in spite of repeated demands,
we hold that there is no legal justification to enjoin respondent from enforcing
its undeniable right to foreclose the mortgaged properties.
In any case, petitioners will not be deprived outrightly of their property.
Pursuant to Section 47 of the General Banking Law of 2000,81 mortgagors who
have judicially or extrajudicially sold their real property for the full or partial
payment of their obligation have the right to redeem the property within one
year after the sale. They can redeem their real estate by paying the amount due,
with interest rate specified, under the mortgage deed; as well as all the costs
and expenses incurred by the bank.82
Moreover, in extrajudicial foreclosures, petitioners have the right to receive any
surplus in the selling price. This right was recognized in Sulit v. CA,83 in which the
Court held that "if the mortgagee is retaining more of the proceeds of the sale
than he is entitled to, this fact alone will not affect the validity of the sale but
simply gives the mortgagor a cause of action to recover such surplus."84
Petitioners failed to demonstrate the prejudice they would probably suffer by
reason of the foreclosure. Also, it is clear that they would be adequately
protected by law. Hence, we find no legal basis to reverse the assailed Amended
Decision of the CA dated May 4, 2004.
WHEREFORE, the Petition is DENIED and the assailed Amended Decision and
Resolution AFFIRMED. Costs against petitioners.
SO ORDERED.

53

Rizal Commercial Banking Corp. vs. Arro, 115 SCRA 777, No. L-49401, July 30,
1982

G.R. No. L-49401 July 30, 1982

RIZAL COMMERCIAL BANKING CORPORATION, petitioner,
vs.
HON. JOSE P. ARRO, Judge of the Court of First instance of Davao, and
RESIDORO CHUA,respondents.
Laurente C. Ilagan for petitioner.
Victor A. Clapano for respondents.

DE CASTRO, J.:
Petition for certiorari to annul the orders of respondent judge dated October 6,
1978 and November 7, 1978 in Civil Case No. 11-154 of the Court of First
Instance of Davao, which granted the motion filed by private respondent to
dismiss the complaint of petitioner for a sum of money, on the ground that the
complaint states no cause of action as against private respondent.
After the petition had been filed, petitioner, on December 14, 1978 mailed a
manifestation and motion requesting the special civil action for certiorari be
treated as a petition for review. 1 Said manifestation and motion was noted in
the resolution of January 10, 1979. 2
It appears that on October 19, 1976 Residoro Chua and Enrique Go, Sr. executed
a comprehensive surety agreements 3 to guaranty among others, any existing

indebtedness of Davao Agricultural Industries Corporation (referred to therein

as Borrower, and as Daicor in this decision), and/or induce the bank at any time
or from time to time thereafter, to make loans or advances or to extend credit
in other manner to, or at the request, or for the account of the Borrower, either
with or without security, and/or to purchase on discount, or to make any loans
or advances evidenced or secured by any notes, bills, receivables, drafts,
acceptances, checks or other evidences of indebtedness (all hereinafter called
"instruments") upon which the Borrower is or may become liable, provided that
the liability shall not exceed at any one time the aggregate principal sum of
P100,000.00.
On April 29, 1977 a promissory note 4 in the amount of P100,000.00 was issued
in favor of petitioner payable on June 13, 1977. Said note was signed by Enrique
Go, Sr. in his personal capacity and in behalf of Daicor. The promissory note was
not fully paid despite repeated demands; hence, on June 30, 1978, petitioner
filed a complaint for a sum of money against Daicor, Enrique Go, Sr. and
Residoro Chua. A motion to dismiss dated September 23, 1978 was filed by
respondent Residoro Chua on the ground that the complaint states no cause of
action as against him. 5 It was alleged in the motion that he can not be held
liable under the promissory note because it was only Enrique Go, Sr. who signed
the same in behalf of Daicor and in his own personal capacity.
In an opposition dated September 26, 1978 6 petitioner alleged that by virtue of
the execution of the comprehensive surety agreement, private respondent is
liable because said agreement covers not merely the promissory note subject of
the complaint, but is continuing; and it encompasses every other indebtedness
the Borrower may, from time to time incur with petitioner bank.
On October 6, 1978 respondent court rendered a decision granting private
respondent's motion to dismiss the complaint. 7 Petitioner filed a motion for
reconsideration dated October 12, 1978 and on November 7, 1978 respondent
court issued an order denying the said motion. 8
The sole issue resolved by respondent court was the interpretation of the
comprehensive surety agreement, particularly in reference to the indebtedness
54

evidenced by the promissory note involved in the instant case, said

comprehensive surety agreement having been signed by Enrique Go, Sr. and
private respondent, binding themselves as solidary debtors of said corporation
not only to existing obligations but to future ones. Respondent court said that
corollary to that agreement must be another instrument evidencing the
obligation in a form of a promissory note or any other evidence of indebtedness
without which the said agreement serves no purpose; that since the promissory
notes, which is primarily the basis of the cause of action of petitioner, is not
signed by private respondent, the latter can not be liable thereon.
Contesting the aforecited decision and order of respondent judge, the present
petition was filed before this Court assigning the following as errors committed
by respondent court:
1. That the respondent court erred in dismissing the complaint against Chua
simply on the reasons that 'Chua is not a signatory to the promissory note" of
April 29, 1977, or that Chua could not be held liable on the note under the
provisions of the comprehensive surety agreement of October 29, 1976; and/or
2. That the respondent court erred in interpreting the provisions of the
Comprehensive Surety Agreement towards the conclusion that respondent
Chua is not liable on the promissory note because said note is not conformable
to the Comprehensive Surety Agreement; and/or
3. That the respondent court erred in ordering that there is no cause of action
against respondent Chua in the petitioner's complaint.
The main issue involved in this case is whether private respondent is liable to
pay the obligation evidence by the promissory note dated April 29,1977 which
he did not sign, in the light of the provisions of the comprehensive surety
agreement which petitioner and private respondent had earlier executed on
October 19, 1976.
We find for the petitioner. The comprehensive surety agreement was jointly
executed by Residoro Chua and Enrique Go, Sr., President and General
Manager, respectively of Daicor, on October 19, 1976 to cover existing as well as

future obligations which Daicor may incur with the petitioner bank, subject only
to the proviso that their liability shall not exceed at any one time the aggregate
principal sum of P100,000.00. Thus, paragraph I of the agreement provides:
For and in consideration of any existing indebtedness to you of Davao
Agricultural Industries Corporation with principal place of business and postal
address at 530 J. P. Cabaguio Ave., Davao City (hereinafter called the
"Borrower), and/or in order to induce, you in your discretion, at any time or
from time to time hereafter, to make loans or advances or to extend credit in
any other manner to, or at he request or for the account of the Borrower, either
with or without security, and/or to purchase or discount or to make any loans or
advances evidenced or secured by any notes, bills, receivables, drafts,
acceptances, checks or other instruments or evidences of indebtedness (all
hereinafter called "instruments") upon which the Borrower is or may become
liable as maker, endorser, acceptor, or otherwise) the undersigned agrees to
guarantee, and does hereby guarantee in joint and several capacity, the
punctual payment at maturity to you of any and all such instruments, loans,
advances, credits and/or other obligations herein before referred to, and also
any and all other indebtedness of every kind which is now or may hereafter
become due or owing to you by the Borrower, together with any and all
expenses which may be incurred by you in collecting an such instruments or
other indebtedness or obligations hereinbefore referred to ..., provided,
however, that the liability of the undersigned shag not exceed at any one time
the aggregate principal sum of P100,000.00 ...
The agreement was executed obviously to induce petitioner to grant any
application for a loan Daicor may desire to obtain from petitioner bank. The
guaranty is a continuing one which shall remain in full force and effect until the
bank is notified of its termination.
This is a continuing guaranty and shall remain in fun force and effect until
written notice shall have been received by you that it has been revoked by the
undersigned, ... 9

55

At the time the loan of P100,000.00 was obtained from petitioner by Daicor, for
the purpose of having an additional capital for buying and selling coco-shell
charcoal and importation of activated carbon, 10 the comprehensive surety
agreement was admittedly in full force and effect. The loan was, therefore,
covered by the said agreement, and private respondent, even if he did not sign
the promisory note, is liable by virtue of the surety agreement. The only
condition that would make him liable thereunder is that the Borrower "is or may
become liable as maker, endorser, acceptor or otherwise". There is no doubt
that Daicor is liable on the promissory note evidencing the indebtedness.
The surety agreement which was earlier signed by Enrique Go, Sr. and private
respondent, is an accessory obligation, it being dependent upon a principal one
which, in this case is the loan obtained by Daicor as evidenced by a promissory
note. What obviously induced petitioner bank to grant the loan was the surety
agreement whereby Go and Chua bound themselves solidarily to guaranty the
punctual payment of the loan at maturity. By terms that are unequivocal, it can
be clearly seen that the surety agreement was executed to guarantee future
debts which Daicor may incur with petitioner, as is legally allowable under the
Civil Code. Thus
Article 2053. A guaranty may also be given as security for future debts, the
amount of which is not yet known; there can be no claim against the guarantor
until the debt is liquidated. A conditional obligation may also be secured.
In view of the foregoing, the decision (which should have been a mere "order"),
dismissing the complaint is reversed and set side. The case is remanded to the
court of origin with instructions to set aside the motion to dismiss, and to
require defendant Residoro Chua to answer the complaint after which the case
shall proceed as provided by the Rules of Court. No costs.

