EN BANC

[G.R. No. L-9306. May 25, 1956.]

SOUTHERN MOTORS, INC., Plaintiff-Appellee, vs. ELISEO BARBOSA, Defendant-Appellant.

DECISION
CONCEPCION, J.:
This is an appeal from a decision of the Court of First Instance of Iloilo:chanroblesvirtuallawlibrary
“(a) Ordering the Defendant Eliseo Barbosa to pay to the Court, for the benefit of the Plaintiffwithin a period of ninety
(90) days from receipt by the Defendant hereof, the sum of P2,889.53, with interest at the rate of 12% per annum
computed on the basis of the amounts of the installments mentioned in the mortgage and of the dates they respectively
fell due, until fully paid; chan roblesvirtualawlibrarythe sum of P200 by way of attorney’s fees, plus costs; chan
roblesvirtualawlibraryand (b) Upon failure of the Defendant to pay as aforesaid, ordering the land described in the
complaint and subject of the mortgage to be sold at public auction in accordance with law in order to realize the amount
of the judgment debt and costs.”
Although originally forwarded to the Court of Appeals, the same has certified the record to this Court in view of the fact
that the issues raised in the appeal involve merely questions of law.
Plaintiff, Southern Motors, Inc., brought this action against Eliseo Barbosa, to foreclose a real estate mortgage, constituted
by the latter in favor of the former, as security for the payment of the sum of P2,889.53 due to said Plaintiff from one
Alfredo Brillantes, who had failed to settle his obligation in accordance with the terms and conditions of the corresponding
deed of mortgage. DefendantEliseo Barbosa filed an answer admitting the allegations of the complaint and alleging, by
way of “special and affirmative” defense:chanroblesvirtuallawlibrary
“That the Defendant herein has executed the deed of mortgage Annex A for the only purpose of guaranteeing — as surety
and/or guarantor — the payment of the above mentioned debt of Mr. Alfredo Brillantes in favor of the Plaintiff.
“That the Plaintiff until now has no right action against the herein Defendant on the ground that said Plaintiff, without
motive whatsoever, did not intent or intent to exhaust all recourses to collect from the true debtor Mr. Alfredo Brillantes
the debt contracted by the latter in favor of said Plaintiff, and did not resort nor intends to resort all the legal remedies
against the true debtor Mr. Alfredo Brillantes, notwithstanding the fact that said Mr. Alfredo Brillantes is solvent and has
many properties within the Province of Iloilo.”
Thereupon, Plaintiff moved for summary judgment which a branch of the Court of First Instance of Iloilo, presided over by
Hon. Roman Ibañez, Judge, denied upon the ground that it “is premature”. Plaintiff moved for a reconsideration of the
order to this effect. Soon later, he filed, also, another motion praying that the case be transferred to another branch of
said court, because that of Judge Ibañez would be busy trying cadastral cases, and had adopted the “policy of refraining
from entertaining any other civil cases and all incidents related thereto, until after said cadastral cases shall have been
finally disposed of.” With the express authority of Judge Ibañez, the case was referred to the branch of said court, presided
over by Hon. Querube C. Makalintal, Judge, for action, upon said motion for reconsideration. Thereafter, Judge Makalintal
rendered the aforementioned decision, from which the Defendant has appealed. He maintains, in his brief,
that:chanroblesvirtuallawlibrary
“1. The trial court erred in hearing Plaintiff-Appellee’s ‘motion for reconsideration’ dated June 9, 1951, notwithstanding
the fact that Defendant-Appellant was not served with a copy thereof nor served with notice of the hearing thereof.
2. “The trial court erred in rendering a ‘judgment on the pleadings’ in Appellee’s favor when no issue was at all submitted
to it for resolution, to the prejudice of the substantial rights of Appellant.
3. “The court a quo erred in depriving Defendant-Appellant of his property rights without due process of law.”
The first assignment of error is based upon an erroneous predicate, for, contrary to Defendant’s assertion, his counsel in
the lower court, Atty. Manuel F. Zamora, through an employee of his office, by the name of Agripino Aguilar, was actually
served on June 9, 1951, with copy of Plaintiff’s motion for reconsideration, with notice to the effect that said motion
would be submitted for the consideration and approval of the lower court, on Saturday, June 16, 1951, at
8:chanroblesvirtuallawlibrary00 a.m., or soon thereafter as counsel may be heard.
The second assignment of error is, likewise, untenable. It is not true that there was no issue submitted for determination
by the lower court when it rendered the decision appealed from.
It will be recalled that each one of the allegations made in Plaintiff’s complaint were expressly admitted in Defendant’s
answer, in which he merely alleged, as “special and affirmative” defense, that Plaintiff is not entitled to foreclose the
mortgage constituted in its favor by the Defendant, because the property of Alfredo Brillantes, the principal debtors, had
not been exhausted as yet, and were not sought to be exhausted, for the satisfaction of Plaintiff’s credit. Thus, there was
no question of fact left for determination. The only issue set up by the pleadings was the sufficiency of said affirmative
defense. And such was the only point discussed by the Defendant in his opposition to Plaintiff’s motion for a summary
judgment, referring, evidently, to a judgment on the pleadings.
Plaintiff’s motion for reconsideration of the order of Judge Roman Ibañez refusing to render said judgment, upon the
ground that it was premature, revived said issue of sufficiency of the aforementioned affirmative defense, apart from
calling for a reexamination of the question posed by said order of Judge Ibañez, namely, whether it was proper, under the
circumstances, to render a judgment on the pleadings. In other words, said motion for reconsideration had the effect of
placing before then Judge Makalintal, for resolution, the following issues, to wit:chanroblesvirtuallawlibrary (1) whether
a summary judgment or a judgment on the pleadings was in order, considering the allegations of Plaintiff’s complaint and
those of Defendant’s answer; chan roblesvirtualawlibraryand (2) whether the mortgage in question could be foreclosed
although Plaintiff had not exhausted, and did not intend to exhaust, the properties of his principal debtor, Alfredo
Brillantes.
The third assignment of error is predicated upon the alleged lack of notice of the hearing of Plaintiff’s motion for
reconsideration. As stated in our discussion of the first assignment of error, this pretense is refuted by the record.
Moreover, it is obvious that Defendant’s affirmative defense is devoid of merit for:chanroblesvirtuallawlibrary
1. The deed of mortgage executed by him specifically provides:chanroblesvirtuallawlibrary
“That if said Mr. Alfredo Brillantes or herein mortgagor, his heirs, executors, administrators and assigns shall well and truly
perform the full obligations above-stated according to the terms thereof, then this mortgage shall be null and void,
otherwise it shall remain in full force and effect, in which event herein mortgagor authorizes and empowers herein
mortgagee-company to take any of the following actions to enforce said payment;.
“(a) Foreclose, judicially or extrajudicially, the chattel mortgage above referred to and/or also this mortgage, applying the
proceeds of the purchase price at public sale of the real property herein mortgaged to any deficiency or difference
between the purchase price of said chattel at public auction and the amount of P2,889.53, together with its interest hereby
secured; chan roblesvirtualawlibraryor
“(b) Simply foreclose this mortgage judicially in accordance with the provisions of section 2, Rule 70, Rules of Court, or
extra- judicially under the provisions of Act No. 3135 and Act No. 4118, to satisfy the full amount of P2,889.53, together
with its interest of 12 per cent per annum.”
2. The right of guarantors, under Article 2058 of the Civil Code of the Philippines, to demand exhaustion of the property
of the principal debtor, exists only when a pledge or a mortgage has not been given as special security for the payment of
the principal obligation. Guarantees, without any such pledge or mortgage, are governed by Title XV of said Code, whereas
pledges and mortgages fall under Title XVI of the same Code, in which the following provisions, among others, are
found:chanroblesvirtuallawlibrary
ART. 2087. “It is also of the essence of these contracts that when the principal obligation becomes due, the things in which
the pledge or mortgage consists may be alienated for the payment to the creditor.”
ART. 2126. “The mortgage directly and immediately subjects the property upon which it is imposed, whoever the
possessor may be, to the fulfillment of the obligation for whose security it was constituted.”
3. It has been held already (Saavedra vs. Price, 68 Phil., 688), that a mortgagor is not entitled to the exhaustion of the
property of the principal debtor.
4. Although an ordinary personal guarantor — not a mortgagor or pledgor — may demand the aforementioned
exhaustion, the creditor may, prior thereto, secure a judgment against said guarantor, who shall be entitled, however, to
a deferment of the execution of said judgment against him until after the properties of the principal debtor shall have
been exhausted to satisfy the obligation involved in the case.
Wherefore, the decision appealed from is hereby affirmed, with costs against the Defendant-Appellant. It is SO ORDERED.
Paras, C.J., Bengzon, Padilla, Montemayor, Reyes, A., Jugo, Bautista Angelo, Labrador, Reyes, J.B.L., and Endencia, JJ.,
concur.
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.

AVANCEÑA, 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.

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.
G.R. No. 74886 December 8, 1992
PRUDENTIAL BANK, petitioner,
vs.
INTERMEDIATE APPELLATE COURT, PHILIPPINE RAYON MILLS, INC. and ANACLETO R. CHI, respondents.

DAVIDE, JR., J.:

Petitioner seeks to review and set aside the decision 1 of public respondent; Intermediate Appellate Court (now Court of
Appeals), dated 10 March 1986, in AC-G.R. No. 66733 which affirmed in toto the 15 June 1978 decision of Branch 9
(Quezon City) of the then Court of First Instance (now Regional Trial Court) of Rizal in Civil Case No. Q-19312. The latter
involved an action instituted by the petitioner for the recovery of a sum of money representing the amount paid by it to
the Nissho Company Ltd. of Japan for textile machinery imported by the defendant, now private respondent, Philippine
Rayon Mills, Inc. (hereinafter Philippine Rayon), represented by co-defendant Anacleto R. Chi.
The facts which gave rise to the instant controversy are summarized by the public respondent as follows:
On August 8, 1962, defendant-appellant Philippine Rayon Mills, Inc. entered into a contract with Nissho
Co., Ltd. of Japan for the importation of textile machineries under a five-year deferred payment plan
(Exhibit B, Plaintiff's Folder of Exhibits, p 2). To effect payment for said machineries, the defendant-
appellant applied for a commercial letter of credit with the Prudential Bank and Trust Company in favor
of Nissho. By virtue of said application, the Prudential Bank opened Letter of Credit No. DPP-63762 for
$128,548.78 (Exhibit A, Ibid., p. 1). Against this letter of credit, drafts were drawn and issued by Nissho
(Exhibits X, X-1 to X-11, Ibid., pp. 65, 66 to 76), which were all paid by the Prudential Bank through its
correspondent in Japan, the Bank of Tokyo, Ltd. As indicated on their faces, two of these drafts (Exhibit X
and X-1, Ibid., pp. 65-66) were accepted by the defendant-appellant through its president, Anacleto R.
Chi, while the others were not (Exhibits X-2 to X-11, Ibid., pp. 66 to 76).
Upon the arrival of the machineries, the Prudential Bank indorsed the shipping documents to the
defendant-appellant which accepted delivery of the same. To enable the defendant-appellant to take
delivery of the machineries, it executed, by prior arrangement with the Prudential Bank, a trust receipt
which was signed by Anacleto R. Chi in his capacity as President (sic) of defendant-appellant company
(Exhibit C, Ibid., p. 13).
At the back of the trust receipt is a printed form to be accomplished by two sureties who, by the very
terms and conditions thereof, were to be jointly and severally liable to the Prudential Bank should the
defendant-appellant fail to pay the total amount or any portion of the drafts issued by Nissho and paid
for by Prudential Bank. The defendant-appellant was able to take delivery of the textile machineries and
installed the same at its factory site at 69 Obudan Street, Quezon City.
Sometime in 1967, the defendant-appellant ceased business operation (sic). On December 29, 1969,
defendant-appellant's factory was leased by Yupangco Cotton Mills for an annual rental of P200,000.00
(Exhibit I, Ibid., p. 22). The lease was renewed on January 3, 1973 (Exhibit J, Ibid., p. 26). On January 5,
1974, all the textile machineries in the defendant-appellant's factory were sold to AIC Development
Corporation for P300,000.00 (Exhibit K, Ibid., p. 29).
The obligation of the defendant-appellant arising from the letter of credit and the trust receipt remained
unpaid and unliquidated. Repeated formal demands (Exhibits U, V, and W, Ibid., pp. 62, 63, 64) for the
payment of the said trust receipt yielded no result Hence, the present action for the collection of the
principal amount of P956,384.95 was filed on October 3, 1974 against the defendant-appellant and
Anacleto R. Chi. In their respective answers, the defendants interposed identical special defenses, viz.,
the complaint states no cause of action; if there is, the same has prescribed; and the plaintiff is guilty of
laches. 2
On 15 June 1978, the trial court rendered its decision the dispositive portion of which reads:
WHEREFORE, judgment is hereby rendered sentencing the defendant Philippine Rayon Mills, Inc. to pay
plaintiff the sum of P153,645.22, the amounts due under Exhibits "X" & "X-1", with interest at 6% per
annum beginning September 15, 1974 until fully paid.
Insofar as the amounts involved in drafts Exhs. "X" (sic) to "X-11", inclusive, the same not having been
accepted by defendant Philippine Rayon Mills, Inc., plaintiff's cause of action thereon has not accrued,
hence, the instant case is premature.
Insofar as defendant Anacleto R. Chi is concerned, the case is dismissed. Plaintiff is ordered to pay
defendant Anacleto R. Chi the sum of P20,000.00 as attorney's fees.
With costs against defendant Philippine Rayon Mills, Inc.
SO ORDERED. 3
Petitioner appealed the decision to the then Intermediate Appellate Court. In urging the said court to reverse or modify
the decision, petitioner alleged in its Brief that the trial court erred in (a) disregarding its right to reimbursement from
the private respondents for the entire unpaid balance of the imported machines, the total amount of which was paid to
the Nissho Company Ltd., thereby violating the principle of the third party payor's right to reimbursement provided for
in the second paragraph of Article 1236 of the Civil Code and under the rule against unjust enrichment; (b) refusing to
hold Anacleto R. Chi, as the responsible officer of defendant corporation, liable under Section 13 of P.D No 115 for the
entire unpaid balance of the imported machines covered by the bank's trust receipt (Exhibit "C"); (c) finding that the
solidary guaranty clause signed by Anacleto R. Chi is not a guaranty at all; (d) controverting the judicial admissions of
Anacleto R. Chi that he is at least a simple guarantor of the said trust receipt obligation; (e) contravening, based on the
assumption that Chi is a simple guarantor, Articles 2059, 2060 and 2062 of the Civil Code and the related evidence and
jurisprudence which provide that such liability had already attached; (f) contravening the judicial admissions of
Philippine Rayon with respect to its liability to pay the petitioner the amounts involved in the drafts (Exhibits "X", "X-l" to
"X-11''); and (g) interpreting "sight" drafts as requiring acceptance by Philippine Rayon before the latter could be held
liable thereon. 4
In its decision, public respondent sustained the trial court in all respects. As to the first and last assigned errors, it ruled
that the provision on unjust enrichment, Article 2142 of the Civil Code, applies only if there is no express contract
between the parties and there is a clear showing that the payment is justified. In the instant case, the relationship
existing between the petitioner and Philippine Rayon is governed by specific contracts, namely the application for letters
of credit, the promissory note, the drafts and the trust receipt. With respect to the last ten (10) drafts (Exhibits "X-2" to
"X-11") which had not been presented to and were not accepted by Philippine Rayon, petitioner was not justified in
unilaterally paying the amounts stated therein. The public respondent did not agree with the petitioner's claim that the
drafts were sight drafts which did not require presentment for acceptance to Philippine Rayon because paragraph 8 of
the trust receipt presupposes prior acceptance of the drafts. Since the ten (10) drafts were not presented and accepted,
no valid demand for payment can be made.
Public respondent also disagreed with the petitioner's contention that private respondent Chi is solidarily liable with
Philippine Rayon pursuant to Section 13 of P.D. No. 115 and based on his signature on the solidary guaranty clause at
the dorsal side of the trust receipt. As to the first contention, the public respondent ruled that the civil liability provided
for in said Section 13 attaches only after conviction. As to the second, it expressed misgivings as to whether Chi's
signature on the trust receipt made the latter automatically liable thereon because the so-called solidary guaranty
clause at the dorsal portion of the trust receipt is to be signed not by one (1) person alone, but by two (2) persons; the
last sentence of the same is incomplete and unsigned by witnesses; and it is not acknowledged before a notary public.
Besides, even granting that it was executed and acknowledged before a notary public, Chi cannot be held liable therefor
because the records fail to show that petitioner had either exhausted the properties of Philippine Rayon or had resorted
to all legal remedies as required in Article 2058 of the Civil Code. As provided for under Articles 2052 and 2054 of the
Civil Code, the obligation of a guarantor is merely accessory and subsidiary, respectively. Chi's liability would therefore
arise only when the principal debtor fails to comply with his obligation. 5
Its motion to reconsider the decision having been denied by the public respondent in its Resolution of 11 June
1986, 6 petitioner filed the instant petition on 31 July 1986 submitting the following legal issues:
I. WHETHER OR NOT THE RESPONDENT APPELLATE COURT GRIEVOUSLY ERRED IN DENYING
PETITIONER'S CLAIM FOR FULL REIMBURSEMENT AGAINST THE PRIVATE RESPONDENTS FOR THE
PAYMENT PETITIONER MADE TO NISSHO CO. LTD. FOR THE BENEFIT OF PRIVATE RESPONDENT UNDER
ART. 1283 OF THE NEW CIVIL CODE OF THE PHILIPPINES AND UNDER THE GENERAL PRINCIPLE AGAINST
UNJUST ENRICHMENT;
II. WHETHER OR NOT RESPONDENT CHI IS SOLIDARILY LIABLE UNDER THE TRUST RECEIPT (EXH. C);
III. WHETHER OR NOT ON THE BASIS OF THE JUDICIAL ADMISSIONS OF RESPONDENT CHI HE IS LIABLE
THEREON AND TO WHAT EXTENT;
IV. WHETHER OR NOT RESPONDENT CHI IS MERELY A SIMPLE GUARANTOR; AND IF SO; HAS HIS
LIABILITY AS SUCH ALREADY ATTACHED;
V. WHETHER OR NOT AS THE SIGNATORY AND RESPONSIBLE OFFICER OF RESPONDENT PHIL. RAYON
RESPONDENT CHI IS PERSONALLY LIABLE PURSUANT TO THE PROVISION OF SECTION 13, P.D. 115;
VI. WHETHER OR NOT RESPONDENT PHIL. RAYON IS LIABLE TO THE PETITIONER UNDER THE TRUST
RECEIPT (EXH. C);
VII. WHETHER OR NOT ON THE BASIS OF THE JUDICIAL ADMISSIONS RESPONDENT PHIL. RAYON IS
LIABLE TO THE PETITIONER UNDER THE DRAFTS (EXHS. X, X-1 TO X-11) AND TO WHAT EXTENT;
VIII. WHETHER OR NOT SIGHT DRAFTS REQUIRE PRIOR ACCEPTANCE FROM RESPONDENT PHIL. RAYON
BEFORE THE LATTER BECOMES LIABLE TO PETITIONER. 7
In the Resolution of 12 March 1990, 8 this Court gave due course to the petition after the filing of the Comment thereto
by private respondent Anacleto Chi and of the Reply to the latter by the petitioner; both parties were also required to
submit their respective memoranda which they subsequently complied with.
As We see it, the issues may be reduced as follows:
1. Whether presentment for acceptance of the drafts was indispensable to make
Philippine Rayon liable thereon;
2. Whether Philippine Rayon is liable on the basis of the trust receipt;
3. Whether private respondent Chi is jointly and severally liable with Philippine Rayon
for the obligation sought to be enforced and if not, whether he may be considered a
guarantor; in the latter situation, whether the case should have been dismissed on the
ground of lack of cause of action as there was no prior exhaustion of Philippine Rayon's
properties.
Both the trial court and the public respondent ruled that Philippine Rayon could be held liable for the two (2) drafts,
Exhibits "X" and "X-1", because only these appear to have been accepted by the latter after due presentment. The
liability for the remaining ten (10) drafts (Exhibits "X-2" to "X-11" inclusive) did not arise because the same were not
presented for acceptance. In short, both courts concluded that acceptance of the drafts by Philippine Rayon was
indispensable to make the latter liable thereon. We are unable to agree with this proposition. The transaction in the
case at bar stemmed from Philippine Rayon's application for a commercial letter of credit with the petitioner in the
amount of $128,548.78 to cover the former's contract to purchase and import loom and textile machinery from Nissho
Company, Ltd. of Japan under a five-year deferred payment plan. Petitioner approved the application. As correctly ruled
by the trial court in its Order of 6 March 1975: 9
. . . By virtue of said Application and Agreement for Commercial Letter of Credit, plaintiff bank 10 was
under obligation to pay through its correspondent bank in Japan the drafts that Nisso (sic) Company,
Ltd., periodically drew against said letter of credit from 1963 to 1968, pursuant to plaintiff's contract
with the defendant Philippine Rayon Mills, Inc. In turn, defendant Philippine Rayon Mills, Inc., was
obligated to pay plaintiff bank the amounts of the drafts drawn by Nisso (sic) Company, Ltd. against said
plaintiff bank together with any accruing commercial charges, interest, etc. pursuant to the terms and
conditions stipulated in the Application and Agreement of Commercial Letter of Credit Annex "A".
A letter of credit is defined as an engagement by a bank or other person made at the request of a customer that the
issuer will honor drafts or other demands for payment upon compliance with the conditions specified in the
credit. 11Through a letter of credit, the bank merely substitutes its own promise to pay for one of its customers who in
return promises to pay the bank the amount of funds mentioned in the letter of credit plus credit or commitment fees
mutually agreed upon. 12 In the instant case then, the drawee was necessarily the herein petitioner. It was to the latter
that the drafts were presented for payment. In fact, there was no need for acceptance as the issued drafts are sight
drafts. Presentment for acceptance is necessary only in the cases expressly provided for in Section 143 of the Negotiable
Instruments Law (NIL). 13 The said section reads:
Sec. 143. When presentment for acceptance must be made. — Presentment for acceptance must be
made:
(a) Where the bill is payable after sight, or in any other case, where
presentment for acceptance is necessary in order to fix the maturity of
the instrument; or
(b) Where the bill expressly stipulates that it shall be presented for
acceptance; or
(c) Where the bill is drawn payable elsewhere than at the residence or
place of business of the drawee.
In no other case is presentment for acceptance necessary in order to render any party to the bill liable.
Obviously then, sight drafts do not require presentment for acceptance.
The acceptance of a bill is the signification by the drawee of his assent to the order of the drawer; 14 this may be done in
writing by the drawee in the bill itself, or in a separate instrument. 15
The parties herein agree, and the trial court explicitly ruled, that the subject, drafts are sight drafts. Said the latter:
. . . In the instant case the drafts being at sight, they are supposed to be payable upon acceptance unless
plaintiff bank has given the Philippine Rayon Mills Inc. time within which to pay the same. The first two
drafts (Annexes C & D, Exh. X & X-1) were duly accepted as indicated on their face (sic), and upon such
acceptance should have been paid forthwith. These two drafts were not paid and although Philippine
Rayon Mills
ought to have paid the same, the fact remains that until now they are still unpaid. 16
Corollarily, they are, pursuant to Section 7 of the NIL, payable on demand. Section 7 provides:
Sec. 7. When payable on demand. — An instrument is payable on demand —
(a) When so it is expressed to be payable on demand, or at sight, or on
presentation; or
(b) In which no time for payment in expressed.
Where an instrument is issued, accepted, or indorsed when overdue, it is, as regards the person so
issuing, accepting, or indorsing it, payable on demand. (emphasis supplied)
Paragraph 8 of the Trust Receipt which reads: "My/our liability for payment at maturity of any accepted draft,
bill of exchange or indebtedness shall not be extinguished or modified" 17 does not, contrary to the holding of
the public respondent, contemplate prior acceptance by Philippine Rayon, but by the petitioner. Acceptance,
however, was not even necessary in the first place because the drafts which were eventually issued were sight
drafts And even if these were not sight drafts, thereby necessitating acceptance, it would be the petitioner —
and not Philippine Rayon — which had to accept the same for the latter was not the drawee. Presentment for
acceptance is defined an the production of a bill of exchange to a drawee for acceptance. 18The trial court and
the public respondent, therefore, erred in ruling that presentment for acceptance was an indispensable
requisite for Philippine Rayon's liability on the drafts to attach. Contrary to both courts' pronouncements,
Philippine Rayon immediately became liable thereon upon petitioner's payment thereof. Such is the essence of
the letter of credit issued by the petitioner. A different conclusion would violate the principle upon which
commercial letters of credit are founded because in such a case, both the beneficiary and the issuer, Nissho
Company Ltd. and the petitioner, respectively, would be placed at the mercy of Philippine Rayon even if the
latter had already received the imported machinery and the petitioner had fully paid for it. The typical setting
and purpose of a letter of credit are described in Hibernia Bank and Trust Co.vs. J. Aron & Co., Inc., 19 thus:
Commercial letters of credit have come into general use in international sales transactions where much
time necessarily elapses between the sale and the receipt by a purchaser of the merchandise, during
 which interval great price changes may occur. Buyers and sellers struggle for the advantage of position.
The seller is desirous of being paid as surely and as soon as possible, realizing that the vendee at a
distant point has it in his power to reject on trivial grounds merchandise on arrival, and cause
considerable hardship to the shipper. Letters of credit meet this condition by affording celerity and
certainty of payment. Their purpose is to insure to a seller payment of a definite amount upon
presentation of documents. The bank deals only with documents. It has nothing to do with the quality of
the merchandise. Disputes as to the merchandise shipped may arise and be litigated later between
vendor and vendee, but they may not impede acceptance of drafts and payment by the issuing bank
when the proper documents are presented.
The trial court and the public respondent likewise erred in disregarding the trust receipt and in not holding that
Philippine Rayon was liable thereon. In People vs. Yu Chai Ho, 20 this Court explains the nature of a trust receipt by
quoting In re Dunlap Carpet Co., 21 thus:
By this arrangement a banker advances money to an intending importer, and thereby lends the aid of
capital, of credit, or of business facilities and agencies abroad, to the enterprise of foreign commerce.
Much of this trade could hardly be carried on by any other means, and therefore it is of the first
importance that the fundamental factor in the transaction, the banker's advance of money and credit,
should receive the amplest protection. Accordingly, in order to secure that the banker shall be repaid at
the critical point — that is, when the imported goods finally reach the hands of the intended vendee —
the banker takes the full title to the goods at the very beginning; he takes it as soon as the goods are
bought and settled for by his payments or acceptances in the foreign country, and he continues to hold
that title as his indispensable security until the goods are sold in the United States and the vendee is
called upon to pay for them. This security is not an ordinary pledge by the importer to the banker, for
the importer has never owned the goods, and moreover he is not able to deliver the possession; but the
security is the complete title vested originally in the bankers, and this characteristic of the transaction
has again and again been recognized and protected by the courts. Of course, the title is at bottom a
security title, as it has sometimes been called, and the banker is always under the obligation to
reconvey; but only after his advances have been fully repaid and after the importer has fulfilled the
other terms of the contract.
As further stated in National Bank vs. Viuda e Hijos de Angel Jose, 22 trust receipts:
. . . [I]n a certain manner, . . . partake of the nature of a conditional sale as provided by the Chattel
Mortgage Law, that is, the importer becomes absolute owner of the imported merchandise as soon an
he has paid its price. The ownership of the merchandise continues to be vested in the owner thereof or
in the person who has advanced payment, until he has been paid in full, or if the merchandise has
already been sold, the proceeds of the sale should be turned over to him by the importer or by his
representative or successor in interest.
Under P.D. No. 115, otherwise known an the Trust Receipts Law, which took effect on 29 January 1973, a trust receipt
transaction is defined as "any transaction by and between a person referred to in this Decree as the entruster, and
another person referred to in this Decree as the entrustee, whereby the entruster, who owns or holds absolute title or
security interests' over certain specified goods, documents or instruments, releases the same to the possession of the
entrustee upon the latter's execution and delivery to the entruster of a signed document called the "trust receipt"
wherein the entrustee binds himself to hold the designated goods, documents or instruments in trust for the entruster
and to sell or otherwise dispose of the goods, documents or instruments with the obligation to turn over to the
entruster the proceeds thereof to the extent of the amount owing to the entruster or as appears in the trust receipt or
the goods, instruments themselves if they are unsold or not otherwise disposed of, in accordance with the terms and
conditions specified in the trusts receipt, or for other purposes substantially equivalent to any one of the following: . . ."
It is alleged in the complaint that private respondents "not only have presumably put said machinery to good use and
have profited by its operation and/or disposition but very recent information that (sic) reached plaintiff bank that
defendants already sold the machinery covered by the trust receipt to Yupangco Cotton Mills," and that "as trustees of
the property covered by the trust receipt, . . . and therefore acting in fiduciary (sic) capacity, defendants have willfully
violated their duty to account for the whereabouts of the machinery covered by the trust receipt or for the proceeds of
any lease, sale or other disposition of the same that they may have made, notwithstanding demands therefor;
defendants have fraudulently misapplied or converted to their own use any money realized from the lease, sale, and
other disposition of said machinery." 23 While there is no specific prayer for the delivery to the petitioner by Philippine
Rayon of the proceeds of the sale of the machinery covered by the trust receipt, such relief is covered by the general
prayer for "such further and other relief as may be just and equitable on the premises." 24 And although it is true that
the petitioner commenced a criminal action for the violation of the Trust Receipts Law, no legal obstacle prevented it
from enforcing the civil liability arising out of the trust, receipt in a separate civil action. Under Section 13 of the Trust
Receipts Law, the failure of an entrustee to turn over the proceeds of the sale of goods, documents or instruments
covered by a trust receipt to the extent of the amount owing to the entruster or as appear in the trust receipt or to
return said goods, documents or instruments if they were not sold or disposed of in accordance with the terms of the
trust receipt shall constitute the crime of estafa, punishable under the provisions of Article 315, paragraph 1(b) of the
Revised Penal Code. 25 Under Article 33 of the Civil Code, a civil action for damages, entirely separate and distinct from
the criminal action, may be brought by the injured party in cases of defamation, fraud and physical injuries. Estafa falls
under fraud.
We also conclude, for the reason hereinafter discussed, and not for that adduced by the public respondent, that private
respondent Chi's signature in the dorsal portion of the trust receipt did not bind him solidarily with Philippine Rayon.
The statement at the dorsal portion of the said trust receipt, which petitioner describes as a "solidary guaranty clause",
reads:
In consideration of the PRUDENTIAL BANK AND TRUST COMPANY complying with the foregoing, we
jointly and severally agree and undertake to pay on demand to the PRUDENTIAL BANK AND TRUST
COMPANY all sums of money which the said PRUDENTIAL BANK AND TRUST COMPANY may call upon us
to pay arising out of or pertaining to, and/or in any event connected with the default of and/or non-
fulfillment in any respect of the undertaking of the aforesaid:
PHILIPPINE RAYON MILLS, INC.
We further agree that the PRUDENTIAL BANK AND TRUST COMPANY does not have to take any steps or
exhaust its remedy against aforesaid:
before making demand on me/us.
(Sgd.) Anacleto R. Chi
ANACLETO R. CHI 26
Petitioner insists that by virtue of the clear wording of the statement, specifically the clause ". . . we jointly and severally
agree and undertake . . .," and the concluding sentence on exhaustion, Chi's liability therein is solidary.
In holding otherwise, the public respondent ratiocinates as follows:
With respect to the second argument, we have our misgivings as to whether the mere signature of
defendant-appellee Chi of (sic) the guaranty agreement, Exhibit "C-1", will make it an actionable
document. It should be noted that Exhibit "C-1" was prepared and printed by the plaintiff-appellant. A
perusal of Exhibit "C-1" shows that it was to be signed and executed by two persons. It was signed only
by defendant-appellee Chi. Exhibit "C-1" was to be witnessed by two persons, but no one signed in that
capacity. The last sentence of the guaranty clause is incomplete. Furthermore, the plaintiff-appellant
also failed to have the purported guarantee clause acknowledged before a notary public. All these show
that the alleged guaranty provision was disregarded and, therefore, not consummated.
But granting arguendo that the guaranty provision in Exhibit "C-1" was fully executed and acknowledged
still defendant-appellee Chi cannot be held liable thereunder because the records show that the
plaintiff-appellant had neither exhausted the property of the defendant-appellant nor had it resorted to
all legal remedies against the said defendant-appellant as provided in Article 2058 of the Civil Code. The
obligation of a guarantor is merely accessory under Article 2052 of the Civil Code and subsidiary under
Article 2054 of the Civil Code. Therefore, the liability of the defendant-appellee arises only when the
principal debtor fails to comply with his obligation. 27
Our own reading of the questioned solidary guaranty clause yields no other conclusion than that the obligation of Chi is
only that of a guarantor. This is further bolstered by the last sentence which speaks of waiver of exhaustion, which,
nevertheless, is ineffective in this case because the space therein for the party whose property may not be exhausted
was not filled up. Under Article 2058 of the Civil Code, the defense of exhaustion (excussion) may be raised by a
guarantor before he may be held liable for the obligation. Petitioner likewise admits that the questioned provision is
a solidary guaranty clause, thereby clearly distinguishing it from a contract of surety. It, however, described the guaranty
as solidary between the guarantors; this would have been correct if two (2) guarantors had signed it. The clause "we
jointly and severally agree and undertake" refers to the undertaking of the two (2) parties who are to sign it or to the
liability existing between themselves. It does not refer to the undertaking between either one or both of them on the
one hand and the petitioner on the other with respect to the liability described under the trust receipt. Elsewise stated,
their liability is not divisible as between them, i.e., it can be enforced to its full extent against any one of them.
Furthermore, any doubt as to the import, or true intent of the solidary guaranty clause should be resolved against the
petitioner. The trust receipt, together with the questioned solidary guaranty clause, is on a form drafted and prepared
solely by the petitioner; Chi's participation therein is limited to the affixing of his signature thereon. It is, therefore, a
contract of adhesion; 28 as such, it must be strictly construed against the party responsible for its preparation. 29
Neither can We agree with the reasoning of the public respondent that this solidary guaranty clause was effectively
disregarded simply because it was not signed and witnessed by two (2) persons and acknowledged before a notary
public. While indeed, the clause ought to have been signed by two (2) guarantors, the fact that it was only Chi who
signed the same did not make his act an idle ceremony or render the clause totally meaningless. By his signing, Chi
became the sole guarantor. The attestation by witnesses and the acknowledgement before a notary public are not
required by law to make a party liable on the instrument. The rule is that contracts shall be obligatory in whatever form
they may have been entered into, provided all the essential requisites for their validity are present; however, when the
law requires that a contract be in some form in order that it may be valid or enforceable, or that it be proved in a certain
way, that requirement is absolute and indispensable. 30 With respect to a guaranty, 31 which is a promise to answer for
the debt or default of another, the law merely requires that it, or some note or memorandum thereof, be in writing.
Otherwise, it would be unenforceable unless ratified. 32 While the acknowledgement of a surety before a notary public is
required to make the same a public document, under Article 1358 of the Civil Code, a contract of guaranty does not have
to appear in a public document.
And now to the other ground relied upon by the petitioner as basis for the solidary liability of Chi, namely the criminal
proceedings against the latter for the violation of P.D. No. 115. Petitioner claims that because of the said criminal
proceedings, Chi would be answerable for the civil liability arising therefrom pursuant to Section 13 of P.D. No. 115.
Public respondent rejected this claim because such civil liability presupposes prior conviction as can be gleaned from the
phrase "without prejudice to the civil liability arising from the criminal offense." Both are wrong. The said section reads:
Sec. 13. Penalty Clause. — The failure of an entrustee to turn over the proceeds of the sale of the goods,
documents or instruments covered by a trust receipt to the extent of the amount owing to the entruster
or as appears in the trust receipt or to return said goods, documents or instruments if they were not
sold or disposed of in accordance with the terms of the trust receipt shall constitute the crime of estafa,
punishable under the provisions of Article Three hundred and fifteen, paragraph one (b) of Act
Numbered Three thousand eight hundred and fifteen, as amended, otherwise known as the Revised
Penal Code. If the violation or offense is committed by a corporation, partnership, association or other
juridical entities, the penalty provided for in this Decree shall be imposed upon the directors, officers,
employees or other officials or persons therein responsible for the offense, without prejudice to the civil
liabilities arising from the criminal offense.
A close examination of the quoted provision reveals that it is the last sentence which provides for the correct solution. It
is clear that if the violation or offense is committed by a corporation, partnership, association or other juridical entities,
the penalty shall be imposed upon the directors, officers, employees or other officials or persons therein responsible for
the offense. The penalty referred to is imprisonment, the duration of which would depend on the amount of the fraud
as provided for in Article 315 of the Revised Penal Code. The reason for this is obvious: corporations, partnerships,
associations and other juridical entities cannot be put in jail. However, it is these entities which are made liable for the
civil liability arising from the criminal offense. This is the import of the clause "without prejudice to the civil liabilities
arising from the criminal offense." And, as We stated earlier, since that violation of a trust receipt constitutes fraud
under Article 33 of the Civil Code, petitioner was acting well within its rights in filing an independent civil action to
enforce the civil liability arising therefrom against Philippine Rayon.
The remaining issue to be resolved concerns the propriety of the dismissal of the case against private respondent Chi.
The trial court based the dismissal, and the respondent Court its affirmance thereof, on the theory that Chi is not liable
on the trust receipt in any capacity — either as surety or as guarantor — because his signature at the dorsal portion
thereof was useless; and even if he could be bound by such signature as a simple guarantor, he cannot, pursuant to
Article 2058 of the Civil Code, be compelled to pay until
after petitioner has exhausted and resorted to all legal remedies against the principal debtor, Philippine Rayon. The
records fail to show that petitioner had done so 33 Reliance is thus placed on Article 2058 of the Civil Code which
provides:
Art. 2056. The guarantor cannot be compelled to pay the creditor unless the latter has exhausted all the
property of the debtor, and has resorted to all the legal remedies against the debtor.
Simply stated, there is as yet no cause of action against Chi.
We are not persuaded. Excussion is not a condition sine qua non for the institution of an action against a guarantor.
In Southern Motors, Inc. vs. Barbosa, 34 this Court stated:
4. Although an ordinary personal guarantor — not a mortgagor or pledgor — may demand the
aforementioned exhaustion, the creditor may, prior thereto, secure a judgment against said guarantor,
who shall be entitled, however, to a deferment of the execution of said judgment against him until after
the properties of the principal debtor shall have been exhausted to satisfy the obligation involved in the
case.
There was then nothing procedurally objectionable in impleading private respondent Chi as a co-defendant in Civil Case
No. Q-19312 before the trial court. As a matter of fact, Section 6, Rule 3 of the Rules of Court on permissive joinder of
parties explicitly allows it. It reads:
Sec. 6. Permissive joinder of parties. — All persons in whom or against whom any right to relief in
respect to or arising out of the same transaction or series of transactions is alleged to exist, whether
jointly, severally, or in the alternative, may, except as otherwise provided in these rules, join as plaintiffs
or be joined as defendants in one complaint, where any question of law or fact common to all such
plaintiffs or to all such defendants may arise in the action; but the court may make such orders as may
be just to prevent any plaintiff or defendant from being embarrassed or put to expense in connection
with any proceedings in which he may have no interest.
This is the equity rule relating to multifariousness. It is based on trial convenience and is designed to permit the joinder
of plaintiffs or defendants whenever there is a common question of law or fact. It will save the parties unnecessary
work, trouble and expense. 35
However, Chi's liability is limited to the principal obligation in the trust receipt plus all the accessories thereof including
judicial costs; with respect to the latter, he shall only be liable for those costs incurred after being judicially required to
pay. 36 Interest and damages, being accessories of the principal obligation, should also be paid; these, however, shall run
only from the date of the filing of the complaint. Attorney's fees may even be allowed in appropriate cases.37
In the instant case, the attorney's fees to be paid by Chi cannot be the same as that to be paid by Philippine Rayon since
it is only the trust receipt that is covered by the guaranty and not the full extent of the latter's liability. All things
considered, he can be held liable for the sum of P10,000.00 as attorney's fees in favor of the petitioner.
Thus, the trial court committed grave abuse of discretion in dismissing the complaint as against private respondent Chi
and condemning petitioner to pay him P20,000.00 as attorney's fees.
In the light of the foregoing, it would no longer necessary to discuss the other issues raised by the petitioner
WHEREFORE, the instant Petition is hereby GRANTED.
 The appealed Decision of 10 March 1986 of the public respondent in AC-G.R. CV No. 66733 and, necessarily, that
of Branch 9 (Quezon City) of the then Court of First Instance of Rizal in Civil Case No. Q-19312 are hereby
REVERSED and SET ASIDE and another is hereby entered:
1. Declaring private respondent Philippine Rayon Mills, Inc. liable on the twelve drafts in
question (Exhibits "X", "X-1" to "X-11", inclusive) and on the trust receipt (Exhibit "C"),
and ordering it to pay petitioner: (a) the amounts due thereon in the total sum of
P956,384.95 as of 15 September 1974, with interest thereon at six percent (6%) per
annum from 16 September 1974 until it is fully paid, less whatever may have been
applied thereto by virtue of foreclosure of mortgages, if any; (b) a sum equal to ten
percent (10%) of the aforesaid amount as attorney's fees; and (c) the costs.
2. Declaring private respondent Anacleto R. Chi secondarily liable on the trust receipt
and ordering him to pay the face value thereof, with interest at the legal rate,
commencing from the date of the filing of the complaint in Civil Case No. Q-19312 until
the same is fully paid as well as the costs and attorney's fees in the sum of P10,000.00 if
the writ of execution for the enforcement of the above awards against Philippine Rayon
Mills, Inc. is returned unsatisfied.
Costs against private respondents.
SO ORDERED.
G.R. No. L-28030 January 18, 1982
THE IMPERIAL INSURANCE, INC., petitioner,
vs.
HON. WALFRIDO DE LOS ANGELES, Judge of the Court of First Instance of Rizal, Quezon City Branch IV, ROSA V. REYES,
PEDRO V. REYES and CONSOLACION V. REYES, respondents.