FIRST DIVISION
[G.R. No. 113564. June 20, 2001]
INOCENCIA YU DINO and her HUSBAND doing business under the trade name
"CANDY CLAIRE FASHION GARMENTS", petitioners, vs. COURT OF APPEALS and
ROMAN SIO, doing business under the name "UNIVERSAL TOY MASTER
MANUFACTURING", respondents.
D E C I S I O N*

SO ORDERED.
PUNO, J.:
Though people say, "better late than never", the law frowns upon those who
assert their rights past the eleventh hour. For failing to timely institute their
56

action, the petitioners are forever barred from claiming a sum of money from
the respondent.
This is a petition for review on certiorari to annul and set aside the amended
decision of the respondent court dated January 24, 1994 reversing its April 30,
1993 decision and dismissing the plaintiff-petitioners' Complaint on the ground
of prescription.
The following undisputed facts gave rise to the case at bar:
Petitioners spouses Dino, doing business under the trade name "Candy Claire
Fashion Garment" are engaged in the business of manufacturing and selling
shirts.[1] Respondent Sio is part owner and general manager of a manufacturing
corporation doing business under the trade name "Universal Toy Master
Manufacturing."[2]

"WHEREFORE, judgment is hereby rendered in favor of the plaintiffs Vicente and

Inocencia Dino and against defendant Toy Master Manufacturing, Inc. ordering
the latter to pay the former:
1. The amount of Two Hundred Eight Thousand Four Hundred Four
(P208,404.00) Pesos with legal interest thereon from July 5, 1989, until fully
paid; and
2. The amount of Twenty Thousand (P20,000.00) Pesos as attorney's fees and
the costs of this suit.
The counterclaim on the other hand is hereby dismissed for lack of merit."[10]

Petitioners and respondent Sio entered into a contract whereby the latter
would manufacture for the petitioners 20,000 pieces of vinyl frogs and 20,000
pieces of vinyl mooseheads at P7.00 per piece in accordance with the sample
approved by the petitioners. These frogs and mooseheads were to be attached
to the shirts petitioners would manufacture and sell.[3]

Respondent Sio sought recourse in the Court of Appeals. In its April 30, 1993
decision, the appellate court affirmed the trial court decision. Respondent then
filed a Motion for Reconsideration and a Supplemental Motion for
Reconsideration alleging therein that the petitioners' action for collection of
sum of money based on a breach of warranty had already prescribed. On
January 24, 1994, the respondent court reversed its decision and dismissed
petitioners' Complaint for having been filed beyond the prescriptive period. The
amended decision read in part, viz:

Respondent Sio delivered in several installments the 40,000 pieces of frogs and
mooseheads. The last delivery was made on September 28, 1988. Petitioner
fully paid the agreed price.[4] Subsequently, petitioners returned to respondent
29,772 pieces of frogs and mooseheads for failing to comply with the approved
sample.[5] The return was made on different dates: the initial one on December
12, 1988 consisting of 1,720 pieces,[6] the second on January 11, 1989,[7] and the
last on January 17, 1989.[8]

"Even if there is failure to raise the affirmative defense of prescription in a

motion to dismiss or in an appropriate pleading (answer, amended or
supplemental answer) and an amendment would no longer be feasible, still
prescription, if apparent on the face of the complaint may be favorably
considered (Spouses Matias B. Aznar, III, et al. vs. Hon. Juanito A. Bernad, etc.,
supra, G.R. 81190, May 9, 1988). The rule in Gicano vs. Gegato (supra) was
reiterated in Severo v. Court of Appeals, (G.R. No. 84051, May 19, 1989).

Petitioners then demanded from the respondent a refund of the purchase price
of the returned goods in the amount of P208,404.00. As respondent Sio refused
to pay,[9] petitioners filed on July 24, 1989 an action for collection of a sum of
money in the Regional Trial Court of Manila, Branch 38.

WHEREFORE the Motion For Reconsideration is granted. The judgment of this

Court is set aside and judgment is hereby rendered REVERSING the judgment of
the trial court and dismissing plaintiff's complaint."[11]

The trial court ruled in favor of the petitioners, viz:

Hence, this petition with the following assignment of errors:

I.
57

The respondent Court of Appeals seriously erred in dismissing the complaint of

the Petitioners on the ground that the action had prescribed.
II.
The respondent Court of Appeals seriously erred in holding that the defense of
prescription would still be considered despite the fact that it was not raised in
the answer, if apparent on the face of the complaint.
We first determine the nature of the action filed in the trial court to resolve the
issue of prescription. Petitioners claim that the Complaint they filed in the trial
court on July 24, 1989 was one for the collection of a sum of
money. Respondent contends that it was an action for breach of warranty as the
sum of money petitioners sought to collect was actually a refund of the
purchase price they paid for the alleged defective goods they bought from the
respondent.
We uphold the respondent's contention.
The following provisions of the New Civil Code are apropos:
"Art. 1467. A contract for the delivery at a certain price of an article which the
vendor in the ordinary course of his business manufactures or procures for the
general market, whether the same is on hand at the time or not, is a contract of
sale, but if the goods are to be manufactured specially for the customer and
upon his special order, and not for the general market, it is a contract for a piece
of work."
"Art. 1713. By the contract for a piece of work the contractor binds himself to
execute a piece of work for the employer, in consideration of a certain price or
compensation. The contractor may either employ only his labor or skill, or also
furnish the material."
As this Court ruled in Engineering & Machinery Corporation v. Court of
Appeals, et al.,[12] "a contract for a piece of work, labor and materials may be
distinguished from a contract of sale by the inquiry as to whether the thing
transferred is one not in existence and which would never have existed but for

the order of the person desiring it. In such case, the contract is one for a piece
of work, not a sale. On the other hand, if the thing subject of the contract
would have existed and been the subject of a sale to some other person even if
the order had not been given then the contract is one of sale."[13] The contract
between the petitioners and respondent stipulated that respondent would
manufacture upon order of the petitioners 20,000 pieces of vinyl frogs and
20,000 pieces of vinyl mooseheads according to the samples specified and
approved by the petitioners. Respondent Sio did not ordinarily manufacture
these products, but only upon order of the petitioners and at the price agreed
upon.[14] Clearly, the contract executed by and between the petitioners and the
respondent was a contract for a piece of work. At any rate, whether the
agreement between the parties was one of a contract of sale or a piece of work,
the provisions on warranty of title against hidden defects in a contract of sale
apply to the case at bar, viz:
"Art. 1714. If the contractor agrees to produce the work from material
furnished by him, he shall deliver the thing produced to the employer and
transfer dominion over the thing. This contract shall be governed by the
following articles as well as by the pertinent provisions on warranty of title and
against hidden defects and the payment of price in a contract of sale."
"Art. 1561. The vendor shall be responsible for warranty against the hidden
defects which the thing sold may have, should they render it unfit for the use
for which it is intended, or should they diminish its fitness for such use to such
an extent that, had the vendee been aware thereof, he would not have acquired
it or would have given a lower price for it; but said vendor shall not be
answerable for patent defects or those which may be visible, or for those which
are not visible if the vendee is an expert who, by reason of his trade or
profession, should have known them."
Petitioners aver that they discovered the defects in respondent's products when
customers in their (petitioners') shirt business came back to them complaining
that the frog and moosehead figures attached to the shirts they bought were
torn. Petitioners allege that they did not readily see these hidden defects upon
their acceptance. A hidden defect is one which is unknown or could not have
58

been known to the vendee.[15] Petitioners then returned to the respondent

29,772 defective pieces of vinyl products and demanded a refund of their
purchase price in the amount ofP208,404.00. Having failed to collect this
amount, they filed an action for collection of a sum of money.

Thus, they claim that since the respondent failed to raise the defense of
prescription in a motion to dismiss or in its answer, it is deemed waived and
cannot be raised for the first time on appeal in a motion for reconsideration of
the appellate court's decision.

Article 1567 provides for the remedies available to the vendee in case of hidden
defects, viz:

As a rule, the defense of prescription cannot be raised for the first time on
appeal. Thus, we held in Ramos v. Osorio,[18] viz:

"Art. 1567. In the cases of Articles 1561, 1562, 1564, 1565 and 1566, the
vendee may elect between withdrawing from the contract and demanding a
proportionate reduction of the price, with damages in either case."

"It is settled law in this jurisdiction that the defense of prescription is waivable,
and that if it was not raised as a defense in the trial court, it cannot be
considered on appeal, the general rule being that the appellate court is not
authorized to consider and resolve any question not properly raised in the lower
court (Subido vs. Lacson, 55 O.G. 8281, 8285; Moran, Comments on the Rules of
Court, Vol. I, p. 784, 1947 Edition)."