FERNANDEZ, J.:
This is a petition for certiorari to review the decision of the Court of Appeals in CA-G.R. No. 38824-R promulgated on July
19, 1967 entitled "The Imperial Insurance, Inc., petitioner vs. Hon. Walfrido de los Angeles, Judge of the Court of First
Instance of Rizal, Branch IV, Quezon City, et al, respondents," the dispositive part of which reads:
WHEREFORE, the instant petition is dismissed and the writ of preliminary injunction issued by the Court
on January 31, 1967, is hereby dissolved, with costs against petitioner.
SO ORDERED. 1
As found by the Court of Appeals, the uncontroverted facts are:
It appears that herein private respondent Rosa V. Reyes is the plaintiff in Civil Case N. Q-8213 of the
Court of First Instance of Rizal, Branch IV, Quezon City, entitled, 'Rosa V. Reyes vs, Felicisimo V. Reyes,
etc.,' where she obtained a writ of preliminary attachment and, accordingly, levied upon all the
properties of the defendant, Felicisimo V. Reyes, in said case. The other two herein private respondents,
namely, Pedro V. Reyes and Consolacion V. Reyes, are the plaintiffs in Civil Case No. Q-5214 of the same
court entitled, 'Pedro V. Reyes, etc.,' and likewise, obtained a writ of preliminary attachment and,
accordingly, levied upon all the properties of the defendant, Felicisimo V. Reyes, in said case.
For the dissolution of the attachments referred to above, the herein petitioner, The Imperial Insurance,
Inc., as surety, and Felicisimo V. Reyes, as principal, posted a 'defendant's bond for dissolution of
attachment' in the amount of P60,000.00 in Civil Case No. Q-5213 and another bond of the same nature
in the amount of P40,000.00 in Civil Case No. Q-5214.
Civil Cases Nos. Q-5213 and 5214 were jointly tried and the decision therein rendered was in favor of
the plaintiffs. This decision was affirmed by this Court on appeal in cases CA-G.R. NOS. 33783-R and
33784-R. The decision of this Court, having become final, the records of the cases were remanded to the
Court of First Instance of Rizal, Quezon City Branch, for execution of judgment.
Accordingly, on June 24, 1966, the Court below, presided by the herein respondent Judge, Hon. Walfrido
de los Angeles, issued the writs of execution of judgment in said cases. However, on August 20, 1966,
the Provincial Sheriff of Bulacan returned the writs of execution' unsatisfied in whole or in part'.
On September 9, 1966, private respondents filed a 'motion for recovery on the surety bonds'.
Thereafter, said private respondents, thru counsel, sent a letter of demand upon petitioner asking the
latter to pay them the accounts on the counter-bonds. On September 24, 1966, petitioner filed its
'opposition' to the private respondents "Motion for recovery on the surety bonds'. Respondent Judge, in
his order, dated November 10, 1966, rendered judgment against the counter-bonds.
On November 15, 1966, private respondents filed an ex parte motion for writ of execution' without
serving copy thereof on petitioner.
In the meantime, on or about November 23 1966, petitioner filed a 'motion for reconsideration' of the
order, dated November 10, 1966. This motion was, however, denied by the respondent Judge on
January 9, 1967.
On or about January 11, 1967, petitioner filed its 'notice of intention to appeal' from the final orders of
the respondent Judge, dated November 10, 1966 and January 9. 1967.
On January 19, 1967, the respondent Judge issued an order granting the issuance of the writ of
execution against the bonds riled by the petitioner (Exhibit J, petition). 2
On January 25, 1967, the petitioner filed a petition for certiorari with prayer for for preliminary injunction with the Court
of Appeals to restrain the enforcement of the writ of execution. 3
The petition was given due course and on January 30, 1967 a writ of preliminary injunction was issued. 4 After the
parties had submitted their respective pleadings and memoranda in lieu of oral argument, the Court of Appeals
rendered the decision now under review.
The defendant, Felicisimo V. Reyes, in the abovementioned cases died during the pendency of the trial. He was duly
substituted by his surviving spouse, Emilia T. David, an administratrix of his intestate estate. 5
The petitioner assigns as errors allegedly committed by the Court of Appeals the following:
I
THE COURT OF APPEALS GRAVELY ERRED IN HOLDING THAT THE RESPONDENT JUDGE COULD LEGALLY
ISSUE THE WRIT OF EXECUTION AGAINST THE PETITIONER AS SURETY IN A COUNTERBOND (BOND TO
DISSOLVE ATTACHMENT) ON THE BASIS OF AN EX-PARTE MOTION FOR EXECUTION WHICH WAS
NEITHER SERVED UPON THE SURETY NOR SET FOR HEARING.
II
THE COURT OF APPEALS GRAVELY ERRED IN HOLDING THAT THE PLAINTIFF WHO OBTAINED A
JUDGMENT AGAINST THE DEFENDANT MAY LEGALLY CHOOSE 'TO GO DIRECTLY' AFTER THE SURETY IN A
COUNTERBOND WITHOUT PRIOR EXHAUSTION OF THE DEFENDANTS PROPERTIES.
III
 THE COURT OF APPEALS GRAVELY ERRED IN NOT HOLDING THAT THE 'JUDGMENT' RENDERED AGAINST
THE MENTIONED COUNTERBONDS IS A 'FINAL ORDER' IN THE CONTEMPLATION OF SECTION 2, RULE 41
OF THE REVISED RULES OF COURT AND, THEREFORE, APPEALABLE.
IV
THE COURT OF APPEALS GRAVELY ERRED IN NOT HOLDING THAT IN THE ABSENCE OF AN EXPRESS
PROVISION OF THE REVISED RULES OF COURT, THE PROCEDURE FOLLOWED BY THE SHERIFF IN THE
EXECUTION OF THE JUDGMENT ON THE 'SURVIVING CLAIMS', WHEN THE DEFENDANT DIED DURING THE
PENDENCY OF THE TRIAL OF HIS CASE AND BEFORE JUDGMENT WAS DULY SUBSTITUTED BY THE COURT
APPOINTED ADMINISTRATRIX OF HIS ESTATE, SHOULD HAVE BEEN THE SAME AS THE PROCEDURE SET
OUT IN SECTION (f), RULE 57 RESPECTING THE EXECUTION OF A WRIT OF PRELIMINARY ATTACHMENT
OF PROPERTIES IN CUSTODIALEGIS. 6
Anent the first error, the petitioner contends that the Court of Appeals erred in holding that the respondent judge could
legally issue the writ of execution against the petitioner as surety in a counterbond (bond to dissolve attachment) on the
basis of an ex parte motion for execution which was allegedly never served upon the surety nor set for hearing. This
contention is devoid of merit.
The counterbonds filed to lift the writs of attachment executed by the herein petitioner, The Imperial Insurance, Inc., for
and in behalf of the deceased defendant Felicisimo V. Reyes in favor of the plaintiffs, private respondents herein Rosa V.
Reyes and Consolacion V. Reyes in Civil Case No. Q-5214 docketed with the Court of First Instance of Rizal, Branch IV,
Quezon City, are clearly the bonds contemplated under Sec. 17, Rule 57 of the Rules of Court which provides:
Sec. 17. When execution returned unsatisfied, recovery had upon bond. If the execution be returned
unsatisfied in whole or in part, the surety or sureties on any counterbond given pursuant to the
provisions of this rule to secure the payment of the judgment shall become charged on such counter-
bond, and bound to pay to the judgment creditor upon demand, the amount due under the judgment,
which amount may be recovered from such surety or sureties after notice and summary hearing in the
same action.
This section allows the counterbond filed to lift an attachment to be charged only after notice and summary hearing in
the same action.
The records show that the notice and hearing requirement was substantially complied with in the instant case.
Prior to the filing of the ex parte motion for a writ of execution, the respondents filed a motion for recovery on the
surety bonds where the petitioner was duly notified and the said motion was heard on September 24, 1966. 7Moreover,
on November 23, 1966 the petitioner filed a motion for reconsideration of the order dated November 10, 1966
rendering judgment against the petitioner on its counter-bonds in the amount of P60,000.00 in Civil Case No. Q-5213
and P40,000.00 in Civil Case No. Q-5214. 8 The respondent judge set the hearing of the ex parte motion for writ of
execution together with the motion for reconsideration of the order dated November 10, 1966 on December 17, 1966 at
8:30 o'clock in the morning. 9 The petitioner received the notice of the said hearing on December 9, 1966 as evidenced
by Registry Return Receipt No. 40122. 10 On January 9, 1967, the respondent Judge issued an order denying the motion
for reconsideration dated November 23, 1966 for lack of merit. 11 in an order dated January 19, 1967, the motion for
writ of execution was granted by the respondent judge. 12
It is thus clear from indubitable documents on record that the requirements of notice and hearing had been
satisfactorily complied with by the respondents. The first error assigned is overruled.
The petitioner asserts that the Court of Appeals gravely erred in holding that the plaintiff who obtained judgment
against the defendant may legally choose "to go directly" after the surety in a counterbond without prior exhaustion of
the defendant's properties. This contention is likewise not meritorious.
Although the counterbond contemplated in the aforequoted Sec. 17, Rule 57, of the Rules of Court is an ordinary
guaranty where the sureties assume a subsidiary liability, the rule cannot apply to a counterbond where the surety
bound itself "jointly and severally" (in solidum) with the defendant as in the present case. The counterbond executed by
the deceased defendant Felicisimo V. Reyes, as principal, and the petitioner, The Imperial Insurance, Inc., as solidary
quarantor to lift the attachment in Civil Case No. Q-5213 is in the following terms:
WHEREFORE, WE, FELICISIMO V. REYES, of legal age, Filipino, and with postal address at San Jose, San
Miguel, Bulacan and/or 1480 Batangas Street, Sta. Cruz, Manila, as PRINCIPAL and THE IMPERIAL
INSURANCE, INC., a corporation duly organized and existing under the laws of the Philippines, as
SURETY, in consideration of the dissolution of said attachment, hereby JOINTLY AND SEVERALLY, bind
ourselves in the sum of SIXTY THOUSAND PESOS ONLY (P60,000.00), Philippine Currency, under the
condition that in case the plaintiff recovers judgment in the action, the defendant shall pay the sum of
SIXTY THOUSAND PESOS (P60,000.00), Philippine Currency, being the amount release for attachment, to
be applied to the payment of the judgment, or in default thereof, the Surety will, on demand, pay to the
plaintiff said amount of SIXTY THOUSAND PESOS ONLY (P60,000.00), Philippine Currency.
(Capitalizations supplied).
Manila, Philippines, June 30,1960. 13
The counterbond executed by the same parties in Civil Case No. Q-5214, likewise states.
WHEREFORE, we, FELICISIMO V. REYES, of legal age, Filipino, and with postal address at San Jose, San
Miguel, Bulacan, and/or 1480 Batangas Street, Sta. Cruz, Manila, as PRINCIPAL and THE IMPERIAL
INSURANCE, INC., a corporation duly organized and existing under the laws of the Philippines, as
SURETY, in consideration of the dissolution of said attachment, hereby JOINTLY and SEVERALLY, bind
 ourselves in the sum of FORTY THOUSAND PESOS ONLY (P40,000.00), Philippine Currency, under the
condition that in case the plaintiff recover judgment in the action the defendant shall pay the sum of
FORTY THOUSAND PESOS ONLY (P40,000.00), Philippine Currency, being the amount released for
attachment, to be applied to the payment of the judgment, or in default thereof, the Surety will, on
demand, pay to the plaintiffs said amount of FORTY THOUSAND PESOS ONLY (P40,000.00), Philippine
Currency. (Emphasis supplied).
Manila, Philippines, June 30th, 1960. 14
Clearly, the petitioner, the Imperial Insurance, Inc., had bound itself solidarily with the principal, the deceased defendant
Felicisimo V. Reyes. In accordance with Article 2059, par. 2 of the Civil Code of the Philippines, 15excussion (previous
exhaustion of the property of the debtor) shall not take place "if he (the guarantor) has bound himself solidarily with the
debtor." Section 17, Rule 57 of the Rules of Court cannot be construed that an "execution against the debtor be first
returned unsatisfied even if the bond were a solidary one, for a procedural rule may not amend the substantive law
expressed in the Civil Code, and further would nullify the express stipulation of the parties that the surety's obligation
should be solidary with that of the defendant." 16
Hence the petitioner cannot escape liability on its counter-bonds based on the second error assigned.
As regards the third error, the petitioner submits that the Court of Appeals erred in not holding that the order dated
November 10, 1966 rendering judgment against the counter-bonds, as well as the order dated January 9, 1967, denying
the motion for reconsideration thereof, and the order of the writ of execution dated January 19, 1967 are final and
appealable in accordance with Sec. 2, Rule 41 of the Rec. Rules of Court. This submission is also without merit.
To recover against the petitioner surety on its counter-bonds it is not necessary to file a separate action. Recovery and
execution may be had in the same Civil Cases Nos. Q-5213 and Q-5214, as sanctioned by Sec. 17, Rule 57, of the Revised
Rules of Court.
The decision in Civil Cases Nos. Q-5213 and Q-5214, having become final, the respondent judo issued the writs of
execution in said cases. On August 20, 1966, the Provincial Sheriff of Bulacan returned the writs of execution
"unsatisfied in whole or in part." 17
Sec. 12, Rule 57 of the Revised Rules of Court 18 specifies that an attachment may be discharged upon the making of a
cash deposit or filing a counterbond "in an amount equal to the value of the property attached as determined by the
judge"; and that upon filing the counterbond "the property attached shall be delivered to the party making the deposit
or giving the counterbond or the person appearing in his behalf, the deposit or counterbond standing in place of the
property so released."
The counter-bonds merely stand in place of the properties so released. They are mere replacements of the properties
formerly attached, and just as the latter may be levied upon after final judgment in the case in order to realize the
amount adjudged so is the liability of the counter sureties ascertainable after the judgment has become final. 19
The judgment having been rendered against the defendant, Felicisimo V. Reyes, the counter-bonds given by him and the
surety, The Imperial Insurance, Inc., under Sec. 12, Rule 57 are made liable after execution was returned unsatisfied.
Under the said rule, a demand shall be made upon the surety to pay the plaintiff the amount due on the judgment, and
if no payment is so made, the amount may be recovered from such surety after notice and hearing in the same action. A
separate action against the sureties is not necessary. 20
In the present case, the demand upon the petitioner surety was made with due notice and hearing thereon when the
private respondents filed the motion for recovery on the surety bonds dated September 9, 1966 and to which the
petitioner filed their opposition dated September 24, 1966. 21
Therefore, all the requisites under Sec. 17, Rule 57, being present, namely: (1) the writ of execution must be returned
unsatisfied, in whole or in part; (2) the plaintiff must demand the amount due under the judgment from the surety or
sureties, and (3) notice and hearing of such demand although in a summary manner, complied with, the liability of the
petitioner automatically attaches.
In effect, the order dated November 10, 1966 rendering judgment against the counter-bonds was a superfluity. The
respondent judge could have issued immediately a writ of execution against the petitioner surety upon demand.
As correctly held by the Court of Appeals:
In fact, respondent Judge could have even issued a writ of execution against petitioner on its bond
immediately after its failure to satisfy the judgment against the defendant upon demand, since liability
on the bond automatically attaches after the writ of execution against the defendant was returned
unsatisfied as held in the case of Tijan vs. Sibonghanoy, CA-G.R. No. 23669-R, December 11, 1927. 22
Moreover, the finality and non-appealability of the order dated November 10, 1966 is made certain and absolute with
the issuance of the order of execution dated January 19, 1967 23 upon the filing of the ex parte motion for writ of
execution 24 of which the petitioner was duly notified by the respondent Judge and which was duly heard. 25 The general
rule is that an order of execution is not appealable, otherwise a case would never end. The two exceptions 26 to this rule
are: (1) where the order of execution varies the tenor of the judgment; and (2) when the terms of the judgment are not
very clear, and there is room for interpretation. The case at bar does not fall under either exception. There is no showing
that the order of execution varies the tenor of the judgment in Civil Cases Nos. Q-5213 and Q-5214, nor of the order
dated November 10, 1966, but is in fact, in consonance therewith and the terms of the judgment are clear and definite,
therefore, the general rule of non-appealability applies.
It is no longer necessary to discuss the fourth error assigned because of this Court's finding that the liability expressly
assumed by the petitioner on the counter-bonds is solidary with the principal debtor, the deceased defendant,
Felicisimo V. Reyes. As a solidary guarantor, the petitioner, the Imperial Insurance, Inc., is liable to pay the amount due
on such counter-bonds should the creditors, private respondents herein, choose to go directly after it. 27
Under the law and under their own terms, the counter-bonds are only conditioned upon the rendition of the judgment.
As held by this Court in the aforecited case of Luzon Steel Corporation vs. Sia 28 "where under the rule and the bond the
undertaking is to pay the judgment, the liability of the surety or sureties attaches upon the rendition of the judgment,
and the issue of an execution and its return nulla bona is not, and should not be a condition to the right to resort to the
bond." Thus, it matters not whether the Provincial Sheriff of Bulacan, in making the return of the writ of execution
served or did not serve a copy thereof with notice of attachment on the administratrix of the intestate estate of
Felicisimo V. Reyes and filed a copy of said writ with the office of the clerk of court with notice in accordance with See. 7
(f), Rule 57 of the Revised Rules of Court. The petitioner surety as solidary obligor is liable just the same.
WHEREFORE, the decision of the Court of Appeals promulgated on July 19,1967 in CA-G.R. NO. 38824-R is affirmed and
the order of the respondent judge dated January 19, 1967 and all writs or orders issued in consequence or in pursuance
thereof are also affirmed. The court of origin is hereby ordered to proceed with the execution against the petitioner
surety, the Imperial Insurance Inc., with costs against said petitioner.
SO ORDERED.
G.R. No. L-10168 July 22, 1916
JOSE M. A. ARROYO, guardian of Tito Jocsing, an imbecile, plaintiff-appellee,
vs.
FLORENTINO HILARIO JUNGSAY, ET AL., defendants-appellants.
Perfecto J. Salas Rodriguez for appellants.
TRENT, J.:
The plaintiff in this case is the guardian of one Tito Jocsing, an imbecile, appointed by the court to succeed Jungsay, the
former guardian, who absconded with the funds of his ward. The defendants are the absconding guardian and his
bondsmen. From a judgment in favor of the plaintiff and against the defendants for the sum of P6,000, together with
interest and costs, the bondsmen appealed.
The principal question presented for our consideration is whether the appellants should be credited with P4,400, the
alleged value of certain property attached as that of the absconding guardian, all of which is in the exclusive possession
of third parties under claim of ownership.
The appellants in contending for the credit, rely upon article 1834 of the Civil Code, which gives to the surety the benefit
of a levy (excusion), even when a judgment is rendered against both the surety and the principal. But, according t article
1832, before the surety is entitled to this benefit, he must point out to the creditor property of the principal debtor
which can be sold and which is sufficient to cover the amount of the debt. Upon this point Manresa, in vol. 12, pp. 263-
265, says:
As explicitly stated in the article under consideration, it is not sufficient that the surety claim the benefit of
discussion in time, nor that is so doing he designate property of the debtor wherein to satisfy the debt. It is also
necessary that another condition be fulfilled, to wit, that such property be realizable and that it be situated in
Spanish territory. This is not only logical, but just, because the attachment of property situated a great distance
away would be a lengthy and extremely difficult proceeding and one that, if actually not opposed to, yet does
not very well accord with the purpose of the bond, that is, to insure the fulfillment of the obligation and at the
same time furnish the creditor with the means of obtaining its fulfillment without hindrance or delays. The same
may be said of property that is not readily realizable, and as the surety is the sole person who benefits by the
discussion and the one most interested in avoiding difficulties in its execution, it is he, therefore, who should
designate the property out of which the recovery is to be made, it being unquestionably convenient for him that
the property he designates unite the conditions indicated in order to facilitate the payment of the debt,
whereby he will be freed from the subsidiary obligation inherent in the bond.
In Hill & Co. vs. Bourcier and Pond (29 La. Ann., 841), where provisions similar to our Civil Code were under
consideration, the court said:
The surety has the right, under certain circumstances, to demand the discussion of the property of the principal
debtor. Where suit is brought against the surety alone, he may interpose the plea, and compel the creditor to
discuss the principal debtor. The effect of this is to stay proceedings against the surety until judgment has been