By returning the 29,772 pieces of vinyl products to respondent and asking for a
return of their purchase price, petitioners were in effect "withdrawing from the
contract" as provided in Art. 1567. The prescriptive period for this kind of
action is provided in Art. 1571 of the New Civil Code, viz:
"Art. 1571. Actions arising from the provisions of the preceding ten articles shall
be barred after six months from the delivery of the thing sold." (Emphasis
supplied)
There is no dispute that respondent made the last delivery of the vinyl products
to petitioners on September 28, 1988. It is also settled that the action to
recover the purchase price of the goods petitioners returned to the respondent
was filed on July 24, 1989,[16] more than nine months from the date of last
delivery. Petitioners having filed the action three months after the six-month
period for filing actions for breach of warranty against hidden defects stated in
Art. 1571,[17] the appellate court dismissed the action.
Petitioners fault the ruling on the ground that it was too late in the day for
respondent to raise the defense of prescription. The law then applicable to the
case at bar, Rule 9, Sec. 2 of the Rules of Court, provides:
"Defenses and objections not pleaded either in a motion to dismiss or in the
answer are deemed waived; except the failure to state a cause of action . . . "

However, this is not a hard and fast rule. In Gicano v. Gegato,[19] we held:
". . .(T)rial courts have authority and discretion to dimiss an action on the
ground of prescription when the parties' pleadings or other facts on record
show it to be indeed time-barred; (Francisco v. Robles, Feb, 15, 1954; Sison v.
McQuaid, 50 O.G. 97; Bambao v. Lednicky, Jan. 28, 1961; Cordova v. Cordova,
Jan. 14, 1958; Convets, Inc. v. NDC, Feb. 28, 1958; 32 SCRA 529; Sinaon v.
Sorongan, 136 SCRA 408); and it may do so on the basis of a motion to dismiss
(Sec. 1,f, Rule 16, Rules of Court), or an answer which sets up such ground as an
affirmative defense (Sec. 5, Rule 16), or even if the ground is alleged after
judgment on the merits, as in a motion for reconsideration (Ferrer v. Ericta, 84
SCRA 705); or even if the defense has not been asserted at all, as where no
statement thereof is found in the pleadings (Garcia v. Mathis, 100 SCRA 250;
PNB v. Pacific Commission House, 27 SCRA 766; Chua Lamco v. Dioso, et al., 97
Phil. 821); or where a defendant has been declared in default (PNB v. Perez, 16
SCRA 270). What is essential only, to repeat, is that the facts demonstrating
the lapse of the prescriptive period be otherwise sufficiently and satisfactorily
apparent on the record; either in the averments of the plaintiff's complaint, or
otherwise established by the evidence." (emphasis supplied)

59

In Aldovino, et al. v. Alunan, et al.,[20] the Court en banc reiterated the Garcia v.
Mathis doctrine cited in theGicano case that when the plaintiff's own complaint
shows clearly that the action has prescribed, the action may be dismissed even
if the defense of prescription was not invoked by the defendant.
It is apparent in the records that respondent made the last delivery of vinyl
products to the petitioners on September 28, 1988. Petitioners admit this in
their Memorandum submitted to the trial court and reiterate it in their Petition
for Review.[21] It is also apparent in the Complaint that petitioners instituted their
action on July 24, 1989. The issue for resolution is whether or not the
respondent Court of Appeals could dismiss the petitioners' action if the defense
of prescription was raised for the first time on appeal but is apparent in the
records.
Following the Gicano doctrine that allows dismissal of an action on the ground
of prescription even after judgment on the merits, or even if the defense was
not raised at all so long as the relevant dates are clear on the record, we rule
that the action filed by the petitioners has prescribed. The dates of delivery and
institution of the action are undisputed. There are no new issues of fact arising
in connection with the question of prescription, thus carving out the case at bar
as an exception from the general rule that prescription if not impleaded in the
answer is deemed waived.[22]

This Court's application of the Osorio and Gicano doctrines to the case at bar is
confirmed and now enshrined in Rule 9, Sec. 1 of the 1997 Rules of Civil
Procedure, viz:
"Section 1. Defense and objections not pleaded. - Defenses and objections not
pleaded whether in a motion to dismiss or in the answer are deemed
waived. However, when it appears from the pleadings that the court has no
jurisdiction over the subject matter, that there is another action pending
between the same parties for the same cause, or that the action is barred by a
prior judgment or by statute of limitations, the court shall dismiss the claim."
(Emphasis supplied)
WHEREFORE, the petition is DENIED and the impugned decision of the Court of
Appeals dated January 24, 1994 is AFFIRMED. No costs.
SO ORDERED.

Even if the defense of prescription was raised for the first time on appeal in
respondent's Supplemental Motion for Reconsideration of the appellate court's
decision, this does not militate against the due process right of the
petitioners. On appeal, there was no new issue of fact that arose in connection
with the question of prescription, thus it cannot be said that petitioners were
not given the opportunity to present evidence in the trial court to meet a factual
issue. Equally important, petitioners had the opportunity to oppose the defense
of prescription in their Opposition to the Supplemental Motion for
Reconsideration filed in the appellate court and in their Petition for Review in
this Court.

60

surety agreement being limited to US$333,830.00, while the second one is

limited to US$334,087.00.

SECOND DIVISION
[G.R. No. 103066. April 25, 1996]
WILLEX PLASTIC INDUSTRIES, CORPORATION, petitioner, vs. HON. COURT OF
APPEALS and INTERNATIONAL CORPORATE BANK, respondents.
DECISION
MENDOZA, J.:
This is a petition for review on certiorari of the decision[1] of the Court of Appeals
in C.A.-G.R. CV No. 19094, affirming the decision of the Regional Trial Court of
the National Capital Judicial Region, Branch XLV, Manila, which ordered
petitioner Willex Plastic Industries Corporation and the Inter-Resin Industrial
Corporation, jointly and severally, to pay private respondent International
Corporate Bank certain sums of money, and the appellate courts resolution of
October 17, 1989 denying petitioners motion for reconsideration.
The facts are as follows:
Sometime in 1978, Inter-Resin Industrial Corporation opened a letter of credit
with the Manila Banking Corporation. To secure payment of the credit
accommodation, Inter-Resin Industrial and the Investment and Underwriting
Corporation of the Philippines (IUCP) executed two documents, both entitled
Continuing Surety Agreement and dated December 1, 1978, whereby they
bound themselves solidarily to pay Manilabank obligations of every kind, on
which the [Inter-Resin Industrial] may now be indebted or hereafter become
indebted to the *Manilabank+. The two agreements (Exhs. J and K) are the
same in all respects, except as to the limit of liability of the surety, the first

On April 2, 1979, Inter-Resin Industrial, together with Willex Plastic Industries

Corp., executed a Continuing Guaranty in favor of IUCP whereby For and in
consideration of the sum or sums obtained and/or to be obtained by Inter-Resin
Industrial Corporation from IUCP, Inter-Resin Industrial and Willex Plastic
jointly and severally guaranteed the prompt and punctual payment at maturity
of the NOTE/S issued by the DEBTOR/S . . . to the extent of the aggregate
principal sum of FIVE MILLION PESOS (P5,000,000.00) Philippine Currency and
such interests, charges and penalties as hereafter may be specified.
On January 7, 1981, following demand upon it, IUCP paid to Manilabank the
sum of P4,334,280.61 representing Inter-Resin Industrials outstanding
obligation. (Exh. M-1) On February 23 and 24, 1981, Atrium Capital Corp., which
in the meantime had succeeded IUCP, demanded from Inter-Resin Industrial
and Willex Plastic the payment of what it (IUCP) had paid to Manilabank. As
neither one of the sureties paid, Atrium filed this case in the court below against
Inter-Resin Industrial and Willex Plastic.
On August 11, 1982, Inter-Resin Industrial paid Interbank, which had in turn
succeeded Atrium, the sum of P687,500.00 representing the proceeds of its fire
insurance policy for the destruction of its properties.
In its answer, Inter-Resin Industrial admitted that the Continuing Guaranty
was intended to secure payment to Atrium of the amount of P4,334,280.61
which the latter had paid to Manilabank. It claimed, however, that it had
already fully paid its obligation to Atrium Capital.
On the other hand, Willex Plastic denied the material allegations of the
complaint and interposed the following Special Affirmative Defenses:
(a) Assuming arguendo that main defendant is indebted to plaintiff, the formers
liability is extinguished due to the accidental fire that destroyed its premises,
which liability is covered by sufficient insurance assigned to plaintiff;

61

(b) Again, assuming arguendo, that the main defendant is indebted to plaintiff,
its account is now very much lesser than those stated in the complaint because
of some payments made by the former;

Conduct Hearing and to Receive Evidence to Resolve Factual Issues and to Defer
Filing of the Appellants Brief. After its motion was denied, Inter-Resin
Industrial did not file its brief anymore.

(c) The complaint states no cause of action against WILLEX;

On February 22, 1991, the Court of Appeals rendered a decision affirming the
ruling of the trial court.

(d) WILLEX is only a guarantor of the principal obligor, and thus, its liability is
only secondary to that of the principal;
(e) Plaintiff failed to exhaust the ultimate remedy in pursuing its claim against
the principal obligor;
(f) Plaintiff has no personality to sue.
On April 29, 1986, Interbank was substituted as plaintiff in the action. The case
then proceeded to trial.
On March 4, 1988, the trial court declared Inter-Resin Industrial to have waived
the right to present evidence for its failure to appear at the hearing despite due
notice. On the other hand, Willex Plastic rested its case without presenting any
evidence. Thereafter Interbank and Willex Plastic submitted their respective
memoranda.
On April 5, 1988, the trial court rendered judgment, ordering Inter-Resin
Industrial and Willex Plastic jointly and severally to pay to Interbank the
following amounts:

Willex Plastic filed a motion for reconsideration praying that it be allowed to

present evidence to show that Inter-Resin Industrial had already paid its
obligation to Interbank, but its motion was denied on December 6, 1991:
The motion is denied for lack of merit. We denied defendant-appellant InterResin Industrials motion for reception of evidence because the situation or
situations in which we could exercise the power under B.P. 129 did not
exist. Movant here has not presented any argument which would show
otherwise.
Hence, this petition by Willex Plastic for the review of the decision of February
22, 1991 and the resolution of December 6,1991 of the Court of Appeals.
Petitioner raises a number of issues.
*1+ The main issue raised is whether under the Continuing Guaranty signed on
April 2, 1979 petitioner Willex Plastic may be held jointly and severally liable
with Inter-Resin Industrial for the amount paid by Interbank to Manilabank.

(c) Attorneys fees and expenses of litigation equivalent to 20% of the total
amount due.