obtained against the principal debtor, and execution against his property has proved insufficient. When the suit
is brought against the surety and the principal debtor the plea of discussion does not require or authorize any
suspension of the proceedings; but the judgment will be so modified as to require the creditor to proceed by
execution against the property of the principal, and to exhaust it before resorting to the property of the surety.
(Bernard vs. Custis, 4 Martin, 215; Banks vs. Brander, 13 La., 276.)
In either case, the surety who desires to avail himself of this right must demand it in limine, `on the institution of
proceedings against him.' He must, moreover, point out to the creditor property of the principal debtor, not
incumbered, subject to seizure; and must furnish a sufficient sum to have the discussion carried into effect. (R.
C. C., 3045, 3046, 3047.) A plea which does not meet these requirements must be disregarded. (Robechot vs.
Folse, 11 La., 136; Banks vs. Brander, 13 La., 276.)
The property pointed out by the sureties is not sufficient to pay the indebtedness; it is not salable; it is so incumbered
that third parties have, as we have indicated, full possession under claim of ownership without leaving to the absconding
guardian a fractional or reversionary interest without determining first whether the claim of one or more of the
occupants is well founded. In all these respects the sureties have failed to meet the requirements of article 1832 of the
Civil Code.
Where a guardian absconds or is beyond the jurisdiction of the court, the proper method, under article 1834 of the Civil
Code and section 577 of the Code of Civil Procedure, in order to ascertain whether such guardian is liable and to what
extent, in order to bind the sureties on his official bond, is by a proceeding in the nature of a civil action wherein the
sureties are made parties and given an opportunity to be heard. All this was done in the instant case.
The judgment appealed from, being in accordance with the law, the same is hereby affirmed, with costs against the
appellants. So ordered.
Torres, Johnson, Moreland, and Araullo, JJ., concur.
LUZON STEEL CORPORATION, represented by TOMAS AQUINO CU, plaintiff-appellant,
vs.
JOSE O. SIA, defendant,
TIMES SURETY & INSURANCE CO. INC., surety-appellee.
German A. Sipin for plaintiff-appellant.
Galicano S. Calapatia for surety-appellee.
REYES, J.B.L., J.:
Direct appeal from two orders, dated 19 May and 5 June 1965, issued by the Court of First Instance of Manila (Judge
Francisco Arca presiding), in its Civil Case No. 54913, entitled Luzon Steel Corporation, plaintiff vs. Metal Manufacturing
of the Philippines, Inc., and Jose O. Sia, defendants, whereby the court aforesaid quashed a writ of execution issued
against the Times Surety & Insurance Co., Inc., and cancelled the undertaking of said surety company.
The essential and uncontroverted facts of the case may be summarized as follows:
Luzon Steel Corporation has sued Metal Manufacturing of the Philippines and Jose O. Sia, the former's manager, for
breach of contract and damages. It obtained a writ of preliminary attachment of the properties of the defendants, but
the attachment was lifted upon a P25,000.00 counterbond executed by the defendant Sia, as principal, and the Times
Surety & Insurance Co., Inc. (hereinafter designated as the surety), as solidary guarantor, in the following terms:
WHEREFORE, we JOSE O. SIA, as principal and the TIMES SURETY & INSURANCE CO., INC., as Surety, in
consideration of the dissolution of attachment, hereby jointly and severally bind ourselves in the sum of Twenty
Five Thousand Pesos (P25,000.00), Philippine Currency, to answer for the payment to the plaintiff of any
judgment it may recover in the action in accordance with Section 12, Rule 59, of the Rules of Court. (pp. 32, 45,
Rec. on Appeal.)
Issues having been joined, plaintiff and defendant (without intervention of the surety) entered into a compromise
whereby defendant Sia agreed to settle the plaintiff's claim in the following manner:
1. That the defendant shall settle with the Plaintiff the amount of TWENTY FIVE THOUSAND (P25,000.00) PESOS,
in the following manner: FIVE HUNDRED (P500.00) PESOS, monthly for the first six (6) months to be paid at the
end of every month and to commence in January, 1965, and within one month after paying the last installment
of P500.00, the balance of P22,000.00 shall be paid in lump sum, without interest. It is understood that failure of
the Defendant to pay one or any installment will make the whole obligation immediately due and demandable
and that a writ of execution will be issued immediately against Defendants bond.lawphi1.ñet
The compromise was submitted to the court and the latter approved it, rendered judgment in conformity therewith, and
directed the parties to comply with the same (Record on Appeal, page 22).
Defendant having failed to comply, plaintiff moved for and obtained a writ of execution against defendant and the joint
and several counterbond. The surety, however, moved to quash the writ of execution against it, averring that it was not
a party to the compromise, and that the writ was issued without giving the surety notice and hearing. The court,
overruling the plaintiff's opposition, set aside the writ of execution, and later cancelled the counterbond, and denied the
motion for reconsideration. Hence this appeal.
Main issues posed are (1) whether the judgment upon the compromise discharged the surety from its obligation under
its attachment counterbond and (2) whether the writ of execution could be issued against the surety without previous
exhaustion of the debtor's properties.
Both questions can be solved by bearing in mind that we are dealing with a counterbond filed to discharge a levy on
attachment. Rule 57, section 12, specifies that an attachment may be discharged upon the making of a cash deposit or
filing a counterbond "in an amount equal to the value of the property attached as determined by the judge"; that upon
the filing of the counterbond "the property attached ... shall be delivered to the party making the deposit or giving the
counterbond, or the person appearing on his behalf, the deposit or counterbond aforesaid standing in place of the
property so released".
The italicized expressions constitute the key to the entire problem. Whether the judgment be rendered after trial on the
merits or upon compromise, such judgment undoubtedly may be made effective upon the property released; and since
the counterbond merely stands in the place of such property, there is no reason why the judgment should not be made
effective against the counterbond regardless of the manner how the judgment was obtained.
Squarely on the point, and rebutting the appellee's apprehension that the compromise could be the result of a collusion
between the parties to injure the surety, is our decision in Anzures vs. Alto Surety & Insurance Co., Inc., et al., 92 Phil.
742, where this Court, through former Chief Justice Paras, ruled as follows:
Under section 12, Rule 59, of the Rules of Court, the bond filed, as in this case, for the discharge of an
attachment is "to secure the payment to the plaintiff of any judgment he may recover in the action," and stands
"in place of the property so released". It follows that the order of cancellation issued by the respondent judge is
erroneous. Indeed, judgment had already been rendered by the Court of First Instance of Manila in civil case No.
11748, sentencing Benjamin Aguilar to pay the sum of P3,500.00 to the petitioner; and it is not pretended that
said judgment is a nullity. There is no point in the contention of the respondent Surety Company that the
compromise was entered into without its knowledge and consent, thus becoming as to it essentially fraudulent.
The Surety is not a party to civil case No. 11748 and, therefore, need not be served with notice of the petition
for judgment. As against the conjecture of said respondent that the parties may easily connive by means of a
compromise to prejudice it, there is also the likelihood that the same end may be attained by parties acting in
bad faith through a simulated trial. At any rate, it is within the power of the Surety Company to protect itself
against a risk of the kind.
 Wherefore, the order of the respondent Judge cancelling the bond in question is set aside. So ordered with costs
against the respondent Alto Surety & Insurance Co., Inc.
The lower court and the appellee herein appear to have relied on doctrines of this Court concerning the liability of
sureties in bonds filed by a plaintiff for the issuance of writs of attachment, without discriminating between such bonds
and those filed by a defendant for the lifting of writs of attachment already issued and levied. This confusion is hardly
excusable considering that this Court has already called attention to the difference between these kinds of bonds. Thus,
in Cajefe vs. Judge Fernandez, et al., L-15709, 19 October 1960, this Court pointed out that —
The diverse rule in section 17 of Rule 59 for counterbonds posted to obtain the lifting of a writ of attachment is
due to these bonds being security for the payment of any judgment that the attaching party may obtain; they
are thus mere replacements of the property formerly attached, and just as the latter may be levied upon after
final judgment in the case in order to realize the amount adjudged, so is the liability of the countersureties
ascertainable after the judgment has become final. This situation does not obtain in the case of injunction
counterbonds, since the sureties in the latter case merely undertake "to pay all damages that the plaintiff may
suffer by reason of the continuance ... of the acts complained of" (Rule 60, section 6) and not to secure payment
of the judgment recovered.1
It was, therefore, error on the part of the court below to have ordered the surety bond cancelled, on the theory that the
parties' compromise discharged the obligation of the surety.
As declared by us in Mercado vs. Macapayag, 69 Phil. 403, 405-406, in passing upon the liability of counter sureties in
replevin who bound themselves to answer solidarily for the obligations of the defendants to the plaintiffs in a fixed
amount of P912.04, to secure payment of the amount that said plaintiff be adjudged to recover from the defendants,2
the liability of the sureties was fixed and conditioned on the finality of the judgment rendered regardless of
whether the decision was based on the consent of the parties or on the merits. A judgment entered on a
stipulation is nonetheless a judgment of the court because consented to by the parties.
But the surety in the present case insists (and the court below so ruled) that the execution issued against it was invalid
because the writ issued against its principal, Jose O. Sia, et al., defendants below, had not been returned unsatisfied; and
the surety invoked in its favor Section 17 of Rule 57 of the Revised Rules of Court (old Rule 59), couched in the following
terms:
SEC. 17. When execution returned unsatisfied, recovery had upon bond. — If the execution be returned
unsatisfied in whole or in part, the surety or sureties on any counterbond given pursuant to the provisions of
this rule to secure the payment of the judgment shall become charged on such counter-bond, and bound to pay
to the judgment creditor upon demand, the amount due under the judgment, which amount may be recovered
from such surety or sureties after notice and summary hearing in the same action.
The surety's contention is untenable. The counterbond contemplated in the rule is evidently an ordinary guaranty where
the sureties assume a subsidiary liability. This is not the case here, because the surety in the present case bound itself
"jointly and severally" (in solidum) with the defendant; and it is prescribed in Article 2059, paragraph 2, of the Civil Code
of the Philippines that excusion (previous exhaustion of the property of the debtor) shall not take place "if he (the
guarantor) has bound himself solidarily with the debtor". The rule heretofore quoted cannot be construed as requiring
that an execution against the debtor be first returned unsatisfied even if the bond were a solidary one; for a procedural
rule may not amend the substantive law expressed in the Civil Code, and further would nullify the express stipulation of
the parties that the surety's obligation should be solidary with that of the defendant.
A second reason against the stand of the surety and of the court below is that even if the surety's undertaking were not
solidary with that of the principal debtor, still he may not demand exhaustion of the property of the latter, unless he can
point out sufficient leviable property of the debtor within Philippine territory. There is no record that the appellee surety
has done so. Says Article 2060 of the Civil Code of the Philippines:
ART. 2060. In order that the guarantor may make use of the benefit of excussion, he must set it up against the
creditor upon the latter's demand for payment from him, and point out to the creditor available property of the
debtor within Philippine territory, sufficient to cover the amount of the debt.
A third reason against the thesis of appellee is that, under the rule and its own terms, the counter-bond is only
conditioned upon the rendition of the judgment. Payment under the bond is not made to depend upon the delivery or
availability of the property previously attached, as it was under Section 440 of the old Code of Civil Procedure. Where
under the rule and the bond the undertaking is to pay the judgment, the liability of the surety or sureties attaches upon
the rendition of the judgment, and the issue of an execution and its return nulla bona is not, and should not be, a
condition to the right to resort to the bond. 3
It is true that under Section 17 recovery from the surety or sureties should be "after notice and summary hearing in the
same action". But this requirement has been substantially complied with from the time the surety was allowed to move
for the quashal of the writ of execution and for the cancellation of their obligation.
WHEREFORE, the orders appealed from are reversed, and the court of origin is ordered to proceed with the execution
against the surety appellee, Times Surety & Insurance Co., Inc. Costs against said appellee.
Dizon, Makalintal, Zaldivar, Sanchez, Fernando, Capistrano and Barredo, JJ., concur.
Teehankee, J., took no part.
Concepcion, C.J., and Castro, J., are on leave.
G.R. No. L-48979 September 29, 1943
MIRA HERMANOS, INC., plaintiff-appellee,
vs.
MANILA TOBACCONISTS, INC., ET AL., defendants.
PROVIDENT INSURANCE CO., defendant-appellant.
E. V. Filamor for appellant.
Ramirez and Ortigas for appellee.
Ernesto Zaragoza for defendant, Manila Compañia de Seguras.
OZAETA, J.:
This appeal has been certified to this court by the Court of Appeals because it involves only a question of law arising
from the following facts:
By virtue of a written contract (Exhibit A) entered into between Mira Hermanos, Inc., and Manila Tobacconists, Inc., the
former agreed to deliver to the latter merchandise for sale on consignment under certain specified terms and the latter
agreed to pay to the former on or before the 20th day of each month the invoice value of all the merchandise sold
during the preceding month. Mira Hermanos, Inc., required of the Manila Tobacconists, Inc., a bond of P3,000, which
was executed by the Provident Insurance Co., on September 2, 1939 (Exhibit B), to secure the fulfillment of the
obligation of the Tobacconists under the contract (Exhibit A) up to the sum of P3,000.
In the month of October, 1940, the volume of the business of the Tobacconists having increased so that the
merchandise received by it on consignment from Mira Hermanos exceeded P3,000 in value, Mira Hermanos required of
the Tobacconist an additional bond of P2,000, and in compliance with that requirement the defendant Manila Compañia
de Seguros, on October 16, 1940, executed a bond of P2,000 (Exhibit C) with the same terms and conditions (except as
to the amount) as the bond of the Provident Insurance Co.
On June 1, 1941, a final and complete liquidation was made of the transactions between Mira Hermanos and the
Tobacconists, as a result of which there was found a balance due from the latter to the former of P2,272.79, which
indebtedness the Tobacconists recognized but was unable to pay. Thereupon Mira Hermanos made a demand upon the
two surety companies for the payment of said sum.
The Provident Insurance Co., paid only the sum of P1,363.67, which is 60% of the amount owned by the Tobacconists to
Mira Hermanos, alleging that the remaining 40% should be paid by the other surety, Manila Compañia de Seguros, in
accordance with article 8137 of the Civil Code. The Manila Compañia de Seguros refused to pay the balance, contending
that so long as the liability of the Tobacconists did not exceed P3,000, it was not bound to pay anything because its bond
referred only to the obligation of the Tobacconists in excess of P3,000 and up to P5,000. Hence Mira Hermanos, Inc.,
brought this action against the Manila Tobacconists, Inc., Provident Insurance Co., and Manila Compañia de Seguros to
recover from them jointly and severally the sum of P909.12 with legal interest thereon from the date of the complaint.
The controversy is mainly between the two surety companies. In its answer the defendant Manila Compañia de Seguros
alleged as a special defense:
4. — Que la fianza otorgada por esta demandada 'Manila Compania de Seguros', el Octubre de 1940 fue exigida
por la demandante solo cuando el importe de las mercancias servidas por esta y pedidas por la demandada
Manila Tobacconists, Inc., excedio de la suma de P3,000 garantizada por la otra demandada Provident Insurance
Co.; por lo que quedo entendido entre la demandante y las tres demandadas que la fianza de P2,000 prestada el
Octubre de 1940 por esta demandada, 'Manila Compañia de Seguros', se limitaba y era para responder
solamente del importe de mercancias servidad a la demandada Manila Tobacconists, Inc., en tanto en cuanto el
valor de esas mercancias excediese de P3,000 asegurada por la fianza P3,000 de la Manila Tobacconists, Inc.
To that the defendant Provident Insurance Co. replied:
Que no es verdad el hecho alegado por la demandada 'Manila Compañia de Seguros' en el parrafo 4 de su
contestacion que dice: 'que quedo entendido entre la demandante y las tres demandadas que la fianza de
P2,000 prestada el Octubre de 1940 por esta demandada "Manila Compañia de Seguros" se limitaba y era para
responder solamente del importe de mercancias servidas a la demandada Manila Tocacconists, Inc., en tanto en
cuanto el valor de esas mercancias excediese de P3,000 asegurada por la fianza de P3,000 de la "Manila
Tobacconists, Inc."
Que la demandada, aqui compareciente, nunca ha tenido conocimiento ni menos prestado su consentimiento a
esa supuesta inteligencia.
Que esta demandada no puede ser privada del beneficio de division a que tiene derecho como co-fiador, sin que
conste expresamente, por escrito, su conformidad y consentimiento de renunciar a su derecho.
Thus there was an issue of fact between the two surety companies, viz.: whether the understanding between the
plaintiff and the three defendants was, that the bond of P2,000 given by the Manila Compañia de Seguros was limited
to and responded for the obligation of the Tobacconists only insofar as it might exceed the amount of P3,000 secured
by the bond of the Provident Insurance Co. That issue of fact was decided by the trial court in favor of the contention
of the Manila Compañia de Seguros; and judgment was rendered by it against the Provident Insurance Co. alone for
the amount claimed by the plaintiff.
Appellant's first two assignments of error (the third being a mere consequence of the first two) read as follows:
1. El juzgado inferior incurrio en error al hacer caso omiso del beneficio de division reclamado por la demandada
Provident Insurance Co. of the Philippines con arreglo a lo dispuesto en el Art. 1837 del Codigo Civil.
2. El juzgado erro al aplicar, en lugar de lo dispuesto en el Art. 1837 del Codigo Civil, una teoria suya, declarando
que la fianza de P3,000.00 prestada por Provident Insurance Co. of the Philippines y la fianza de P2,000 de
 Manila Compañia de Seguros, cada una tiene una esfera de responsabilidad propia e independiente la una de la
otra.
Discussing these two assignments of error jointly, counsel says:
La unica cuestion que se presenta en esta causa es puramente de derecho. Si el saldo deudor de P2,272.79 que
Tobacconists ha dejado de pagar, deben pagarlo en su lugar, los dos fiadores proporcionalmente a la cuantia en
que se obligaron o debe pagarlo sola y exclusivamente la fiadora Provident Insurance Co., como ordena la
sentencia opelada.
Thus it appears that the issue of fact raised by and between the two surety companies before the trial court and decided
by the latter in favor of the appellee Manila Compañia de Seguros is no longer raised before this Court, appellant
Provident Insurance Co. having limited the issue in this appeal to whether or not it is entitled to the "benefit of division"
provided in article 1837 of the Civil Code, which reads as follows:
Art. 1837. Should there be several sureties of only one debtor for the same debt, the liability therefor shall be
divided among them all. The creditor can claim from each surety only his proportional part unless liability in
solidum has been expressly stipulated.
The right to the benefit of division against the co-sureties for their respective shares ceases in the same cases
and for the same reason as that to an exhaustion of property against the principal debtor.
With particular reference to the second assignment of error, we find that the statement of the trial court to the effect