As already stated, the amount had been paid by Interbanks predecessor-ininterest, Atrium Capital, to Manilabank pursuant to the Continuing Surety
Agreements made on December 1, 1978. In denying liability to Interbank for
the amount, Willex Plastic argues that under the Continuing Guaranty, its
liability is for sums obtained by Inter-Resin Industrial from Interbank, not for
sums paid by the latter to Manilabank for the account of Inter-Resin Industrial.
In support of this contention Willex Plastic cites the following portion of the
Continuing Guaranty:

Inter-Resin Industrial and Willex Plastic appealed to the Court of Appeals. Willex
Plastic filed its brief, while Inter-Resin Industrial presented a Motion to

For and in consideration of the sums obtained and/or to be obtained by INTERRESIN INDUSTRIAL CORPORATION, hereinafter referred to as the DEBTOR/S,

(a) P3,646,780.61, representing their indebtedness to the plaintiff, with interest

of 17% per annum from August 11, 1982, when Inter-Resin Industrial paid
P687,500.00 to the plaintiff, until full payment of the said amount;
(b) Liquidated damages equivalent to 17% of the amount due; and

62

from you and/or your principal/s as may be evidenced by promissory note/s,

checks, bills receivable/s and/or other evidence/s of indebtedness (hereinafter
referred to as the NOTE/S), I/We hereby jointly and severally and
unconditionally guarantee unto you and/or your principal/s, successor/s and
assigns the prompt and punctual payment at maturity of the NOTE/S issued by
the DEBTOR/S in your and/or your principal/s, successor/s and assigns favor to
the extent of the aggregate principal sum of FIVE MILLION PESOS
(P5,000,000.00), Philippine Currency, and such interests, charges and penalties
as may hereinafter be specified.
The contention is untenable. What Willex Plastic has overlooked is the fact that
evidence aliunde was introduced in the trial court to explain that it was actually
to secure payment to Interbank (formerly IUCP) of amounts paid by the latter to
Manilabank that the Continuing Guaranty was executed. In its complaint
below, Interbanks predecessor-in-interest. Atrium Capital, alleged:
5. to secure the guarantee made by plaintiff of the credit accommodation
granted to defendant IRIC [Inter-Resin Industrial] by Manilabank, the plaintiff
required defendant IRIC [Inter-Resin Industrial] to execute a chattel mortgage in
its favor and a Continuing Guaranty which was signed by the other defendant
WPIC [Willex Plastic].
In its answer, Inter-Resin Industrial admitted this allegation although it claimed
that it had already paid its obligation in its entirety. On the other hand, Willex
Plastic, while denying the allegation in question, merely did so for lack of
knowledge or information of the same. But, at the hearing of the case on
September 16, 1986, when asked by the trial judge whether Willex Plastic had
not filed a crossclaim against Inter-Resin Industrial, Willex Plastics counsel
replied in the negative and manifested that the plaintiff in this case *Interbank+
is the guarantor and my client [Willex Plastic] only signed as a guarantor to the
guarantee.[2]
For its part Interbank adduced evidence to show that the Continuing Guaranty
had been made to guarantee payment of amounts made by it to Manilabank
and not of any sums given by it as loan to Inter-Resin Industrial. Interbanks

witness testified under cross- examination by counsel for Willex Plastic that
Willex guaranteed the exposure/of whatever exposure of ACP *Atrium Capital+
will later be made because of the guarantee to Manila Banking Corporation.[3]
It has been held that explanatory evidence may be received to show the
circumstances under which a document has been made and to what debt it
relates.[4] At all events, Willex Plastic cannot now claim that its liability is limited
to any amount which Interbank, as creditor, might give directly to Inter-Resin
Industrial as debtor because, by failing to object to the parol evidence
presented, Willex Plastic waived the protection of the parol evidence rule.[5]
Accordingly, the trial court found that it was to secure the guarantee made by
plaintiff of the credit accommodation granted to defendant IRIC [Inter-Resin
Industrial] by Manilabank, [that] the plaintiff required defendant IRIC to execute
a chattel mortgage in its favor and a Continuing Guaranty which was signed by
the defendant Willex Plastic Industries Corporation.[6]
Similarly, the Court of Appeals found it to be an undisputed fact that to secure
the guarantee undertaken by plaintiff-appellee [Interbank] of the credit
accommodation granted to Inter-Resin Industrial by Manilabank, plaintiffappellee required defendant-appellants to sign a Continuing Guaranty. These
factual findings of the trial court and of the Court of Appeals are binding on us
not only because of the rule that on appeal to the Supreme Court such findings
are entitled to great weight and respect but also because our own examination
of the record of the trial court confirms these findings of the two courts.[7]
Nor does the record show any other transaction under which Inter-Resin
Industrial may have obtained sums of money from Interbank. It can reasonably
be assumed that Inter-Resin Industrial and Willex Plastic intended to indemnify
Interbank for amounts which it may have paid Manilabank on behalf of InterResin Industrial.
Indeed, in its Petition for Review in this Court, Willex Plastic admitted that it was
to secure the aforesaid guarantee, that INTERBANK required principal debtor
IRIC [Inter-Resin Industrial] to execute a chattel mortgage in its favor, and so a
Continuing Guaranty was executed on April 2, 1979 by WILLEX PLASTIC
63

INDUSTRIES CORPORATION (WILLEX for brevity) in favor of INTERBANK for and

in consideration of the loan obtained by IRIC [Inter-Resin Industrial+.

contention that a contract of suretyship or guaranty should be applied

prospectively.

*2+ Willex Plastic argues that the Continuing Guaranty, being an accessory
contract, cannot legally exist because of the absence of a valid principal
obligation.[8] Its contention is based on the fact that it is not a party either to the
Continuing Surety Agreement or to the loan agreement between Manilabank
and Inter-Resin Industrial.

The cases cited are, however, distinguishable from the present case. In El
Vencedor v. Canlas we held that a contract of suretyship is not retrospective
and no liability attaches for defaults occurring before it is entered into unless an
intent to be so liable is indicated. There we found nothing in the contract to
show that the parties intended the surety bonds to answer for the debts
contracted previous to the execution of the bonds. In contrast, in this case, the
parties to the Continuing Guaranty clearly provided that the guaranty would
cover sums obtained and/or to be obtained by Inter-Resin Industrial from
Interbank.

Put in another way the consideration necessary to support a surety obligation

need not pass directly to the surety, a consideration moving to the principal
alone being sufficient. For a guarantor or surety is bound by the same
consideration that makes the contract effective between the principal parties
thereto. . . . It is never necessary that a guarantor or surety should receive any
part or benefit, if such there be, accruing to his principal.[9] In an analogous
case,[10] this Court held:
At the time the loan of P100,000.00 was obtained from petitioner by Daicor, for
the purpose of having an additional capital for buying and selling coco-shell
charcoal and importation of activated carbon, the comprehensive surety
agreement was admittedly in full force and effect. The loan was, therefore,
covered by the said agreement, and private respondent, even if he did not sign
the promissory note, is liable by virtue of the surety agreement. The only
condition that would make him liable thereunder is that the Borrower is or
may become liable as maker, endorser, acceptor or otherwise. There is no
doubt that Daicor is liable on the promissory note evidencing the indebtedness.
The surety agreement which was earlier signed by Enrique Go, Sr. and private
respondent, is an accessory obligation, it being dependent upon a principal one
which, in this case is the loan obtained by Daicor as evidenced by a promissory
note.
*3+ Willex Plastic contends that the Continuing Guaranty cannot be
retroactively applied so as to secure the payments made by Interbank under the
two Continuing Surety Agreements. Willex Plastic invokes the ruling m
El Vencedor v. Canlas[11] and Dio v. Court of Appeals[12] in support of its

On the other hand, in Dio v. Court of Appeals the issue was whether the
sureties could be held liable for an obligation contracted after the execution of
the continuing surety agreement.
It was held that by its very nature a continuing suretyship contemplates a future
course of dealing. It is prospective in its operation and is generally intended to
provide security with respect to future transactions. By no means, however,
was it meant in that case that in all instances a contract of guaranty or
suretyship should be prospective in application.
Indeed, as we also held in Bank of the Philippine Islands v. Foerster,[13] although a
contract of suretyship is ordinarily not to be construed as retrospective, in the
end the intention of the parties as revealed by the evidence is controlling. What
was said there[14] applies mutatis mutandis to the case at bar:
In our opinion, the appealed judgment is erroneous. It is very true that bonds or
other contracts of suretyship are ordinarily not to be construed as retrospective,
but that rule must yield to the intention of the contracting parties as revealed
by the evidence, and does not interfere with the use of the ordinary tests and
canons of interpretation which apply in regard to other contracts.
In the present case the circumstances so clearly indicate that the bond given by
Echevarria was intended to cover all of the indebtedness of the Arrocera upon
64

its current account with the plaintiff Bank that we cannot possibly adopt the
view of the court below in regard to the effect of the bond.

(P5,000,000.00), Philippine Currency, and such interests, charges and penalties

as may hereinafter he specified.

[4] Willex Plastic says that in any event it cannot be proceeded against without
first exhausting all property of Inter-Resin Industrial. Willex Plastic thus claims
the benefit of excussion. The Civil Code provides, however:

[5] Finally it is contended that Inter-Resin Industrial had already paid its
indebtedness to Interbank and that Willex Plastic should have been allowed by
the Court of Appeals to adduce evidence to prove this. Suffice it to say that
Inter-Resin Industrial had been given generous opportunity to present its
evidence but it failed to make use of the same. On the other hand, Willex
Plastic rested its case without presenting evidence.