that the bond of P3,000 responded for the obligation of the Tobacconists up to the sum of P3,000 and the bond of
P2,000 responded for the obligation of the Tobacconists only insofar as it might exceed P3,000 and up to P5,000, is not a
mere theory but a finding of fact based upon the undisputed testimony of the witnesses called by the defendant Manila
Compañia de Seguros in support of its special defense hereinbefore quoted. While on its face the bond given by the
Manila Compañia de Seguros contains the same terms and conditions (except as to the amount) as those of the bond
given by the Provident Insurance Co., nevertheless it was pleaded by the Manila Compañia de Seguros and found proven
by the trial court "que la intencion realmente que se habia perseguido, por lo menos en lo que respecta a la Manila
Tobacconists, Inc., y la Manila Compañia de Seguros, era la de que esta fianza de P2,000 habria de responder solamente
por todo aquello que excediera de los P3,000."
The evidence upon which that finding is based is not only undisputed but perfectly reasonable and convincing. For, as
the trial court observed, there would have been no need for the additional bond of P2,000 if its purpose were to cover
the first P2,000 already covered by the P3,000 bond of the Provident Insurance Co. Indeed, we might add, if the purpose
of the additional bond of P2,000 were to cover not the excess over and above P3,000 but the first P2,000 of the
obligation of the principal debtor like the bond of P3,000 which covered only the first P3,000 of said obligation, then it
would result that had the obligation of the Tobacconists exceeded P3,000, neither of the two bonds would have
responded for the excess, and that was precisely the event against which Mira Hermanos wanted to protect itself by
demanding the additional bond of P2,000. For instance, suppose that the obligation of the principal debtor, the
Tobacconists, amounted to P5,000; if both bonds were co-extensive up to P2,000 — as would logically follow if
appellant's contention were correct — the result would be that the first P2,000 of the obligation would have to be
divided between and paid equally by the two surety companies, which should pay P1,000 each, and of the balance of
P3,000 the Provident Insurance Co. would have to pay only P1,000 more because its liability is limited to the first P3,000,
thus leaving the plaintiff in the lurch as to the excess of P2,000. That was manifestly not the intention of the parties. As a
matter of fact, when the Provident gave its bond and fixed the premiums thereon it assumed an obligation of P3,000 in
solidum with the Tobacconists without any expectation of any benefit of division with any other surety. The additional
bond of P2,000 was, more than a year later, required by the creditor of the principal debtor for the protection of said
creditor and certainly not for the benefit of the original surety, which was not entitled to expect any such benefit.
The foregoing considerations, which fortify the trial court's conclusion as to the real intent and agreement of the parties
with regard to the bond of P2,000 given by the Manila Compañia de Seguros, destroys at the same time the theory of
the appellant regarding the applicability of article 1837 of the Civil Code.
That article refers to several sureties of only one debtor for the same debt. In the instant case, altho the two bonds on
their face appear to guarantee the same debt co-extensively up to P2,000 — that of the Provident Insurance Co. alone
extending beyond that sum up to P3,000 — it was pleaded and conclusively proven that in reality said bonds, or the two
sureties, do not guarantee the same debt because the Provident Insurance Co. guarantees only the first P3,000 and the
Manila Compañia de Seguros, only the excess over and above said amount up to P5,000. Article 1837 does not apply to
this factual situation.
The judgment of the trial court is affirmed, with the only modification that it shall be entered against the defendants
Manila Tobacconists, Inc., and Provident Insurance Co. jointly and severally. Appellant shall pay the costs of this
instance.
Yulo, C.J., Moran, Paras and Bocobo, JJ., concur.
JN DEVELOPMENT CORPORATION, and SPS. RODRIGO and LEONOR STA. ANA, petitioners, vs. PHILIPPINE EXPORT AND
FOREIGN LOAN GUARANTEE CORPORATION, respondent.
[G.R. No. 151311. August 31, 2005]
NARCISO V. CRUZ, petitioner, vs. PHILIPPINE EXPORT and FOREIGN LOAN GUARANTEE CORPORATION, respondent.
DECISION
TINGA, J.:
Before us are consolidated petitions questioning the Decision[1] of the Court of Appeals (CA) in CA-G.R. CV No. 61318,
entitled Philippine Export and Foreign Loan Guarantee Corporation v. JN Development Corporation, et al., which reversed
the Decision of the Regional Trial Court (RTC) of Makati, Branch 60.
On 13 December 1979, petitioner JN Development Corporation (JN) and Traders Royal Bank (TRB) entered into an
agreement whereby TRB would extend to JN an Export Packing Credit Line for Two Million Pesos (P2,000,000.00). The loan
was covered by several securities, including a real estate mortgage[2] and a letter of guarantee from respondent Philippine
Export and Foreign Loan Guarantee Corporation (PhilGuarantee), now Trade and Investment Development Corporation
of the Philippines, covering seventy percent (70%) of the credit line.[3] With PhilGuarantee issuing a guarantee in favor of
TRB,[4] JN, petitioner spouses Rodrigo and Leonor Sta. Ana[5] and petitioner Narciso Cruz[6] executed a Deed of
Undertaking[7] (Undertaking) to assure repayment to PhilGuarantee.
It appears that JN failed to pay the loan to TRB upon its maturity; thus, on 8 October 1980 TRB requested
PhilGuarantee to make good its guarantee.[8] PhilGuarantee informed JN about the call made by TRB, and inquired about
the action of JN to settle the loan.[9] Having received no response from JN, on 10 March 1981 PhilGuarantee paid TRB Nine
Hundred Thirty Four Thousand Eight Hundred Twenty Four Pesos and Thirty Four Centavos
(P934,824.34).[10] Subsequently, PhilGuarantee made several demands on JN, but the latter failed to pay. On 30 May 1983,
JN, through Rodrigo Sta. Ana, proposed to settle the obligation by way of development and sale of the mortgaged
property.[11] PhilGuarantee, however, rejected the proposal.
PhilGuarantee thus filed a Complaint[12] for collection of money and damages against herein petitioners.
In its Decision dated 20 August 1998, the RTC dismissed PhilGuarantees Complaint as well as the counterclaim of
petitioners. It ruled that petitioners are not liable to reimburse PhilGuarantee what it had paid to TRB. Crucial to this
holding was the courts finding that TRB was able to foreclose the real estate mortgage executed by JN, thus extinguishing
petitioners obligation.[13]Moreover, there was no showing that after the said foreclosure, TRB had demanded from JN any
deficiency or the payment of the difference between the proceeds of the foreclosure sale and the actual loan.[14] In
addition, the RTC held that since PhilGuarantees guarantee was good for only one year from 17 December 1979, or until
17 December 1980, and since it was not renewed after the expiry of said period, PhilGuarantee had no more legal duty to
pay TRB on 10 March 1981.[15]The RTC likewise ruled that Cruz cannot be held liable under the Undertaking since he was
not the one who signed the document, in line with its finding that his signature found in the records is totally different
from the signature on the Undertaking.[16]
According to the RTC, the failure of TRB to sue JN for the recovery of the loan precludes PhilGuarantee from seeking
recoupment from the spouses Sta. Ana and Cruz what it paid to TRB. Thus, PhilGuarantees payment to TRB amounts to a
waiver of its right under Art. 2058 of the Civil Code.[17]
Aggrieved by the RTC Decision, PhilGuarantee appealed to the CA. The appellate court reversed the RTC and ordered
petitioners to pay PhilGuarantee Nine Hundred Thirty Four Thousand Six Hundred Twenty Four Pesos and Thirty Four
Centavos (P934,624.34), plus service charge and interest.[18]
In reaching its denouement, the CA held that the RTCs finding that the loan was extinguished by virtue of the
foreclosure sale of the mortgaged property had no factual support,[19] and that such finding is negated by Rodrigo Sta.
Anas testimony that JN did not receive any notice of foreclosure from PhilGuarantee or from TRB. [20] Moreover, Sta. Ana
even offered the same mortgaged property to PhilGuarantee to settle its obligations with the latter.[21]
The CA also ruled that JNs obligation had become due and demandable within the one-year period of effectivity of
the guarantee; thus, PhilGuarantees payment to TRB conformed with its guarantee, although the payment itself was
effected one year after the maturity date of the loan.[22]Contrary to the trial courts finding, the CA ruled that the contract
of guarantee was not extinguished by the alleged lack of evidence on PhilGuarantees consent to the extensions granted
by TRB to JN.[23] Interpreting Art. 2058 of the Civil Code,[24] the appellate court explained that while the provision states
that the guarantor cannot be compelled to pay unless the properties of the debtor are exhausted, the guarantor is not
precluded from waiving the benefit of excussion and paying the obligation altogether.[25]
Finally, the CA found that Narciso Cruz was unable to prove the alleged forgery of his signature in the Undertaking,
the evidence presented not being sufficient to overcome the presumption of regularity of the Undertaking which is a
notarized document. [26]
Petitioners sought reconsideration of the Decision and prayed for the admission of documents evidencing the
foreclosure of the real estate mortgage, but the motion for reconsideration was denied by the CA for lack of merit. The
CA ruled that the documentary evidence presented by petitioners cannot be considered as newly discovered evidence, it
being already in existence while the case was pending before the trial court, the very forum before which it should have
been presented. Besides, a foreclosure sale per se is not proof of petitioners payment of the loan to PhilGuarantee, the
CA added.[27]
So now before the Court are the separate petitions for review of the CA Decision. JN and the spouses Sta. Ana,
petitioners in G.R. No. 151060, posit that the CA erred in interpreting Articles 2079, 2058, and 2059 of the Civil Code in
its Decision.[28] Meanwhile, petitioner Narciso Cruz in G.R. No. 151311 claims that the CA erred when it held that
petitioners are liable to PhilGuarantee despite its payment after the expiration of its contract of guarantee and the lack
of PhilGuarantees consent to the extensions granted by TRB to JN. Moreover, Cruz questions the reversal of the ruling
of the trial court anent his liability as a signatory to the Undertaking.[29]
On the other hand, PhilGuarantee maintains that the date of default, not the actual date of payment, determines the
liability of the guarantor and that having paid TRB when the loan became due, it should be indemnified by petitioners.[30] It
argues that, contrary to petitioners claim, there could be no waiver of its right to excussion more explicit than its act of
payment to TRB very directly.[31] Besides, the right to excussion is for the benefit of the guarantor and is not a defense for
the debtor to raise and use to evade liability.[32] Finally, PhilGuarantee maintains that there is no sufficient evidence
proving the alleged forgery of Cruzs signature on the Undertaking, which is a notarized document and as such must be
accorded the presumption of regularity.[33]
The Court finds for PhilGuarantee.
Under a contract of guarantee, the guarantor binds himself to the creditor to fulfill the obligation of the principal
debtor in case the latter should fail to do so.[34] The guarantor who pays for a debtor, in turn, must be indemnified by the
latter.[35] However, the guarantor cannot be compelled to pay the creditor unless the latter has exhausted all the property
of the debtor and resorted to all the legal remedies against the debtor.[36] This is what is otherwise known as the benefit
of excussion.
It is clear that excussion may only be invoked after legal remedies against the principal debtor have been expanded.
Thus, it was held that the creditor must first obtain a judgment against the principal debtor before assuming to run after
the alleged guarantor, for obviously the exhaustion of the principals property cannot even begin to take place before
judgment has been obtained.[37] The law imposes conditions precedent for the invocation of the defense. Thus, in order
that the guarantor may make use of the benefit of excussion, he must set it up against the creditor upon the latters
demand for payment and point out to the creditor available property of the debtor within the Philippines sufficient to
cover the amount of the debt.[38]
While a guarantor enjoys the benefit of excussion, nothing prevents him from paying the obligation once demand is
made on him. Excussion, after all, is a right granted to him by law and as such he may opt to make use of it or waive it.
PhilGuarantees waiver of the right of excussion cannot prevent it from demanding reimbursement from petitioners. The
law clearly requires the debtor to indemnify the guarantor what the latter has paid.[39]
Petitioners claim that PhilGuarantee had no more obligation to pay TRB because of the alleged expiration of the
contract of guarantee is untenable. The guarantee, dated17 December 1979, states:
In the event of default by JNDC and as a consequence thereof, PHILGUARANTEE is made to pay its obligation arising
under the aforesaid guarantee PHILGUARANTEE shall pay the BANK the amount of P1.4 million or 70% of the total
obligation unpaid
....
This guarantee shall be valid for a period of one (1) year from date hereof but may be renewed upon payment by JNDC
of the guarantee fee at the same rate of 1.5% per annum.[40]
The guarantee was only up to 17 December 1980. JNs obligation with TRB fell due on 30 June 1980, and demand on
PhilGuarantee was made by TRB on 08 October 1980. That payment was actually made only on 10 March 1981 does not
take it out of the terms of the guarantee. What is controlling is that default and demand on PhilGuarantee had taken place
while the guarantee was still in force.
There is likewise no merit in petitioners claim that PhilGuarantees failure to give its express consent to the alleged
extensions granted by TRB to JN had extinguished the guarantee. The requirement that the guarantor should consent to
any extension granted by the creditor to the debtor under Art. 2079 is for the benefit of the guarantor. As such, it is
likewise waivable by the guarantor. Thus, even assuming that extensions were indeed granted by TRB to JN, PhilGuarantee
could have opted to waive the need for consent to such extensions. Indeed, a guarantor is not precluded from waiving his
right to be notified of or to give his consent to extensions obtained by the debtor. Such waiver is not contrary to public
policy as it is purely personal and does not affect public interest.[41]In the instant case, PhilGuarantees waiver can be
inferred from its actual payment to TRB after the latters demand, despite JNs failure to pay the renewal/guarantee fee as
indicated in the guarantee.[42]
For the above reasons, there is no basis for petitioners claim that PhilGuarantee was a mere volunteer payor and had
no legal obligation to pay TRB. The law does not prohibit the payment by a guarantor on his own volition, heedless of the
benefit of excussion. In fact, it recognizes the right of a guarantor to recover what it has paid, even if payment was made
before the debt becomes due,[43] or if made without notice to the debtor,[44] subject of course to some conditions.
Petitioners invocation of our ruling in Willex Plastic Industries, Corp. v. Court of Appeals[45] is misplaced, if not
irrelevant. In the said case, the guarantor claimed that it could not be proceeded against without first exhausting all of the
properties of the debtor. The Court, finding that there was an express renunciation of the benefit of excussion in the
contract of guarantee, ruled against the guarantor.
The cited case finds no application in the case a quo. PhilGuarantee is not invoking the benefit of excussion. It cannot
be overemphasized that excussion is a right granted to the guarantor and, therefore, only he may invoke it at his discretion.
The benefit of excussion, as well as the requirement of consent to extensions of payment, is a protective device
pertaining to and conferred on the guarantor. These may be invoked by the guarantor against the creditor as defenses to
bar the unwarranted enforcement of the guarantee. However, PhilGuarantee did not avail of these defenses when it paid
its obligation according to the tenor of the guarantee once demand was made on it. What is peculiar in the instant case is
that petitioners, the principal debtors themselves, are muddling the issues and raising the same defenses against the
guarantor, which only the guarantor may invoke against the creditor, to avoid payment of their own obligation to the
guarantor. The Court cannot countenance their self-seeking desire to be exonerated from the duty to reimburse
PhilGuarantee after it had paid TRB on their behalf and to unjustly enrich themselves at the expense of PhilGuarantee.
Petitioners assert that TRBs alleged foreclosure of the real estate mortgage over the land executed as security for the
loan agreement had extinguished PhilGuarantees obligation; thus, PhilGuarantees recourse should be directed against
TRB, as per the pari-passu provision[46] in the contract of guarantee.[47] We disagree.
The foreclosure was made on 27 August 1993, after the case was submitted for decision in 1992 and before the
issuance of the decision of the court a quo in 1998.[48] Thus, foreclosure was resorted to by TRB against JN when they both
had become aware that PhilGuarantee had already paid TRB and that there was a pending case filed by PhilGuarantee
against petitioners. This matter was not raised and proved in the trial court, nor in the appeal before the CA, but raised
for the first time in petitioners motion for reconsideration in the CA. In their appellants Brief, petitioners claimed that
there was no need for the defendant-appellee JNDC to present any evidence before the lower court to show that indeed
foreclosure of the REM took place.[49] As properly held by the CA,
Firstly, the documents evidencing foreclosure of mortgage cannot be considered as newly discovered evidence. The said
documents were already subsisting and should have been presented during the trial of the case. The alleged foreclosure
sale was made on August 23, 1993 while the decision was rendered by the trial court on August 20, 1998 about five (5)
years thereafter. These documents were likewise not submitted by the defendants-appellees when they submitted their
appellees Brief to this Court. Thus, these cannot be considered as newly discovered evidence but are more correctly
ascribed as suppressed forgotten evidence Secondly, the alleged foreclosure sale is not proof of payment of the loan by
defendant-appellees to the plaintiffs-appellants.[50]
Besides, the complaint a quo was filed by PhilGuarantee as guarantor for JN, and its cause of action was premised on
its payment of JNs obligation after the latters default. PhilGuarantee was well within its rights to demand reimbursement
for such payment made, regardless of whether the creditor, TRB, was subsequently able to obtain payment from JN. If
double payment was indeed made, then it is JN which should go after TRB, and not PhilGuarantee. Petitioners have no
one to blame but themselves, having allowed the foreclosure of the property for the full value of the loan despite
knowledge of PhilGuarantees payment to TRB. Having been aware of such payment, they should have opposed the
foreclosure, or at the very least, filed a supplemental pleading with the trial court informing the same of the foreclosure
sale.
Likewise, petitioners cannot invoke the pari-passu clause in the guarantee, not being parties to the said agreement.
The clause is clearly for the benefit of the guarantor and no other.
The Court notes the letter[51] of Rodrigo Sta. Ana offering, by way of settlement of JNs obligations to PhilGuarantee,
the very same parcel of land mortgaged as security for the loan agreement. This further weakens the position of
petitioners, since it becomes obvious that they acknowledged the payment made by PhilGuarantee on their behalf and
that they were in fact willing to negotiate with PhilGuarantee for the settlement of the said obligation before the filing of
the complaint a quo.
Anent the issue of forgery, the CA is correct in reversing the decision of the trial court. Save for the denial of Narciso
Cruz that it was not his signature in the Undertaking and the perfunctory comparison of the signatures, nothing in the
records would support the claim of forgery. Forgery cannot be presumed and must be proved by clear, positive and
convincing evidence and the burden of proof lies on the party alleging forgery.[52] Mere denial will not suffice to overcome
the positive value of the Undertaking, which is a notarized document, has in its favor the presumption of regularity, and
carries the evidentiary weight conferred upon it with respect to its due execution.[53]Even in cases where the alleged forged
signature was compared to samples of genuine signatures to show its variance therefrom, this Court still found such
evidence insufficient.[54] Mere variance of the signatures cannot be considered as conclusive proof that the same were
forged.[55]
WHEREFORE, the consolidated petitions are DENIED. The Decision of the Court of Appeals in CA-G.R. CV No. 61318 is
AFFIRMED.
No pronouncement as to costs.
SO ORDERED.
 BENJAMIN BITANGA, G.R. No. 173526
Petitioner,
Present:

YNARES-SANTIAGO, J.,
Chairperson,
- versus - AUSTRIA-MARTINEZ,
CHICO-NAZARIO,
NACHURA, and
REYES, JJ.

PYRAMID CONSTRUCTION ENGINEERING

CORPORATION, Promulgated:
Respondent.
August 28, 2008
x- - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - -x

DECISION

CHICO-NAZARIO, J.:

Assailed in this Petition for Review under Rule 45[1] of the Revised Rules of Court are: (1) the Decision[2] dated 11 April
2006 of the Court of Appeals in CA-G.R. CV No. 78007 which affirmed with modification the partial Decision[3] dated 29
November 2002 of the Regional Trial Court (RTC), Branch 96, of Quezon City, in Civil Case No. Q-01-45041, granting the
motion for summary judgment filed by respondent Pyramid Construction and Engineering Corporation and declaring
petitioner Benjamin Bitanga and his wife, Marilyn Bitanga(Marilyn), solidarily liable to pay P6,000,000.000 to respondent;
and (2) the Resolution[4]dated 5 July 2006 of the appellate court in the same case denying petitioners Motion for
Reconsideration.

The generative facts are:

On 6 September 2001, respondent filed with the RTC a Complaint for specific performance and damages with application
for the issuance of a writ of preliminary attachment against the petitioner and Marilyn. The Complaint was docketed as
Civil Case No. Q-01-45041.

Respondent alleged in its Complaint that on 26 March 1997, it entered into an agreement with Macrogen Realty, of which
petitioner is the President, to construct for the latter the Shoppers Gold Building, located at Dr. A. Santos Avenue
corner Palayag Road, Sucat, Paraaque City.Respondent commenced civil, structural, and architectural works on the
construction project by May 1997. However, Macrogen Realty failed to settle respondents progress billings.Petitioner,
through his representatives and agents, assured respondent that the outstanding account of Macrogen Realty would be
paid, and requested respondent to continue working on the construction project. Relying on the assurances made by
petitioner, who was no less than the President of Macrogen Realty, respondent continued the construction project.

In August 1998, respondent suspended work on the construction project since the conditions that it imposed for
the continuation thereof, including payment of unsettled accounts, had not been complied with by Macrogen Realty. On 1
September 1999, respondent instituted with the Construction Industry Arbitration Commission (CIAC) a case for
arbitration against Macrogen Realty seeking payment by the latter of its unpaid billings and project costs. Petitioner,
through counsel, then conveyed to respondent his purported willingness to amicably settle the arbitration case. On 17
April 2000, before the arbitration case could be set for trial, respondent and Macrogen Realty entered into a Compromise
Agreement,[5] with petitioner acting as signatory for and in behalf of Macrogen Realty. Under the Compromise
Agreement, Macrogen Realty agreed to pay respondent the total amount of P6,000,000.00 in six equal monthly
installments, with each installment to be delivered on the 15th day of the month, beginning 15 June 2000. Macrogen Realty
also agreed that if it would default in the payment of two successive monthly installments, immediate execution could
issue against it for the unpaid balance, without need of judgment or decree from any court or tribunal. Petitioner
guaranteed the obligations of Macrogen Realty under the Compromise Agreement by executing a Contract of
Guaranty[6] in favor of respondent, by virtue of which he irrevocably and unconditionally guaranteed the full and complete
payment of the principal amount of liability of Macrogen Realty in the sum of P6,000,000.00. Upon joint motion of
respondent and Macrogen Realty, the CIAC approved the Compromise Agreement on 25 April 2000.[7]

However, contrary to petitioners assurances, Macrogen Realty failed and refused to pay all the monthly
installments agreed upon in the Compromise Agreement. Hence, on 7 September 2000, respondent moved for the
issuance of a writ of execution[8] against Macrogen Realty, which CIAC granted.
 On 29 November 2000, the sheriff[9] filed a return stating that he was unable to locate any property
of Macrogen Realty, except its bank deposit of P20,242.33, with the Planters Bank, Buendia Branch.

Respondent then made, on 3 January 2001, a written demand[10] on petitioner, as guarantor of Macrogen Realty, to pay
the P6,000,000.00, or to point out available properties of the Macrogen Realty within the Philippines sufficient to cover
the obligation guaranteed. It also made verbal demands on petitioner. Yet, respondents demands were left unheeded.

Thus, according to respondent, petitioners obligation as guarantor was already due and demandable. As to
Marilyns liability, respondent contended that Macrogen Realty was owned and controlled by petitioner and Marilyn
and/or by corporations owned and controlled by them. Macrogen Realty is 99% owned by the Asian Appraisal Holdings,
Inc. (AAHI), which in turn is 99% owned by Marilyn. Since the completion of the construction project would have
redounded to the benefit of both petitioner and Marilyn and/or their corporations; and considering, moreover, Marilyns
enormous interest in AAHI, the corporation which controls Macrogen Realty, Marilyn cannot be unaware of the
obligations incurred by Macrogen Realty and/or petitioner in the course of the business operations of the said
corporation.

Respondent prayed in its Complaint that the RTC, after hearing, render a judgment ordering petitioner and Marilyn
to comply with their obligation under the Contract of Guaranty by paying respondent the amount of P6,000,000.000 (less
the bank deposit of Macrogen Realty with Planters Bank in the amount of P20,242.23) and P400,000.000 for attorneys
fees and expenses of litigation. Respondent also sought the issuance of a writ of preliminary attachment as security for
the satisfaction of any judgment that may be recovered in the case in its favor.

Marilyn filed a Motion to Dismiss,[11] asserting that respondent had no cause of action against her, since she did not co-
sign the Contract of Guaranty with her husband; nor was she a party to the Compromise Agreement between respondent
and Macrogen Realty. She had no part at all in the execution of the said contracts. Mere ownership by a single stockholder
or by another corporation of all or nearly all of the capital stock of another corporation is not by itself a sufficient ground
for disregarding the separate personality of the latter corporation.Respondent misread Section 4, Rule 3 of the Revised
Rules of Court.

The RTC denied Marilyns Motion to Dismiss for lack of merit, and in its Order dated 24 January 2002 decreed that:

The Motion To Dismiss Complaint Against Defendant Marilyn Andal Bitanga filed on November 12,
2001 is denied for lack of merit considering that Sec. 4, Rule 3, of the Rules of Court (1997) specifically
provides, as follows:

SEC. 4. Spouses as parties. Husband and wife shall sue or be sued jointly, except as
provided by law.

and that this case does not come within the exception.[12]

Petitioner filed with the RTC on 12 November 2001, his Answer[13] to respondents Complaint averring therein that he never
made representations to respondent that MacrogenRealty would faithfully comply with its obligations under the
Compromise Agreement. He did not offer to guarantee the obligations of Macrogen Realty to entice respondent to enter
into the Compromise Agreement but that, on the contrary, it was respondent that required MacrogenRealty to offer some
form of security for its obligations before agreeing to the compromise.Petitioner further alleged that his wife Marilyn was
not aware of the obligations that he assumed under both the Compromise Agreement and the Contract of Guaranty as he
did not inform her about said contracts, nor did he secure her consent thereto at the time of their execution.

As a special and affirmative defense, petitioner argued that the benefit of excussion was still available to him as a
guarantor since he had set it up prior to any judgment against him.According to petitioner, respondent failed to exhaust
all legal remedies to collect from Macrogen Realty the amount due under the Compromise Agreement, considering
that Macrogen Realty still had uncollected credits which were more than enough to pay for the same. Given these
premise, petitioner could not be held liable as guarantor. Consequently, petitioner presented his counterclaim for
damages.

At the pre-trial held on 5 September 2002, the parties submitted the following issues for the resolution of the RTC:

(1) whether the defendants were liable under the contract of guarantee dated April 17, 2000entered into
between Benjamin Bitanga and the plaintiff;

(2) whether defendant wife Marilyn Bitanga is liable in this action;

 (3) whether the defendants are entitled to the benefit of excussion, the plaintiff on the one hand claiming
that it gave due notice to the guarantor, Benjamin Bitanga, and the defendants contending that
no proper notice was received by Benjamin Bitanga;

(4) if damages are due, which party is liable; and

(5) whether the benefit of excussion can still be invoked by the defendant guarantor even after the notice
has been allegedly sent by the plaintiff although proper receipt is denied.[14]

On 20 September 2002, prior to the trial proper, respondent filed a Motion for Summary Judgment.[15] Respondent alleged
therein that it was entitled to a summary judgment on account of petitioners admission during the pre-trial of the
genuineness and due execution of the Contract of Guaranty. The contention of petitioner and Marilyn that they were
entitled to the benefit of excussion was not a genuine issue. Respondent had already exhausted all legal remedies to
collect from Macrogen Realty, but its efforts proved unsuccessful. Given that the inability of Macrogen Realty as debtor
to pay the amount of its debt was already proven by the return of the writ of execution to CIAC unsatisfied, the liability of
petitioner as guarantor already arose.[16] In any event, petitioner and Marilyn were deemed to have forfeited their right
to avail themselves of the benefit of excussion because they failed to comply with Article 2060[17] of the Civil Code when
petitioner ignored respondents demand letter dated 3 January 2001 for payment of the amount he guaranteed.[18] The
duty to collect the supposed receivables of Macrogen Realty from its creditors could not be imposed on respondent, since
petitioner and Marilyn never informed respondent about such uncollected credits even after receipt of the demand letter
for payment. The allegation of petitioner and Marilyn that they could not respond to respondents demand letter since
they did not receive the same was unsubstantiated and insufficient to raise a genuine issue of fact which could defeat
respondents Motion for Summary Judgment. The claim that Marilyn never participated in the transactions that culminated
in petitioners execution of the Contract of Guaranty was nothing more than a sham.

In opposing respondents foregoing Motion for Summary Judgment, petitioner and Marilyn countered that there were
genuinely disputed facts that would require trial on the merits. They appended thereto an affidavit executed by petitioner,
in which he declared that his spouse Marilyn could not be held personally liable under the Contract of Guaranty or the
Compromise Agreement, nor should her share in the conjugal partnership be made answerable for the guaranty petitioner
assumed, because his undertaking of the guaranty did not in any way redound to the benefit of their family. As guarantor,
petitioner was entitled to the benefit of excussion, and he did not waive his right thereto. He never received the
respondents demand letter dated 3 January 2001, as Ms. Dette Ramos, the person who received it, was not an employee
of Macrogen Realty nor was she authorized to receive the letter on his behalf. As a guarantor, petitioner could resort to
the benefit of excussion at any time before judgment was rendered against him.[19] Petitioner reiterated
that Macrogen Realty had uncollected credits which were more than sufficient to satisfy the claim of respondent.
On 29 November 2002, the RTC rendered a partial Decision, the dispositive portion of which provides:

WHEREFORE, summary judgment is rendered ordering defendants SPOUSES BENJAMIN BITANGA and
MARILYN ANDAL BITANGA to pay the [herein respondent], jointly and severally, the amount
of P6,000,000.00, less P20,242.23 (representing the amount garnished bank deposit of MACROGEN in the
Planters Bank, Buendia Branch); and the costs of suit.

Within 10 days from receipt of this partial decision, the [respondent] shall inform the Court whether it
shall still pursue the rest of the claims against the defendants. Otherwise, such claims shall be considered
waived.[20]

Petitioner and Marilyn filed a Motion for Reconsideration of the afore-quoted Decision, which the RTC denied in an Order
dated 26 January 2003.[21]

In time, petitioner and Marilyn filed an appeal with the Court of Appeals, docketed as CA-G.R. CV 78007. In its Decision
dated 11 April 2006, the appellate court held:

UPON THE VIEW WE TAKE OF THIS CASE, THUS, the judgment appealed from must be, as it hereby is,
MODIFIED to the effect that defendant-appellant Marilyn Bitanga is adjudged not liable,
whether solidarily or otherwise, with her husband the defendant-appellant Benjamin Bitanga, under the
compromise agreement or the contract of guaranty. No costs in this instance.[22]

In holding that Marilyn Bitanga was not liable, the Court of Appeals cited Ramos v. Court of Appeals,[23] in which it
was declared that a contract cannot be enforced against one who is not a party to it. The Court of Appeals stated further
that the substantial ownership of shares in Macrogen Realty by Marilyn Bitanga was not enough basis to hold her liable.

The Court of Appeals, in its Resolution dated 5 July 2006, denied petitioners Motion for Reconsideration[24] of its
earlier Decision.
Petitioner is now before us via the present Petition with the following assignment of errors:

THE COURT OF APPEALS GRAVELY ERRED IN AFFIRMING THE VALIDITY OF THE PARTIAL SUMMARY
JUDGMENT BY THE REGIONAL TRIAL COURT OF QUEZON CITY, BRANCH 96, DESPITE THE CLEAR EXISTENCE
OF DISPUTED GENUINE AND MATERIAL FACTS OF THE CASE THAT SHOULD HAVE REQUIRED A TRIAL ON
THE MERITS.

II

THE COURT OF APPEALS GRAVELY ERRED IN NOT UPHOLDING THE RIGHT OF PETITIONER BENJAMIN M.
BITANGA AS A MERE GUARANTOR TO THE BENEFIT OF EXCUSSION UNDER ARTICLES 2058, 2059, 2060,
2061, AND 2062 OF THE CIVIL CODE OF THE PHILIPPINES.[25]

As in the two courts below, it is petitioners position that summary judgment is improper in Civil Case No. Q-01-
45041 because there are genuine issues of fact which have to be threshed out during trial, to wit:

(A) Whether or not there was proper service of notice to petitioner considering the said letter of demand
was allegedly received by one Dette Ramos at Macrogen office and not by him at his residence.

(B) Whether or not petitioner is entitled to the benefit of excussion?[26]

We are not persuaded by petitioners arguments.

Rule 35 of the Revised Rules of Civil Procedure provides:

Section 1. Summary judgment for claimant. A party seeking to recover upon a claim,
counterclaim, or cross-claim or to obtain a declaratory relief may, at any time after the pleading in answer
thereto has been served, move with supporting affidavits, depositions or admissions for a summary
judgment in his favor upon all or any part thereof.

For a summary judgment to be proper, the movant must establish two requisites: (a) there must be no genuine
issue as to any material fact, except for the amount of damages; and (b) the party presenting the motion for summary
judgment must be entitled to a judgment as a matter of law. Where, on the basis of the pleadings of a moving party,
including documents appended thereto, no genuine issue as to a material fact exists, the burden to produce a genuine
issue shifts to the opposing party. If the opposing party fails, the moving party is entitled to a summary judgment.[27]

In a summary judgment, the crucial question is: are the issues raised by the opposing party not genuine so as to
justify a summary judgment?[28]

First off, we rule that the issue regarding the propriety of the service of a copy of the demand letter on the
petitioner in his office is a sham issue. It is not a bar to the issuance of a summary judgment in respondents favor.

A genuine issue is an issue of fact which requires the presentation of evidence as distinguished from an issue
which is a sham, fictitious, contrived or false claim. To forestall summary judgment, it is essential for the non-moving
party to confirm the existence of genuine issues, as to which he has substantial, plausible and fairly arguable
defense, i.e.,[29]issues of fact calling for the presentation of evidence upon which reasonable findings of fact could return
a verdict for the non-moving party, although a mere scintilla of evidence in support of the party opposing summary
judgment will be insufficient to preclude entry thereof.

Significantly, petitioner does not deny the receipt of the demand letter from the respondent. He merely raises a
howl on the impropriety of service thereof, stating that the address to which the said letter was sent was not his residence
but the office of MacrogenRealty, thus it cannot be considered as the correct manner of conveying a letter of demand
upon him in his personal capacity.[30]

Section 6, Rule 13 of the Rules of Court states:

SEC. 6. Personal service. Service of the papers may be made by delivering personally a copy to the party
or his counsel, or by leaving it in his office with his clerk or with a person having charge thereof. If no
person is found in his office, or his office is not known, or he has no office, then by leaving the copy,
between the hours of eight in the morning and six in the evening, at the partys or counsels residence, if
known, with a person of sufficient age and discretion then residing therein.
 The affidavit of Mr. Robert O. Pagdilao, messenger of respondents counsel states in part:

2. On 4 January 2001, Atty. Jose Vicente B. Salazar, then one of the Associates of the ACCRA Law Offices,
instructed me to deliver to the office of Mr. Benjamin Bitanga a letter dated 3 January 2001,
pertaining to Construction Industry Arbitration Commission (hereafter, CIAC) Case No. 99-56,
entitled Pyramid Construction Engineering Corporation vs. Macrogen Realty Corporation.

3. As instructed, I immediately proceeded to the office of Mr. Bitanga located at the

12th Floor, Planters Development Bank Building, 314 Senator Gil Puyat Avenue, Makati City. I
delivered the said letter to Ms. Dette Ramos, a person of sufficient age and discretion, who
introduced herself as one of the employees of Mr. Bitanga and/or of the latters
companies.[31] (Emphasis supplied.)

We emphasize that when petitioner signed the Contract of Guaranty and assumed obligation as guarantor, his
address in the said contract was the same address where the demand letter was served.[32] He does not deny that the said
place of service, which is the office of Macrogen, was also the address that he used when he signed as guarantor in the
Contract of Guaranty. Nor does he deny that this is his office address; instead, he merely insists that the person who
received the letter and signed the receiving copy is not an employee of his company. Petitioner could have easily
substantiated his allegation by a submission of an affidavit of the personnel manager of his office that no such person is
indeed employed by petitioner in his office, but that evidence was not submitted.[33] All things are presumed to have been
done correctly and with due formality until the contrary is proved. This juris tantumpresumption stands even against the
most well-reasoned allegation pointing to some possible irregularity or anomaly.[34] It is petitioners burden to overcome
the presumption by sufficient evidence, and so far we have not seen anything in the record to support petitioners charges
of anomaly beyond his bare allegation. Petitioner cannot now be heard to complain that there was an irregular service of
the demand letter, as it does not escape our attention that petitioner himself indicated 314 Sen.
Gil Puyat Avenue, Makati City as his office address in the Contract of Guaranty.

Moreover, under Section 6, Rule 13 of the Rules of Court, there is sufficiency of service when the papers,
or in this case, when the demand letter is personally delivered to the party or his counsel, or by leaving it in his office with
his clerk or with a person having charge thereof, such as what was done in this case.

We have consistently expostulated that in summary judgments, the trial court can determine a genuine issue on the basis
of the pleadings, admissions, documents, affidavits or counter affidavits submitted by the parties. When the facts as
pleaded appear uncontested or undisputed, then there is no real or genuine issue or question as to any fact, and summary
judgment is called for.[35]

The Court of Appeals was correct in holding that:

Here, the issue of non-receipt of the letter of demand is a sham or pretended issue, not a genuine and
substantial issue. Indeed, against the positive assertion of Mr. Roberto O. Pagdilao(the private courier) in
his affidavit that he delivered the subject letter to a certain Ms. DetteRamos who introduced herself as
one of the employees of [herein petitioner] Mr. Benjamin Bitanga and/or of the latters companies, said
[petitioner] merely offered a bare denial. But bare denials, unsubstantiated by facts, which would be
admissible in evidence at a hearing, are not sufficient to raise a genuine issue of fact sufficient to defeat
a motion for summary judgment.[36]

We further affirm the findings of both the RTC and the Court of Appeals that, given the settled facts of this case,
petitioner cannot avail himself of the benefit of excussion.

Under a contract of guarantee, the guarantor binds himself to the creditor to fulfill the obligation of the principal debtor
in case the latter should fail to do so. The guarantor who pays for a debtor, in turn, must be indemnified by the
latter. However, the guarantor cannot be compelled to pay the creditor unless the latter has exhausted all the property
of the debtor and resorted to all the legal remedies against the debtor. This is what is otherwise known as the benefit
of excussion.[37]

Article 2060 of the Civil Code reads:

Art. 2060. In order that the guarantor may make use of the benefit of excussion, he must set it up against
the creditor upon the latters demand for payment from him, and point out to the creditor available
property of the debtor within Philippine territory, sufficient to cover the amount of the debt.[38]

The afore-quoted provision imposes a condition for the invocation of the defense of excussion. Article 2060 of the
Civil Code clearly requires that in order for the guarantor to make use of the benefit of excussion, he must set it up against
the creditor upon the latters demand for payment and point out to the creditor available property of the debtor within
the Philippines sufficient to cover the amount of the debt.[39]

It must be stressed that despite having been served a demand letter at his office, petitioner still failed to point out to the
respondent properties of Macrogen Realty sufficient to cover its debt as required under Article 2060 of the Civil
Code. Such failure on petitioners part forecloses his right to set up the defense of excussion.
Worthy of note as well is the Sheriffs return stating that the only property of Macrogen Realty which he found was its
deposit of P20,242.23 with the Planters Bank.

Article 2059(5) of the Civil Code thus finds application and precludes petitioner from interposing the defense
of excussion. We quote:

Art. 2059. This excussion shall not take place:

xxxx

(5) If it may be presumed that an execution on the property of the principal debtor would not result in the
satisfaction of the obligation.

As the Court of Appeals correctly ruled:

We find untenable the claim that the [herein petitioner] Benjamin Bitanga cannot be compelled to pay
Pyramid because the Macrogen Realty has allegedly sufficient assets. Reason: The said [petitioner] had
not genuinely controverted the return made by Sheriff Joseph F. Bisnar, who affirmed that, after exerting
diligent efforts, he was not able to locate any property belonging to the Macrogen Realty, except for a
bank deposit with the Planters Bank at Buendia, in the amount of P20,242.23. It is axiomatic that the
liability of the guarantor arises when the insolvency or inability of the debtor to pay the amount of debt
is proven by the return of the writ of execution that had not been unsatisfied.[40]

IN ALL, we fail to point out any impropriety in the rendition of a summary judgment in favor of the respondent.
WHEREFORE, premises considered, the instant petition is DENIED for lack of merit.The Decision of the Court of
Appeals dated 11 April 2006 and its Resolution dated 5 July 2006 are AFFIRMED. Costs against petitioner.

SO ORDERED.
G.R. No. L-5470 March 22, 1910
LUIS SAENZ DE VIZMANOS ONG-QUICO, plaintiff-appellant,
vs.
YAP CHUAN, ET AL., defendants-appellants.
Ortigas and Fisher, for plaintiff.
Chicote and Miranda, for defendants.
ARELLANO, C.J.:
Engracio Palanca, while judicial administrator of the estate of Margarita Jose, gave bond, by order of the court before
which the proceedings thereon were had, to guarantee his administration, which bond was executed by Engracio
Palanca himself, Luis S. de Vizmanos Ong-Quico, Alejandra Palanca, and Juan Fernandez Lim Quin Chuang, jointly and
severally, in favor of the Government of the United States in the Philippine Islands, for the sum of P60,000, Philippine
currency.
On the same date the said Engracio Palanca and five others executed in favor of Luis S. de Vizmanos the following bond:
Yap Chuangco, for P20,000; Yap Chutco, for P5,000; Palanca Yap Poco, for P5,000; Palanca Tanguinlay, for P5,000; and
Lim Pongco, for P5,000. All of them signed the bond except the first named, Yap Chuangco, who did not personally
execute the bond; this was done for him by his attorney, Yap Chengtua.
In the said instrument the following appears:
. . . and, it being possible that the case occur that Mr. Vizmanos shall have to pay the said bond or a part thereof,
as such surety, whose responsibility or solvency in such capacity has been accepted by the court up to the
amount of forty thousand pesos, Philippine currency, for the purpose of guaranteeing to the same the
reimbursement of the sum or sums which by reason of the said bond he might have to pay, the executors of this
instrument have agreed that Messr. Yap Chuangco, Yap Chutco, Carlos Palanca Tanguinlay, Serafin Palanca Yap
Poco, and Lim Biampung, known as Lim Pongco, shall be the sureties of Don Engracio Palanca in favor of Mr. Luis
S. Vizmanos Ong-Quico, binding themselves jointly as such to reimburse or to pay to the said Mr. Vizmanos, his
heirs and successors in interest, whatever sums the said Vizmanos may have to pay or shall have paid by reason
of the judicial bond herein mentioned, subscribed by him in favor of Mr. Palanca, up to the amount of forty
thousand pesos, Philippine currency, in the proportion of not exceeding P20,000 by Yap Chungangco and P5,000
by each one of the other four herein above mentioned.
On March 9, 1908, the court which tried the case concerning the estate ordered Luis Saenz de Vizmanos Ong-Quico, as
surety in solidum of the ex-administrator Engracio Palanca, to pay to the estate the sum of P41,690.15, Philippine
currency, also the interest on the said sum at the rate of 8 per cent per annum, counting from December 27, 1905, with
other sums set out in the sentence. This judgment became final.
On March 31, 1908, Vizmanos Ong-Quico paid to the administrator of the estate eight thousand pesos (P8,000),
Philippine currency, by the conveyance of the property belonging to him, he still owing P40,975.92, with interest on the
said amount at 8 per cent per annum from the 9th day of March, 1908, the date of the judgment.
On April 2, 1908, he instituted suit against the five sureties above named who, with Engracio Palanca, executed the bond
before mentioned in his favor, praying the Court of First Instance of the city of Manila to sentence them to pay him: Yap
Chuangco, P20,000, and the other four sureties, Yap Chutco, Carlos Palanca Tanguinaly, Serafin Palanca Yap Poco, and
Lim Pongco, each P5,000, that is, these four together P20,000 more, and jointly the costs of the action.
The court, in its judgment, acquitted Yap Chuingco from the claim of the P20,000, assessing against the plaintiff the part
of the costs pertaining to this defendant, and ordered each one of the four remaining defendants, Yap Chutco, Carlos
Palanca Tanguinlay, Serafin Palanca Yap Poco, and Lim Biang Pon (alias Lim Pongco), to pay to the plaintiff, Luis Sanez de
Vizmanos, the sum of P2,000, with legal interest at 6 per cent per annum on the said respective sums from March 31,
1908, the date on which the plaintiff paid to the present administrator of the estate the said sum of P8,000, until its
complete payment. The said four defendants had also to pay jointly, that is, in equal shares, the costs pertaining to
them.
Both parties appealed from this sentence, each one forwarding to this court his respective bill of exceptions, together
with all the evidence taken at the trial, besides the stenographic notes which were also forwarded by special order of
the trial court.
The appeal having been heard before this court, it appears that:
The defendants appealed on account of their having been ordered to pay, each of them, P2,000, instead of only P1,000,
which according to the terms of the contract, each one of them was bound to pay to the plaintiff. (Only error alleged.)
The plaintiff appealed because the court refused to render judgment against the defendants for the maximum sum for
which each one had bound himself in the contract, which he calls a counterbound or subbond, that is, each one of the
four to pay P5,000. (Only error alleged.)
The share of P20,000 which the plaintiff claimed from Yap Chuangco is not included in the former's appeal, from the
payment of which amount the latter is relieved in the judgment, for he expressly states in his brief that he conforms to
this part of the judgment and that "his appeal solely relates to the other defendants." (Brief, 4.)
With respect to the other four defendants, the plaintiff and appellant claims that, notwithstanding his having paid only
P8,000 of his bond, the defendants ought to reimburse him at the rate of P5,000 each, that is, all together to the amount
of P20,000. As above stated, the lower court only sentenced them to reimburse their proportional share of the P8,000
paid, to wit, P2,000 each, P8,000 all together. Thus they would be paying even the proportional share corresponding to
Yap Chuangco, which is P4,000, whereas the plaintiff appellant agrees that the share of the bond concerning Yap
Chuangco should be void by reason of its having been executed by an attorney in fact of the latter who did not possess
sufficient power for this purpose.
Hence the only error alleged by the defendants in their brief, inasmuch as, having deducted the P4,000 which Yap
Chuangco would have to pay, the other four defendants must pay only P4,000, that is, P1,000 each.
We can not but agree with this claim of the attorneys for the defendants — say those of the plaintiff — if this
court, disregarding the reasons contained in our brief, should declare that the plaintiff is only entitled to recover
the money that he really and actually has expended, to wit, P8,000, then it appears unquestionable that the
defendants and appellants are only compelled to pay P1,0000 each, as their attorneys state in their brief. (Brief,
2.)
With regard to the sole error alleged by the attorneys for the plaintiff, it must first be considered that the bond which
the four defendants in turn executed in favor of the plaintiff bondsman is not a subbond; it is not of the same nature as
that given by the latter in favor of Engracio Palanca in the probate proceedings in connection with the will of Margarita
Jose. Although one bond is subordinate to another, not for this reason are they of the same nature. That of Vizmanos for
Engracio Palanca in favor of the estate is judicial and was approved by the probate judge; that of the defendants for
Engracio Palanca in favor of Vizmanos was extrajudicial and the probate judge had nothing to do with it. The new
administrator of the estate had a right of action, and he exercised it against Vizmanos to enforce the payment of the
bond given by the latter, but he has none nor can he exercise any whatsoever against the four who gave bond for
Engracio Palanca in favor of Vizmanos. The only relation that exists between the one bond and the other is merely that
of antecedent and consequent, in so far as that of Vizmanos in favor of the estate was the cause of debt of that of the
defendants in favor of Vizmanos. The first one was strictly judicial, the second merely contractual between the parties.
When a surety pays for the party under bond, he has a right of action against such party for the recovery of the amount
paid by him.
A surety who pays for a debtor shall be identified by the latter. (Art. 1838, Civil Code.)
The surety Vizmanos who paid for the debtor Palanca must be identified by Palanca. And it was evident, when Vizmanos
became surety for Palanca, that the latter could not pay him, Palanca obligated himself by the four defendants, or,
better said, the four defendants assumed the obligation that rested upon Palanca to indemnify Vizmanos for what the
latter might pay for Palanca. This is in fact the obligation that is nor exercised. The action of the surety against the party
under bond or the debtor to require the obligation of indemnity, has no other name nor other nature in law than that of
subrogation; it is an unquestionable doctrine. The action of subrogation is regulated in article 1839 of the Civil Code:
By virtue of such payment the surety is subrogated in all the rights which the creditor had against the debtor.
But be it well understood — says a commentator — that this subrogation can not be interpreted in such
absolute terms as to include more than the surety has paid, for, though it is true that he puts himself in the
place of the creditor and should have the same rights as the latter in consequence of the subrogation, it is no
less certain that there would be an unjust enrichment to the prejudice of the debtor, if the surety who pays for
him were permitted to claim more than what he paid. Moreover, the benefit of subrogation is the means of
utilizing the right of reimbursement, and he could not collect as such the excess from the rights and actions of
the creditor over and above the advance made by him. (12 Manresa, Civil Code, 304.)
The contract law says no more than this:
Being that the case may occur — say those obligated — that the said Vizmanos may have to pay the said bond or
a part thereof . . . for the purpose of guaranteeing the resimbursement of the sum or sums which by reason of
the bond he may have to pay, the executors have agreed and stipulated that . . . they shall be the sureties of
Don Engracio Palanca in favor of Sr. Luis S. Vizmanos, binding themselves as such conjointly to reimburse or to
pay . . whatever amounts the latter might have to pay or shall have paid by reason of the judicial bond
aforementioned. . . .
Being as it is an action of subrogation, it is not exercisable except in the case of payment. The surety is subrogated by the
payment, says the law, in all the rights that the creditor had against the debtor. Being as it is an action of indemnity it is
not conceived how, rationally, the damage not yet caused can be anticipated. When the purse of the surety has suffered
no detriment, to sue the debtor in order that he provide funds for the surety in expectancy of the action of the creditor,
is not to ask an indemnity, but to demand a guaranty to recover the loss when it may occur, and this guaranty is that
already obtained by the surety Vizmanos from Engracio Palanca on the latter's placing beforehand four parties in his
stead in order that they may the proper time ensure him of the restitution, the reimbursement of what he shall have
paid. To ask an indemnity of twenty, when the loss to be indemnified is but eight, can in no wise be authorized either by
law or by reason.
The Civil Code specifies five cases as exceptions wherein the surety, even before paying, may proceed against the
principal debtor, but "in all these cases the action of the surety tends to obtain his release from the security or a
guaranty to defend him against any proceedings of the creditor and from the danger of insolvency of the debtor." (Art.
1843, Civil Code.) The security or bond given by the four defendants in favor of the plaintiff Vizmanos had no other
purpose than, in case he should make payment to the estate of Margarita Jose, to defend himself against the
proceedings of the administrator of the estate and from the danger of insolvency of the debtor Palanca.
Although, in principle, by virtue of the contract in question, the four defendants are obligated to the plaintiff in the sum
of P20,000, that is, at the rate of P5,000 each, the action ad cautelam is, precisely, covered by such a contract, and the
action of subrogation, the only one exercisable, is only available in the quality of a restitution or reimbursement of the
payment effected. In the present case the plaintiff, by virtue of the contract ad cautelam, is entitled to an action against
the four defendants for recovery from each of them up to the maximum amount of P5,000, but he can not by such
action, as surety for the principal debtor, collect more than the sum which he himself was actually compelled to pay.
In virtue of the foregoing, the judgment appealed from is reversed in so far as it sentences each one of the four
defendants, Yap Chutco, Carlos Palanca Tanguinlay, Serafin Palanca Yap Poco, and Lim Biang Pong (alias Lim Pongco), to
pay to the plaintiff, Luis Saenz de Vizmanos, the sum of P2,000. The amount to be paid is hereby fixed at P1,000, to the
payment of which, in favor of the aforesaid plaintiff, each of the four defendants mentioned were sentenced, "with legal
interest at the rate of 6 per cent per annum on the said respective sums, from March 31, 1908, the date on which the
plaintiff paid to the present administrator of the said estate the said sum of P8,000, until its complete payment. The said
four defendants shall pay the costs in equal shares." the costs of this instance shall be assessed against the plaintiff and
appellant Vizmanos. So ordered.
Torres, Mapa, Johnson and Moreland, JJ., concur.
G.R. No. L-22177 December 2, 1924
TUASON, TUASON, INC., plaintiff-appellee,
vs.
ANTONIO MACHUCA, defendant-appellant.
Marcaida, Capili & Ocampo for appellant.
Antonio M. Opisso for appellee.