Art. 2059. This excussion shall not take place:

(1) If the guarantor has expressly renounced it;
(2) If he has bound himself solidarily with the debtor;
xxx

xxx

xxx

The pertinent portion of the Continuing Guaranty executed by Willex Plastic

and Inter-Resin Industrial in favor of IUCP (now Interbank) reads:
If default be made in the payment of the NOTE/s herein guaranteed you and/or
your principal/s may directly proceed against Me/Us without first proceeding
against and exhausting DEBTOR/s properties in the same manner as if all such
liabilities constituted My/Our direct and primary obligations. (italics supplied)
This stipulation embodies an express renunciation of the right of excussion. In
addition, Willex Plastic bound itself solidarily liable with Inter-Resin Industrial
under the same agreement:
For and in consideration of the sums obtained and/or to be obtained by INTERRESIN INDUSTRIAL CORPORATION, hereinafter referred to as the DEBTOR/S,
from you and/or your principal/s as may be evidenced by promissory note/s,
checks, bills receivable/s and/or other evidence/s of indebtedness (hereinafter
referred to as the NOTE/S), I/We hereby jointly and severally and
unconditionally guarantee unto you and/ or your principal/s, successor/s and
assigns the prompt and punctual payment at maturity of the NOTE/S issued by
the DEBTOR/S in your and/or your principal/s, successor/s and assigns favor to
the extent of the aggregate principal sum of FIVE MILLION PESOS

The reception of evidence of Inter-Resin Industrial was set on January 29, 1987,
but because of its failure to appear on that date, the hearing was reset on
March 12, 26 and April 2, 1987.
On March 12, 1987 Inter-Resin Industrial again failed to appear. Upon motion
of Willex Plastic, the hearings on March 12 and 26, 1987 were cancelled and
reset for the last time on April 2 and 30, 1987.
On April 2, 1987, Inter-Resin Industrial again failed to appear. Accordingly the
trial court issued the following order:
Considering that, as shown by the records, the Court had exerted every earnest
effort to cause the service of notice or subpoena on the defendant Inter-Resin
Industrial but to no avail, even with the assistance of the defendant Willex. . .
the defendant Inter-Resin Industrial is hereby deemed to have waived the right
to present its evidence.
On the other hand, Willex Plastic announced it was resting its case without
presenting any evidence.
Upon motion of Inter-Resin Industrial, however, the trial court reconsidered its
order and set the hearing anew on July 23, 1987. But Inter-Resin Industrial
again moved for the postponement of the hearing to August 11, 1987. The
hearing was, therefore, reset on September 8 and 22, 1987 but the hearings
were reset on October 13,1987, this time upon motion of Interbank. To give
Interbank time to comment on a motion filed by Inter-Resin Industrial, the
65

reception of evidence for Inter-Resin Industrial was again reset on November

17, 26 and December 11, 1987. However, Inter-Resin Industrial again moved for
the postponement of the hearing. Accordingly, the hearing was reset on
November 26 and December 11, 1987, with warning that the hearings were
intransferrable.
Again, the reception of evidence for Inter-Resin Industrial was reset on January
22, 1988 and February5, 1988 upon motion of its counsel. As Inter-Resin
Industrial still failed to present its evidence, it was declared to have waived its
evidence.
To give Inter-Resin Industrial a last opportunity to present its evidence,
however, the hearing was postponed to March 4, 1988. Again Inter-Resin
Industrials counsel did not appear. The trial court, therefore, finally declared
Inter-Resin Industrial to have waived the right to present its evidence. On the
other hand, Willex Plastic, as before, manifested that it was not presenting
evidence and requested instead for time to file a memorandum.
There is therefore no basis for the plea made by Willex Plastic that it be given
the opportunity of showing that Inter-Resin Industrial has already paid its
obligation to Interbank.
WHEREFORE, the decision of the Court of Appeals is AFFIRMED, with costs
against the petitioner.
SO ORDERED.

Republic of the Philippines

SUPREME COURT
Manila
EN BANC
G.R. No. L-13817

August 31, 1961

MACONDRAY AND COMPANY, INC., plaintiff-appellee,

vs.
PERFECTO PION, ET AL., defendants.
RUPERTO K. KANGLEON, deceased, substituted by VALENTINA TAGLEKANGLEON, ET AL., defendants-appellants.
Jose Agbulos for plaintiff-appellee.
San Juan, Africa and Benedicto for defendants-appellants.
PADILLA, J.:
On 11 May 1955 the plaintiff filed a complaint1 against the defendants in the
Court of First Instance of Manila alleging that upon representation and
undertaking made by Ruperto K. Kangleon, then a member of the Senate, in a
letter addressed to the plaintiff dated 30 January 1954, that he would guarantee
payment of his co-defendants' obligation, should they fail to pay on the due
date (Exhibit F), on 2 and 9 February 1954, the plaintiff sold on credit and
delivered to the defendants Perfecto Pion and Conrado Piring, known in the
theater and entertainment business as "Tugak" and "Pugak", respectively and
transacting business under a common name known as "All Stars Productions,"
127 rolls of cinematographic films, F.G. release positive type 825B, 35 mm. x
1,000 ft., for the total sum of P6,985, payable on or before 9 May 1954, 12%
interest thereon from date of maturity and 20% thereof for attorney's fee in
case of suit for collection (Exhibits A, B, C, D, E; that the principal debtors have
failed to pay the amount owed by them on the due date; that upon extensive
66

investigations made by the plaintiff as to whether the principal debtors have

any property, real or personal, which may be levied upon for the satisfaction of
their obligation, it has found that they have none; that the defendant Kangleon
could not point to the plaintiff any property of the principal debtors leviable for
execution sufficient to satisfy the obligation; and that the sum of P6,985, the
amount owed or part thereof, has not been paid by the defendants. It prayed
that after hearing judgment be rendered ordering the defendants, jointly and
severally, to pay it the sum of P6,985, 12% interest thereon from 10 May 1954
until fully paid, 20% of the amount due or P1,387 as attorney's fee, and costs,
and that it be granted other just and equitable relief (civil No. 23947).
On 10 November 1955 the defendant Kangleon answered the plaintiff's
complaint setting up the defense that the letter he had written to the plaintiff
dated 30 January 1954 (Exhibit F) was only to introduce his co-defendants; that
assuming that there was an intent on his part to guarantee payment of his codefendants' obligation, the said letter (Exhibit F) was but an offer to act as
guarantor of his co-defendants; that as the acceptance of his offer to act as
guarantor for his co-defendants has not been actually made known to him by
the plaintiff, the contract of guaranty between them has not been perfected;
and that assuming that there has been a perfected contract of guaranty
between the plaintiff and the answering defendant, the latter's obligation was
extinguished by the extension for payment up to 3 May 1954 granted by the
plaintiff to his co-defendants. By way of counterclaim, he sought from the
plaintiff the sum of P20,000 as damages suffered by his good name and
reputation caused by the plaintiff's clearly unfounded civil action, P2,000 as
attorney's fee and P1000 for expenses incurred in the litigation. As cross-claim,
should he be finally adjudged liable to pay the plaintiff, he prayed that his codefendants be ordered to reimburse him whatever amount he would pay to the
plaintiff, and to pay him P3,000 as attorney's fee and expenses of litigation. He
further prayed that he be absolved from the plaintiff's complaint and that he be
granted other just and equitable relief.
The defendants Pion and Piring did not answer the plaintiff's complaint or their
co-defendants' cross-claim.

On 10 November 1955 the plaintiff answered the defendants defendant's

counterclaim.
On 25 August 1956 the plaintiff and the answering de defendant entered into a
stipulation of facts and submitted the case for judgment based upon the said
stipulation.
Not having answered the complaint against them despite notice, the Court
declared the defendants Pion and Piring in default (p. 5, rec. on app.).
At the trial of the case on 30 August 1956, the plaintiff and the answering
defendant further stipulated that the former had looked for properties of his codefendants Pion and Piring but found none (p. 23, rec. on app.). The plaintiff
presented its evidence against the defendants in default.
On 30 September 1957 the Court rendered judgment, the dispositive part of
which is:
WHEREFORE, judgment is hereby rendered sentencing the defendants Perfecto
Pion and Conrado Piring to pay the plaintiff jointly and severally the sum of
P6,985.00 plus interest at the rate of 12% per annum from May 9, 1954 until
fully paid and an amount equivalent to 20% as attorney's fees and co of suit.
If this judgment becomes unsatisfied by the defendants Perfecto Pion and
Conrado Piring, the defendant Ruperto Kangleon is hereby sentenced to pay the
plaintiff all the amounts to which his co-defendants were sentenced to pay. (p.
29, rec. on app.).
The answering defendant has appealed.
From the stipulation of facts entered into by and between the appellant and the
appellee and the documentary evidence submitted by the appellee against the
defendants in default, the following appear: On 30 January 1954 the defendants
Piring and Pion requested the appellant, then a member of the Senate, to help
them buy on credit from the appellee some cinematographic films. To
accommodate them, the appellant wrote a letter to the appellee, as follows:
67

REPUBLIC OF THE PHILIPPINES

SENATE
MANILA
January 30, 1954
The Manager
Macondray & Company
China Bank Building
Manila

the appellee sold on credit and delivered to the defendants in default 127 rolls
of cinematographic films, F.G. release positive type 825B, 35 mm. x 1,000 ft., for
the total sum of P6,985, excluding sales tax, which is for the buyers' account,
payable on or before 9 May 1954. The parties, among others, further stipulated
that the buyers would pay interest at the rate of 1% per month on all amounts
not paid when due; that should a litigation arise from non-payment, the venue
of action would be the courts of Manila and that the buyers would pay 20% of
the amount due for attorney's fee and costs of the suit (Exhibits A, B, C, D, E).
The defendants in default failed to pay their obligation on the due date. On 27
May 1954 the appellee wrote to the appellant a letter of the following tenor:

Sir:

May 27 , 1954

This will introduce to you the bearers, Messrs. Conrado Piring and Perfecto
Pion both well known theater characters under the names of "Pugak" and
"Tugak", respectively.
I have been made to understand by them in their representations to me that
they wish to place an order for the following items:
10 rolls negative at P157.00 each, and 100 rolls positive at P55.00 each .
of Dupont Release Positives Safety Basis for use of their firm called "All Stars
Productions" under the management and control of Pugak and Tugak payable
within three (3) months time ending April, 1954 and for which by their guaranty
I pledge payment.
In view of the foregoing, I shall appreciate any help you can give to facilitate said
purchases subject to usual business procedures.
Sincerely,
(Sgd.) RUPERTO K. KANGLEON
Senator
(Exhibit F) which letter the defendants in default presented to the appellee. On
the strength of the appellant's letter above quoted, on 2 and 9 February 1954,

Honorable Ruperto K. Kangleon

Philippine Senate
Manila
Dear Sir:
On January 30th, last you requested us to give Messrs. Conrado Piring and
Perfecto Pion of "All-Stars Productions", certain rolls of negative and positive
films, the cost of which was payable in three months time and payment of
which you guaranteed.
These films were delivered and billed at P6,985.00 on Feb. 9th last. The amount
has not been paid (and) we have difficulty locating the above gentlemen as they
cannot be found in their offices.
In view of this we hereby request you to send us a check for the amount as it
was due on May 3rd.
Yours very truly,
MACONDRAY & CO., INC.
s/ILLEGIBLE
68

Collection Department
On 31 May 1954, the appellant answered the appellee as follows:

We know of no extension of time for payment being granted these people and
certainly no one in authority has made such n arrangement. For this reason, if
payment is not received from them by the 15th inst. We expect to receive a
remittance from you to cover the full amount.

May 31, 1954

Yours very truly,

Macondray & Co., Inc.

3rd Floor, China Bank Bldg.
Manila

MACONDRAY & CO., INC.

s/ILLEGIBLE
Collection Department

Gentlemen:
This will acknowledge receipt of your letter of May 27th. Messrs. Conrado Piring
and Perfecto Pion are being contacted to invite their attention to your letter.
Notwithstanding the foregoing, I have been made to understand by Messrs.
Piring and Pion that in arrangements with that Company an extension of time
has been granted them; within which to settle their obligations.
Cordially yours,
(Sgd.) RUPERTO K. KANGLEON
On 2 June 1954 the appellee replied to the appellant's answer to its letter thus:

On 19 July 1954 the appellee wrote the following letter to the defendants in
default:
July 19, 1954
Mr. Conrado Piring
Pureza Extension
Sta Mesa, Manila
Mr. Perfecto Pion
Pureza Extension
Sta. Mesa, Manila
Gentlemen:

June 2, 1954
Hon. Ruperto K. Kangleon
Philippine Senate
Manila

Please be advised that Macondray & Co., Inc. has turned over to me for
corresponding judicial action your account for films in the amount of P6,985.00.
As this obligation is now long past due, payment thereof is earnestly requested.
Unless payment thereof is received from you immediately, I shall be compelled,
much to my regret, to take this matter to the court.

Dear Sir:
We have your letter of May 31st in reply to ours of the 7th and note that you
are getting in touch with Messrs. Conrado Piring and Perfecto Pion with regard
to their account.

Very truly yours,

(Sgd.) JOSE AGBULOS
69

Attorney for Macondray & Co., Inc.

which was sent to them by registered mail (Exhibits G, G-1 & G-2). Neither the
defendants in default nor the appellant has paid the amount owed to the
appellee.
During the time this appeal was pending in this Court the appellant died. His
heirs or their legal representatives were directed to appear in substitution for
the deceased appellant. Attorneys San Juan, Africa & Benedicto entered their
appearance for said heirs, namely: Mrs. Valentina Tagle Kangleon, Benjamin T.
Kangleon, Juanita T. Kangleon, Mrs. Flora San Gabriel, Miss Corazon Kangleon,
Miss Lourdes Kangleon, Mrs. Teresita Limcolioc, Mrs. Aida Rosca, Jesus
Kangleon, Jose Kangleon and Miss Cecilia Kangleon.
The appellant contends that although in the stipulation of facts entered into by
and between him and the appellee, he had admitted the liability of his codefendants, who were declared in default, under the principle of res inter alios
acta, that an admission by a third person can not bind another, his admission
cannot bind the defendants in default and no judgment against them may be
rendered on the basis of the stipulation of facts referred to. Since the appellee
had not established a case against the defendants a default, the principal
debtors, it cannot directly held able the appellant, the guarantor, whose
obligation is only subsidiary to that of the former.
The appellant proceeds from the wrong premise that the case was submitted to
the Court solely on the stipulation of facts entered into by and between him and
the appellee. The records show that when the case was called for trial on 30
August 1956, after the appellant's co-defendants had been declared in default,
the appellee presented its evidence testimonial and documentary, against them
(pp. 5-18, t.s.n.; Exhibits A, B, C, D, E, F, G, G-1 & G-2), and thereby established
their primary liability.
The appellant claims that the letter (Exhibit F) is mere a letter of introduction
and does not constitute an offer of guaranty. A cursory reading of the letter
(Exhibit F) belies his assertion. While in his opening sentence he says at that

"This will introduce to you the bearers, Messrs. Conrado Piring and Perfecto
Pion, . . ." who "wish to place an order for" cinematographic films, yet in the
later part he says that "for which by their guaranty I pledge payment." This can
only mean that he undertakes to guarantee payment of the principal debtors'
obligation should they fail to pay. The appellant is a responsible man and may
be presumed to mean what he says. At that time, he was occupying the exalted
position of member of the Senate and his plighted word given to another would
immediately be accepted. It is not, therefore, odd that upon receipt of the
appellant's letter (Exhibit F), the appellee readily sold on credit to the principal
debtors, the defendants in default, the cinematographic films in question.
That the appellant really meant to guarantee payment of the principal debtors'
obligation should they default, is patent in his answer to the appellee's letter
dated 27 May 1954, reminding him that on 30 January he requested it "to give
Messrs. Conrado Piring and Perfecto Pion of 'All-Stars Productions', certain
rolls of negative and positive films, the cost of which was payable in three
months time and payment of which you guaranteed"; that the "films were
delivered and billed at P6,985.00 on Feb. 9th last"; and that "the amount has
not been paid (and) we have difficulty locating the above gentlemen as they
cannot be found in their offices," and requesting the appellant to send a check
for the amount. In his answer to the foregoing letter, dated 31 May 1954, he
acknowledged receipt of the appellee's letter of the 27th of the same month
and informed it that the principal debtors were "being contacted to invite their
attention to your letter." Had the appellant meant otherwise, he would have
immediately denied that he ever guaranteed payment of the principal debtors
obligation. This he did not do.
The appellant's very letter (Exhibit F) constitutes his undertaking of guaranty.
"Contracts shall be obligatory in whatever form they may have been entered
into, provided all the essential requisites for their validity are present."2 A
contract of guaranty is not a formal contract and shall be valid in whatever form
it may be, provided that it complies with the statute of frauds.
The appellant insists that he should have been notified by the appellee of the
acceptance of his offer of guaranty. In the first place, his letter (Exhibit F)
70

already constitutes his undertaking of guaranty. In the second place, the

contract entered into by and between the appellee and the defendants in
default is the principal contract and the appellee is subsidiary to the principal
contract. Since the principal contract had already been perfected, the subsidiary
contract of guaranty became binding upon effectivity of the principal contract.
Hence no notice of acceptance by the appellee to the appellant is necessary for
its validity.
The appellant states that assuming that the letter Exhibit F constitutes a
contract of guaranty, the films actually sold to the principal debtors were 127
rolls of F.G. release positive type 825 B 35 mm. x 1,000 ft. at P55 a roll, payable
9 May 1954, while what he undertook to guarantee payment was 10 rolls
negative at 157 each and 100 rolls positive at 55 each, payable within three
months ending April, 1954. Citing article 2055 of the Civil Code that a guaranty
cannot extend to more than what is stipulated therein, the appellant contends
that he cannot be held liable for the contract in view of the variation in his
undertaking. The total cost of what was actually sold to and bought by the
principal debtors is P6,985, which is less than the total cost of what was
originally intended to be bought by them amounting to P7,070. The variation
was merely in kind and not in subject matter cinematographic films which
did not render the appellant's obligation more burdensome. Instead his
obligation was rendered less onerous by the reduction in the original price of
P7,070 to P6,985. The fact that in the letter Exhibit F, the appellant mentioned
that the principal debtors' obligation would be "payable within three months
time ending April, 1954," while in the contract entered into by and between the
appellee and the principal debtors they have stipulated that their obligation
would be payable on or before 9 May 1954, is of no moment. The letter Exhibit
F was dated 30 January 1954. Counted from that date, the three months period
would expire on April 1954. However, actually the principal contract was
consummated on 9 February 1954 (Exhibit A). It is but fair that the three month
period be counted from that date ending 9 May 1954. Again, the appellants
obligation has not become more onerous than what he actually bound himself.
The judgment appealed from is affirmed against the heirs of the deceased
appellant herein above named, with costs against them.

Republic of the Philippines

SUPREME COURT
Manila
71

EN BANC
G.R. No. L-42518

August 29, 1936

WISE & CO., INC., plaintiff-appellee,

vs.
DIONISIO P. TANGLAO, defendant-appellant.
The appellant in his own behalf.
Franco and Reinoso for appellee.
AVANCEA, C. J.:
In the Court of First Instance of Manila, Wise & Co. instituted civil case No.
41129 against Cornelio C. David for the recovery of a certain sum of money
David was an agent of Wise & Co. and the amount claimed from him was the
result of a liquidation of accounts showing that he was indebted in said amount.
In said case Wise & Co. asked and obtained a preliminary attachment of David's
property. To avoid the execution of said attachment, David succeeded in having
his Attorney Tanglao execute on January 16, 1932, a power of attorney (Exhibit
A) in his favor, with the following clause:
To sign for me as guarantor for himself in his indebtedness to Wise & Company
of Manila, which indebtedness appears in civil case No. 41129, of the Court of
First Instance of Manila, and to mortgage my lot (No. 517-F of the subdivision
plan Psd-20, being a portion of lot No. 517 of the cadastral survey of Angeles, G.
L. R. O. Cad. Rec. No. 124), to guarantee the said obligations to the Wise &
Company, Inc., of Manila.
On the 18th of said month David subscribed and on the 23d thereof, filed in
court, the following document (Exhibit B):
COMPROMISE
Come now the parties, plaintiff by the undersigned attorneys and defendants in
his own behalf and respectfully state:

I. That the defendant confesses judgment for the sum of six hundred forty pesos
(P640), payable at the rate of eighty pesos (P80) per month, the first payment to
be made on February 15, 1932 and successively thereafter until the full amount
is paid; the plaintiff accepts this stipulation.
II. That as security for the payment of said sum of P640, defendant binds in
favor of, and pledges to the plaintiff, the following real properties:
1. House of light materials described under tax declaration No. 9650 of the
municipality of Angeles, Province of Pampanga, assessed at P320.
2. Accesoria apartments with a ground floor of 180 sq. m. with the first story of
cement and galvanized of iron roofing located on the lot belonging to Mariano
Tablante Geronimo, said accesoria is described under tax declaration No. 11164
of the municipality of Angeles, Province of Pampanga, assessed at P800.
3. Parcel of land described under Transfer Certificate of Title No. 2307 of the
Province of Pampanga recorded in the name of Dionisio Tanglao of which
defendant herein holds a special power of attorney to pledge the same in favor
of Wise & Co., Inc., as a guarantee for the payment of the claim against him in
the above entitled cause. The said parcel of land is bounded as follows: NE. lot
No. 517 "Part" de Narciso Garcia; SE. Calle Rizal; SW. lot No. 517 "Part" de
Bernardino Tiongco; NW. lot No. 508 de Clemente Dayrit; containing 431 sq. m.
and described in tax declaration No. 11977 of the municipality of Angeles,
Pampanga, assessed at P423.
That this guaranty is attached to the properties above mentioned as first lien
and for this reason the parties agree to register this compromise with the
Register of Deeds of Pampanga, said lien to be cancelled only on the payment of
the full amount of the judgment in this case.
Wherefore, the parties pray that the above compromise be admitted and that
an order issue requiring the register of Deeds of Pampanga to register this
compromise previous to the filing of the legal fees.

72

David paid the sum of P343.47 to Wise & Co., on account of the P640 which he
bound himself to pay under Exhibit B, leaving an unpaid balance of P296.53.
Wise & Co. now institutes this case against Tanglao for the recovery of said
balance of P296.53.
There is no doubt that under Exhibit, A, Tanglao empowered David, in his name,
to enter into a contract of suretyship and a contract of mortgage of the property
described in the document, with Wise & Co. However, David used said power of
attorney only to mortgage the property and did not enter into contract of
suretyship. Nothing is stated in Exhibit B to the effect that Tanglao became
David's surety for the payment of the sum in question. Neither is this inferable
from any of the clauses thereof, and even if this inference might be made, it
would be insufficient to create an obligation of suretyship which, under the law,
must be express and cannot be presumed.
It appears from the foregoing that defendant, Tanglao could not have
contracted any personal responsibility for the payment of the sum of P640. The
only obligation which Exhibit B, in connection with Exhibit A, has created on the
part of Tanglao, is that resulting from the mortgage of a property belonging to
him to secure the payment of said P640. However, a foreclosure suit is not
instituted in this case against Tanglao, but a purely personal action for the
recovery of the amount still owed by David.
At any rate, even granting that defendant Tanglao may be considered as a
surety under Exhibit B, the action does not yet lie against him on the ground
that all the legal remedies against the debtor have not previously been
exhausted (art. 1830 of the Civil Code, and decision of the Supreme Court of
Spain of March 2, 1891). The plaintiff has in its favor a judgment against debtor
David for the payment of debt. It does not appear that the execution of this
judgment has been asked for and Exhibit B, on the other hand, shows that David
has two pieces of property the value of which is in excess of the balance of the
debt the payment of which is sought of Tanglao in his alleged capacity as surety.

For the foregoing considerations, the appealed judgment is reversed and the
defendant is absolved from the complaint, with the costs to the plaintiff. So
ordered.

Republic of the Philippines

SUPREME COURT

Manila
EN BANC
September 9, 1937
G.R. No. 42490
VALERIANO SOLON, NATIVIDAD SOLON and MANUEL IBAEZ,

plaintiff-appellants,

vs.
APOLONIA SOLON, ZOILO SOLON, ROBERTA SOLON, FELISA SUICO (minor), and THE
DIRECTOR OF LANDS,

defendants-appellees.

Jose Delgado and Vickers, Ohnick, Opisso and Velilla for appellants.
Cuenco and Cuenco for appellees.
DIAZ, J.:

In his lifetime Eugenio Solon, father of the parties surnamed Solon, grandfather
of defendant Felisa Suico, and husband of the plaintiff Manuela Ibaez in
second marriage contract on May 23, 1899, bought, on installments, from the
Bureau of Lands the parcel of land described as "Lot No. 903 of the Banilad Friar
Lands Estate" in transfer certificate of title No. 8379 of the registry of Cebu,
situated in the barrio of Cogon, municipality of Cebu, Cebu Province having an
area of 6 hectares, 46 ares and 13 centares, and assessed by said bureau at
P403. The sale took place on December 12, 1919, and the time stipulated for the
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complete payment of its price was thirteen years, the first annual installment
being P31, and the subsequent twelve installments to be paid every year being
P21 each. On July 30, 1925, with the amount of P126 as part of the agreed
purchase price still unpaid Eugenio Solon, after securing the consent and
approval of the Bureau of Lands, sold and conveyed for the sum of P1,00 all his
rights, title and interest in the land acquired by him executing for that purpose
in favor of Apolonia Solon who agreed to pay the installments still owing to the
Bureau of Lands, the deed of transfer appearing in the record as Exhibit B.
Apolonia Solon paid to the Bureau of Lands on the same date of the execution
of the deed the amount of P21, and the balance of P105 at one time only a
month thereafter. The year following, or on July 10, 1926, Eugenio Solon died,
leaving no will, and two years, eight months and eight days later, or on March
18, 1929, the register of deeds of Cebu, upon compliance with the formalities of
law, issued transfer certificate of title No. 8379 in the name of Apolonia Solon.
The latter took charge of the property occupying it as her own through tenants
from the time she bought the same, according to the evidence for the
defendants, and from the death of Eugenio Solon, according to the evidence for
the defendants, and from the death of Eugenio Solon, according to that for the
plaintiffs.

After trial the lower court rendered judgment dismissing plaintiffs' complaint,
without any pronouncement as to costs, and declaring valid in effect the
transfer made by Eugenio Solon in favor of Apolonia Solon appealed to this
court after their motion for new trial on the ground that the judgment was
contrary to law and not sufficiently supported by the evidence was denied.

Plaintiffs surnamed Solon, all of whom are children of the deceased Eugenio,
Solon in his marriage with his widow Manuela Ibaez, joining with the latter in
maintaining that Exhibit B is false and simulated and that if the same had been
executed by Eugenio Solon, it was without just consideration, commenced this
suit praying (1) that said document be declared null and void because false and
simulated, (2) that they be adjudged the absolute owners pro indiviso of the land
in question together with the other heir of Eugenio Solon, (3) that defendants
Apolonia Solon, Zoilo Solon, Roberta Solon and the latter's husband Andres
Montalban, be sentenced to pay jointly and severally, to the plaintiffs the value
of the fruits of the land in question from the death of Eugenio Solon, and (4)
that said defendants be sentenced to pay, also jointly and severally to the
plaintiffs the sum of P30,000 as damages, besides the costs of the suit.

In support of their appeal appellants assigned eight errors as committed by the

lower court which may be summed up as follows: (1) In giving no credit to the
witnesses for the plaintiffs and in making no mention of the falsehoods
committed by the witnesses for the appellees in their testimony; (2) in failing to
consider the real value of the land in question by reason of its location and
value in 1925 when the alleged transfer took place; (3) in failing to take into
account the conclusion at which it had arrived during trial, that the land in
question, being located near the Osmea bridge, was worth P0.25 per square
meter in 1925, and declaring afterwards in its decision that it is worthless than
P0.01 per square meter; (4) in not declaring that Eugenio Solon, like other
owners of lands adjacent to his, knew of the plan to construct the provincial
capitol on lot No. 850 adjoining lot No. 903 in question; (5) in holding that
appellants weakened their side of the case when, after contending that the
document Exhibit B is false and simulated they conceded that although the
same may have been executed, it must, at all events, be declared void by reason
of the disproportion between the price paid for the land and its true value at the
time; (6) in failing to take into account the various facts and circumstances
showing that the transaction which took place according to Exhibit B, is
fraudulent and false, in view of the fact that the supposed grantor under said
deed was an illiterate, 88 years of age and was furthermore the father of
Apolonia Solon, and also of the fact that the whole transaction was carried out
without the knowledge of his wife and other children; (7) in not holding that
Exhibit B is fraudulent and false and that Eugenio Solon, who was 88 years old,
ignorant and illiterate was induced to sign it; and finally (8) in not holding null
and void the deed in question and in not finding that the land to which the same
refers belongs to all the heirs of the deceased Eugenio Solon.

Defendants, by way of defense, filed an answer containing a general denial and

the special defense of prescription based on the exercising their right of action.

1. It is fact clearly shown by the evidence for the defendants, which appears to
us to have more weight than that for the plaintiffs notwithstanding the latter's
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efforts to show the contrary, that the transfer of the land in question made by
Eugenio Solon to Apolonia Solon, according to Exhibit B, had taken place long
before the commencement of the suit of MaCleod and Co., against Andres
Montalban, husband of Roberta Solon, as principal, and Eugenio Solon, as surely
of said Montalban. It cannot, therefore, be believed, and the lower court did
well in refusing to believe, that Andres Montalban had been making statements
to the effect that Apolonia Solon had paid nothing for the reason that the same
was not real but only simulated and that it was made solely for the sole purpose
of placing the land in question beyond the reach of any action that might be
brought by Macleod and Company against said Eugenio Solon; and Apolonia
Solon had been telling her tenant named Eugenio Labra that there had been an
understanding among her brothers of the whole blood that they would cede the
said land to her as part of her inheritance from their father, because, in the first
place there was an action against Eugenio Solon for the collection of an amount
himself to pay; and, in the second place, Apolonia Solon could not have made
the above statement attributed to her for the simple reason that she was then
already the owner of the land aforesaid by virtue of the purchase appearing in
Exhibit B.
When Eugenio Solon bound himself as surely for Andres Montalban for the
payment to Macleod and Company of the amount of P5,000 which Montalban
owed to the latter, he limited himself to giving as security, by way of mortgage,
the land, and no other, belonging to him and described as lot No. 892 of the
Banilad Friar Lands Estate in case No. 5988 of the Court of Land Registration and
in transfer certificate of title No. 2499 of the registry of property of the Province
of Cebu. It is not possible that Macleod and Company could have ever
contemplated bringing an action against Eugenio Solon to obtain possession not
only of the land expressly mortgaged to it, which, as has been said, is lot No. 892
described in the certificate of title above-mentioned, which is distinct from lot
No. 903, but also of any other land belonging to him or of lot No. 903 itself, for
the purpose of collecting its credit against Andres Montalban, because it would
not have failed to know, better than any one else, that the contract of
suretyship in its favor does not admit of the interpretation that it could make
Eugenio Solon liable for an amount greater than P5,000 and that it could require

him to pay Montalban's indebtedness, should the latter fail to do so, with lands
other than that he had mortgaged. This is so because the clauses of a contract
of suretyship determine the extent of the liability of the surely (Government of the
Philippine Islands vs. Herrero, 38 Phil., 410); because said liability should not be
extended farther than the clear terms of the contract of guarantee by mere
implication; and because the surety should be liable only in the manner and to
the extent, and under the circumstances pointed out in the contract of
suretyship or which may be clearly deduced therefrom (La Insular vs. Machuca GoTauco and Nubla Co-Siong 39 Phil., 567).
2. Plaintiffs believe having proved that the value of the land in question in 1925
was P0.25 per square meter. The evidence upon which they rely was the
testimony of the engineer, surveyor and real estate broker Thomas F. Breslin,
who affirmed that a parcel adjacent to the one under discussion had been sold
to a lady named Consolacion Albade Rodriguez in that year at P0.25 per square
meter. it should be noted that, upon cross-examination said witness had to
admit that all he knew concerning the transaction had been obtained from said
lady. Although the lower spite of a timely motion by defendants to that effect,
inasmuch as it limited itself to saying: "It will be taken into consideration," the
truth is that when it decided the case dismissing plaintiffs' complaint, it
completely disregarded said evidence which is tantamount to having ordered its
exclusion on account of its incompentency.
The sales made in 1926 and 1927 of lots Nos. 900 and 1009-A by Jose Vao to
Soledad, Salud and Mercedes Espina, and by Maria Solon to Zenon Diaz,
respectively, at the rate of P0.20 and P0.24 per square meter, according to
Exhibits BB and X, and the sale made by Viscal S. Duterte to the spouses
Severino Rodriguez and Consolacion Alba, of lot No. 1009-B, in October, 1925, at
P0.25 per square meter, according to Exhibit Y, do not necessarily prove that the
land in question was worth that mush on the date of its sale. It must be
remembered that this had taken place three months before the sale of the land
referred to in Exhibit Y, and one and two years before those set forth in Exhibits
BB and Y, respectively. Those who acquired said lands, according to their own
testimony, desired to speculate because they had heard that the capitol of Cebu
would be erected nearby. It is, nevertheless, a fact that since then until the date
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of the decision appealed from in the words of the lower court the capitol
had not been erected, nor had any road been opened through said parcels, nor
had the rumors that the capitol would be construed sooner or later in the
vicinity had any appearance of truth. However, although there may have been a
proposal to erect the capitol thereon, the evidence does not show that Eugenio
Solon had never had acknowledge of that fact. Furthermore, knowing that he
had paid for the land only P270.70, it is only reasonable to suppose that he was
more than satisfied when he received an offer of P1,000 therefor and was paid
that amount which is, no doubt, almost three times that which he had invested,
not at one time, of course, but in six years. On the other hand, the person to
whom he transferred the land was no other than his own daugther. For these
reasons, we believe and so hold that the second error is without merit.
3. There is nothing in the record which proves that the court found that the
value of the land in dispute in 1925 was P0.25 per square meter. All that the
lower court said during the trial, and it appears only incidentally, in ruling on the
objection to a question made for the purpose of finding out the amount at
which the land would quote per square meter in case the capitol were
construed on parcel No. 850 which is a adjacent to the parcel in question, was
the following:
That is extremely remote. I believe that the best proof is that of P0.25 per
square meter, in 1925. I believe that that is the real value, and it depends upon
whether or not a street will be opened and on whether or not a capitol will be
constructed, and if it be depression time, as it is now, it can not possibly sell at
P2, so that it is all too problematical.
And it should be added that the lower court said this before hearing the other
evidence of plaintiffs and before having any idea of what the evidence of
defendants would be. It surely corrected the same thereafter in the manner set
forth in the decision appealed from. We hold that the third error is likewise not
well taken.
4. The fourth error is imaginary. As has been said, there is no evidence of record
to show that Eugenio Solon had any knowledge of the plan to construct the

capitol of Cebu near the land in dispute upon selling the same to Apolonia
Solon. The argument of plaintiffs that it must be presumed that every land
owner has knowledge of all the improvements which are to be made in
properties near his own, does not prove anything because it does nowhere
appears as a fact that the capitol of Cebu was to be constructed sooner or later
in the immediate vicinity of the land in question. But even supposing that
Eugenio Solon had guessed that there would be such a plan, this does not imply
that the transfer he made to Apolonia Solon was void because the owner has
the right to sell what belongs to him to whomever he chooses and for whatever
price satisfactory to him.
5. And it is no error for the lower court to have considered that the cause of the
plaintiffs was weakened on account of the fact that they maintain two
propositions which are, in reality, incompatible with each other. That the
documentary of transfer Exhibit B was false and simulated, and that it must
simply be declared void for the reason that the price paid therefor is
disproportionate to its value in 1925 are two irreconcilable things. If the latter
were true, then it would be useless to insist that the said document is false or
simulated. But the truth is that there is no disproportion between the price paid
for it and its real value in 1925. The Bureau of Lands itself sold, on July 28, 1924,
lot No. 887 of the same Banilad Friar Lands Estate, located near the land in
question and having an area of 3 hectares, 43 ares, 62 centares for the small
sum of P190 of less than 6/10 centavo per square meter. (Exhibit II-A.) There is
no occasion to repeat here the same reasons for the statement that there is no
evidence of record in support of the conclusion that there was a proposal on the
part of the Province of Cebu to construct its capitol on lot No. 850. If there was
any disproportion between the price paid and real value of the land, it was not
to the prejudice of Eugenio Solon because he was paid much more than he
really paid therefor to the Bureau of Lands nor withstanding that he had not
made any improvements thereon or completed the payment he had agreed to
make to said office.
6. The sixth error attributed by appellants to the lower court has been
practically shown not to exist for the reasons given in discussing the first five
error. In addition thereto, it may be said transfer did not take place. On the
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other hand, defendants proved that it did take place by means of Exhibit B
which, it may be truthfully said, was executed was all the formalities law before
a notary public and in the presence of an official of the Bureau of Lands in the
very office of the latter in Talisay, Cebu, and in that of another witness, and by
means of the approval of said transfer by the Directors of Lands. They further
proved through one of the instrumental witness to said document and through
Apolonia Solon herself that the price appearing in said document Exhibit B was
paid to Eugenio Solon; and that the latter had tried to sell the land before that
date to other P750. All the foregoing, together with the fact that the last annual
payments which Eugenio Solon should made to the Bureau of Lands were
effected by Apolonia Solon and that said defendant took possession of the land
immediately after the execution of Exhibit B conclusively show that said
document was neither fraudulent nor false. And it is not true that Eugenio Solon
was then 8 years old and, therefore, could be easily imposed upon by reason of
his mental and physical weakness because the best evidence appearing of
record with respect to his age, Exhibit F, shows that he was only 66 years, 2
months and 7 days at the time of the transfer.
7 and 8. The seventh and eight errors need no further discussion. The reasons
above given clearly show that they do not exist. The inescapable conclusion,
therefore, is that the appeal taken by plaintiffs is unfounded and without merit
for the reason that the judgment appealed from is in accordance with law and
supported by the evidence.
In view of the foregoing, the judgment appealed from is affirmed with the costs
of the appeal against the plaintiffs and appellants. So ordered.

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