AVANCEÑA, J.:
By giving a bond in the sum of P9,663 executed by "Manila Compañia de Seguros," the Universal Trading Company was
allowed by the Insular Collector of Custom to withdraw from the customhouse sundry goods imported by it and
consigned through the bank of the Philippine Islands. Subsequently, the Bank of the Philippine Islands claimed the value
of the goods, and the Insular Collector of Customs obligated the "Manila Compañia de Seguros" to pay the sum of
P9,663, the amount of the bond. Before paying this amount to the Insular Collector of Customs, the "Manila Compañia
de Seguros" obtained from the Universal Trading Company and Tuason, Tuason & Co., a solidary note for the sum of
P9,663 executed by said companies in its favor. Before signing said note, Tuason, Tuason & Co., in turn, caused the
Universal Trading Company and its president Antonio Machuca, personally, to sign a document (Exhibit B), wherein they
bound themselves solidarily to pay, reimburse, and refund to the company all such sums or amounts of money as it, or
its representative, may pay or become bound to pay, upon its obligation with "Manila Compañia de Seguros," whether
or not it shall have actually paid such sum or sums or any part thereof. The Universal Trading Company having been
declared insolvent, "Manila Compañia de Seguros" brought an action in the lower court against Tuason, Tuason & Co. to
recover the value of the note for P9,663 and obtained final judgment therein, which was affirmed by this court on
appeal, for the total sum of P12,197.27, which includes the value of the note with interest thereon. 1 Subsequently, all
the rights of Tuason, Tuason & Co. were transferred to the plaintiff Tuason, Tuason, Inc.
Later on Tuason, Tuason, Inc., brought this action to recover of Antonio Machuca the sum of P12,197.27 which it was
sentenced to pay in the case filed against it by "Manila Compañia de Seguros," plus P3,000 attorney's fees, and P155.92
court's costs and sheriff's fees, that is, a total of P15,353.19, together with P1,180.46 as interest upon the sum of
P15,353.19 at the rate of 10 per cent per annum from October 8, 1922, to July 8, 1923, and interest on the sum of
P16,535.65 at the rate of 10 per cent from July 8, 1923, until this sum was paid, and, in addition the sum of P1,653.65 for
attorney's fees in this case. For its cause of action, the plaintiff alleges that it had paid "Manila Compañia de Seguros"
the sum of P12,197.27, the amount of the judgment against it. The dispositive part of the judgment appealed from is as
follows:itc-a1f
Judgment is rendered against the defendant Antonio Machuca, and he is hereby ordered to pay the plaintiff
company the sum of fifteen thousand three hundred fifty-three pesos and nineteen centavos (15,353.19), with
compound interest thereon at the rate of ten per cent (10%) per annum, to be computed quarterly, that is, one
thousand one hundred eighty pesos and forty-six centavos (1,180.46), which is ten per cent interest on the
amount of fifteen thousand three hundred fifty-three pesos and nineteen centavos (P15,353.19) from October
8, 1922, to July 8, 1923, and ten per cent on the sum of sixteen thousand five hundred thirty-three pesos and
sixty-five centavos (P16,533.65) from July 8, 1923, until full payment, to be computed quarterly, besides the sum
of one thousand six hundred fifty-three pesos and sixty-five centavos (P1,653.65), which is ten per cent (10%) on
the amount due and the interest thereon, which said defendant promised to pay as penalty and attorney's fees
in the event of a suit being necessary to recover the debt, and the costs. So ordered.
It appears from the evidence that what the plaintiff alleged to be a payment made to "Manila Compañia de Seguros", for
the satisfaction of the judgment rendered in favor of the latter is the execution by Albina Tuason of a document Exhibit
D in favor of "Manila Compañia de Seguros." In this document Albina Tuason declares that she assumes and makes hers
the obligation to pay the amount of said judgment to "Manila Compañia de Seguros" within one year and mortgages a
property described in the document as security for this obligation. This obligation of Albina Tuason was accepted by the
"Manila Compañia de Seguros," in the following terms: "I accept the foregoing security executed by Miss Albina Tuason
in favor of `Manila Compañia de Seguros.'" It, thus, appears that the plaintiff has not in fact paid the amount of the
judgment to "Manila Compañia de Seguros." The action brought by the plaintiff is that which surety, who pays the debt
of the debtor, is entitled to bring to recover the amount thus paid (art. 1823, Civil Code). It is evidence that such a
payment not having been made the alleged cause of action does not exist.
The plaintiff company argues that, at all events, it is entitled to bring this action under article 1843 of the Civil Code,
which provides that the surety may, even before making payment, bring action against the principal debtor. This
contention of the plaintiff is untenable. The present action, according to the terms of the complaint, is clearly based on
the fact of payment. It is true that, under article 1843, an action lies against the principal debtor even before the surety
pays the debt, but it clearly appears in the complaint that this is not the action brought by the plaintiff. Moreover this
article 1843 provided several cumulative remedies in favor of the surety, at his election, and the surety who brings an
action under this article must choose the remedy and apply for it specifically. At any rate this article does not provide for
the reimbursement of any amount, as is sought by the plaintiff.lawphi1.net
But although the plaintiff has not as yet paid "Manila Compañia de Seguros" the amount of the judgment against it, and
even considering that this action cannot be held to come under article 1843 of the Civil Code, yet the plaintiff is entitled
to the relief sought in view of the facts established by the evidence. The plaintiff became bound, by virtue of a final
judgment, to pay the value of the note executed by it in favor of "Manila Compañia de Seguros." According to the
document executed solidarily by the defendant and the Universal Trading Company, the defendant bound himself to pay
the plaintiff as soon as the latter may have become bound and liable, whether or not it shall have actually paid. It is
indisputable that the plaintiff became bound and liable by a final judgment to pay the value of the note to "Manila
Compañia de Seguros."
The defendant also contends that the document executed by Albina Tuason in favor of "Manila Compañia de Seguros"
assuming and making hers the obligation of Tuason, Tuason & Co., was a novation of the contract by substitution of the
debtor, and relieved Tuason, Tuason & Co. from all obligation in favor of "Manila Compañia de Seguros." As to this, it is
enough to say that if this was what Albina Tuason contemplated in signing the document, evidently it was not what
"Manila Compañia de Seguros" accepted. As above stated, "Manila Compañia de Seguros" accepted this document only
as additional security for its credit and not as a novation of the contract.
Our conclusion is that the plaintiff has the right to recover of the defendant the sum of P9,663, the value of the note
executed by the plaintiff in favor of "Manila Compañia de Seguros" which the plaintiff is under obligation to pay by
virtue of final judgment. We do not believe, however, that the defendant must pay the plaintiff the expenses incurred by
it in the litigation between it and "Manila Compañia de Seguros." That litigation was originated by the plaintiff having
failed to fulfill its obligation with "Manila Compañia de Seguros," and it cannot charge the defendant with expenses
which it was compelled to make by reason of its own fault. It is entitled, however, to the expenses incurred by it in this
action brought against the defendant, which are fixed at P1,653.65 as attorney's fees.
The judgment appealed from is modified, and the defendant is sentenced to pay the plaintiff the sum of P9,663, with
interest thereon at the rate of 10 per cent per annum from July 19, 1923, when the complaint was filed until full
payment thereof, plus the sum of P1,653.65 for attorney's fees, without special pronouncement as to costs. So ordered.
Johnson, Street, Malcolm, Villamor, Ostrand and Romualdez, JJ., concur.
G.R. No. L-5208 December 1, 1909
KUENZLE AND STREIFF, plaintiff-appellant,
vs.
JOSE TAN SUNCO ET AL., defendants-appellees.
Hartigan and Rohde, and Roman Lacson, for appellant.
Antonio Constantino, for appellees.
MORELAND, J.:
This is an action to set aside four judgments rendered by a justice of the peace of the city of Manila upon the ground
that they were procured by collision and fraud, to the injury and damage of the plaintiff.
The court below, after hearing the evidence offered upon the trial, found against the plaintiff and rendered a judgment
in favor of the defendant dismissing the plaintiff's complaint, with costs.
The plaintiff did not make a motion for a new trial in the court below and this court can not, therefore, look into the
evidence but must confine itself to the facts stated in the opinion of the court below for the purpose of ascertaining
whether or not the judgment of that court can be sustained.
It appears from the opinion of the court below that Tan Sunco was a surety for Chung Chu Sing for the payment by the
latter of the purchase price of certain merchandise purchased by said Chung Chu Sing of Ed. and A. Keller and Co., that
the time within which said merchandise was to be paid for under the terms of its purchase had expired long before said
four judgments were obtained, and that the debt remained unpaid; that the total debt was composed of four invoices of
varying amounts — P395.50, P450, P565, and P320.20; that an action had been commenced against the said debtor,
Chung Chu Sing, by the present plaintiff for the recovery of the indebtedness due it; that shortly before judgment was
secured in that action the said Tan Sunco began four separate action against the said debtor upon the said invoices in
the court of the justice of the peace of the city of Manila; that soon thereafter the said sunco and the said debtor
appeared before the said court, and the said debtor then and there confessed judgment in favor of said Tan Sunco in
each one of said actions, Tan Sunco thereby obtaining against the said debtor four separate judgments; that
immediately upon the recovery of said judgments the plaintiff in those actions, Sunco caused to be levied thereunder
executions upon all of the property of said debtor, which property was not more than sufficient to pay to the judgments
under which the levies were made; that thereupon the action at bar was begun and the sales under said executions
were enjoined pending the determination thereof. These are the admitted facts.lawphi1.net
The plaintiff in this action contends that said four judgments ought to be set wholly aside on account of their having
been obtained, as he claims, by collusion and fraud, because the debtor did not owe anything to Sunco at the time the
four judgments were secured, basing that contention on the fact, which is admitted, that Sunco and not yet paid the
sums for which he had become surety and in connection with which he obtained the judgments.
We think that the article 1843 of the Civil Code is applicable to this case.lawphi1.net In their purposes articles 1838 and
1843 are quite distinct, although in perfect harmony, the latter making more clearly effective the purpose of the former.
Article 1838 provides for the enforcement of the right of the surety against the debtor after he has paid the debt. Article
1843 provides for his protection before he has paid but after he has become liable to do so. The one gives a right of
action after payment, the other a protective remedy before payment. (Supreme court of Spain, March 22, 1901.) The
one is a substantive right, the other of the nature of a preliminary remedy. The one gives a right of action which, without
the provisions of the of the other, might be worthless. The remedy given in article 1843 purposes to obtain for the
surety "relief from the burden of his suretyship or a guaranty to defend him against any proceedings of the creditor and
from the danger of insolvency of the debtor." (Last paragraph of art. 1843.) article 1838, speaking under this article
become available, he is past the point where a preliminary protective remedy is of any value to him.lawphi1.net
It being evident that the purpose of article 1843 is to give to the surety a remedy in anticipation of the payment of the
debt, which debt, being due, he could be called upon to pay at any time, it remains only to say, in this connection, that
the only procedure known under our present practice to enforce that right is by action. (Manresa, Civil Code, vol. 12, p.
320.) The defendant Sunco availed himself of that right against the debtor. The methods employed by him to realize his
end were unusual but not of themselves fraudulent. We agree with the trial court that the evidence adduced is entirely
insufficient to establish such fraud and collusion as would justify a decision setting aside the judgment assailed. (Arts.
1291, 1297, Civil Code; Pena vs. Mitchell, 9 Phil. Rep., 587; Jones vs. Brittan, 13 Fed. Cas., No. 7455; Oberly vs. Oberly,
190 Pa. st., 341; Caldwell vs. Finfield, 24 n. J. L., 150.) The facts stated in the opinion of the court below abundantly
justify the conclusion.
But while the surety has the right to obtain as he did the judgments against the principal debtor, he ought not to be
allowed to realize the said judgments to the point of actual collection of the same until he has satisfied or caused to be
satisfied the obligation the payment of which he assures. Otherwise, a great opportunity for collusion and improper
practices between the surety and his principal would be offered which might result to the injury and prejudice of the
creditor who holds the claim against them.
The judgement of the court below is, therefore, affirmed, with costs against the appellant. But the said Sunco shall not
execute said judgments against the property of the judgment debtor until he has paid the debt for which he stands
surety. So ordered.
Arellano, C. J., Torres, Johnson, Carson and Elliott, JJ., concur.
G.R. No. L-47369
JOSEPH COCHINGYAN, JR. and JOSE K. VILLANUEVA, petitioners,
vs.
R & B SURETY AND INSURANCE COMPANY, INC., respondent.

FELICIANO, J.:
This case was certified to us by the Court of Appeals in its resolution dated 11 November 1977 as one involving only
questions of law and, therefore, falling within the exclusive appellate jurisdiction of this Court under Section 17,
Republic Act 296, as amended.
In November 1963, Pacific Agricultural Suppliers, Inc. (PAGRICO) applied for and was granted an increase in its line of
credit from P400,000.00 to P800,000.00 (the "Principal Obligation"), with the Philippine National Bank (PNB). To secure
PNB's approval, PAGRICO had to give a good and sufficient bond in the amount of P400,000.00, representing the
increment in its line of credit, to secure its faithful compliance with the terms and conditions under which its line of
credit was increased. In compliance with this requirement, PAGRICO submitted Surety Bond No. 4765, issued by the
respondent R & B Surety and Insurance Co., Inc. (R & B Surety") in the specified amount in favor of the PNB. Under the
terms of the Surety Bond, PAGRICO and R & B Surety bound themselves jointly and severally to comply with the "terms
and conditions of the advance line [of credit] established by the [PNB]." PNB had the right under the Surety Bond to
proceed directly against R & B Surety "without the necessity of first exhausting the assets" of the principal obligor,
PAGRICO. The Surety Bond also provided that R & B Surety's liability was not to be limited to the principal sum of
P400,000.00, but would also include "accrued interest" on the said amount "plus all expenses, charges or other legal
costs incident to collection of the obligation [of R & B Surety]" under the Surety Bond.
In consideration of R & B Surety's issuance of the Surety Bond, two Identical indemnity agreements were entered into
with R & B Surety: (a) one agreement dated 23 December 1963 was executed by the Catholic Church Mart (CCM) and by
petitioner Joseph Cochingyan, Jr, the latter signed not only as President of CCM but also in his personal and individual
capacity; and (b) another agreement dated 24 December 1963 was executed by PAGRICO, Pacific Copra Export Inc.
(PACOCO), Jose K. Villanueva and Liu Tua Ben Mr. Villanueva signed both as Manager of PAGRICO and in his personal
and individual capacity; Mr. Liu signed both as President of PACOCO and in his individual and personal capacity.
Under both indemnity agreements, the indemnitors bound themselves jointly and severally to R & B Surety to pay an
annual premium of P5,103.05 and "for the faithful compliance of the terms and conditions set forth in said SURETY
BOND for a period beginning ... until the same is CANCELLED and/or DISCHARGED." The Indemnity Agreements further
provided:
(b) INDEMNITY: — TO indemnify the SURETY COMPANY for any damage, prejudice, loss, costs, payments,
advances and expenses of whatever kind and nature, including [of] attorney's fees, which the CORPORATION
may, at any time, become liable for, sustain or incur as consequence of having executed the above mentioned
Bond, its renewals, extensions or substitutions and said attorney's fees [shall] not be less than twenty [20%] per
cent of the total amount claimed by the CORPORATION in each action, the same to be due, demandable and
payable, irrespective of whether the case is settled judicially or extrajudicially and whether the amount has been
actually paid or not;
(c) MATURITY OF OUR OBLIGATIONS AS CONTRACTED HEREWITH: — The said indemnities will be paid to the
CORPORATION as soon as demand is received from the Creditor or upon receipt of Court order or as soon as it
becomes liable to make payment of any sum under the terms of the above-mentioned Bond, its renewals,
extensions, modifications or substitutions, whether the said sum or sums or part thereof, have been actually
paid or not.
We authorize the SURETY COMPANY, to accept in any case and at its entire discretion, from any of us, payments
on account of the pending obligations, and to grant extension to any of us, to liquidate said obligations, without
necessity of previous knowledge of [or] consent from the other obligors.
xxx xxx xxx
(e) INCONTESTABILITY OF PAYMENTS MADE BY THE COMPANY. — Any payment or disbursement made by the
SURETY COMPANY on account of the above-mentioned Bonds, its renewals, extensions or substitutions, either
in the belief that the SURETY COMPANY was obligate[d] to make such payment or in the belief that said
payment was necessary in order to avoid greater losses or obligations for which the SURETY COMPANY might be
liable by virtue of the terms of the above-mentioned Bond, its renewals, extensions or substitutions, shall be
final and will not be disputed by the undersigned, who jointly and severally bind themselves to indemnify the
SURETY COMPANY of any and all such payments as stated in the preceding clauses.
xxx xxx xxx
When PAGRICO failed to comply with its Principal Obligation to the PNB, the PNB demanded payment from R & B Surety
of the sum of P400,000.00, the full amount of the Principal Obligation. R & B Surety made a series of payments to PNB
by virtue of that demand totalling P70,000.00 evidenced by detailed vouchers and receipts.
R & B Surety in turn sent formal demand letters to petitioners Joseph Cochingyan, Jr. and Jose K. Villanueva for
reimbursement of the payments made by it to the PNB and for a discharge of its liability to the PNB under the Surety
Bond. When petitioners failed to heed its demands, R & B Surety brought suit against Joseph Cochingyan, Jr., Jose K.
Villanueva and Liu Tua Ben in the Court of First Instance of Manila, praying principally that judgment be rendered:
 b. Ordering defendants to pay jointly and severally, unto the plaintiff, the sum of P20,412.20 representing the
unpaid premiums for Surety Bond No. 4765 from 1965 up to 1968, and the additional amount of P5,103.05
yearly until the Surety Bond No. 4765 is discharged, with interest thereon at the rate of 12% per annum; [and]
c. Ordering the defendants to pay jointly and severally, unto the plaintiff the sum of P400,000.00 representing
the total amount of the Surety Bond No. 4765 with interest thereon at the rate of 12% per annum on the
amount of P70,000.00 which had been paid to the Phil. National Bank already, the interest to begin from the
month of September, 1966;
xxx xxx xxx
Petitioner Joseph Cochingyan, Jr. in his answer maintained that the Indemnity Agreement he executed in favor of R & B
Surety: (i) did not express the true intent of the parties thereto in that he had been asked by R & B Surety to execute the
Indemnity Agreement merely in order to make it appear that R & B Surety had complied with the requirements of the
PNB that credit lines be secured; (ii) was executed so that R & B Surety could show that it was complying with the
regulations of the Insurance Commission concerning bonding companies; (iii) that R & B Surety had assured him that the
execution of the agreement was a mere formality and that he was to be considered a stranger to the transaction
between the PNB and R & B Surety; and (iv) that R & B Surety was estopped from enforcing the Indemnity Agreement as
against him.
Petitioner Jose K. Villanueva claimed in his answer that. (i) he had executed the Indemnity Agreement in favor of R & B
Surety only "for accommodation purposes" and that it did not express their true intention; (ii) that the Principal
Obligation of PAGRICO to the PNB secured by the Surety Bond had already been assumed by CCM by virtue of a Trust
Agreement entered into with the PNB, where CCM represented by Joseph Cochingyan, Jr. undertook to pay the Principal
Obligation of PAGRICO to the PNB; (iii) that his obligation under the Indemnity Agreement was thereby extinguished by
novation arising from the change of debtor under the Principal Obligation; and (iv) that the filing of the complaint was
premature, considering that R & B Surety filed the case against him as indemnitor although the PNB had not yet
proceeded against R & B Surety to enforce the latter's liability under the Surety Bond.
Petitioner Cochingyan, however, did not present any evidence at all to support his asserted defenses. Petitioner
Villanueva did not submit any evidence either on his "accommodation" defense. The trial court was therefore
constrained to decide the case on the basis alone of the terms of the Trust Agreement and other documents submitted
in evidence.
In due time, the Court of First Instance of Manila, Branch 24 1 rendered a decision in favor of R & B Surety, the
dispositive portion of which reads as follows;
Premises considered, judgment is hereby rendered: (a) ordering the defendants Joseph Cochingyan, Jr. and Jose
K. Villanueva to pay, jointly and severally, unto the plaintiff the sum of 400,000,00, representing the total
amount of their liability on Surety Bond No. 4765, and interest at the rate of 6% per annum on the following
amounts:
On P14,000.00 from September 27, 1966;
On P4,000.00 from November 28, 1966;
On P4,000.00 from December 14, 1966;
On P4,000.00 from January 19, 1967;
On P8,000.00 from February 13, 1967;
On P4,000.00 from March 6, 1967;
On P8,000.00 from June 24, 1967;
On P8,000. 00 from September 14, 1967;
On P8,000.00 from November 28, 1967; and
On P8,000. 00 from February 26, 1968
until full payment; (b) ordering said defendants to pay, jointly and severally, unto the plaintiff the sum of
P20,412.00 as the unpaid premiums for Surety Bond No. 4765, with legal interest thereon from the filing of
plaintiff's complaint on August 1, 1968 until fully paid, and the further sum of P4,000.00 as and for attorney's
fees and expenses of litigation which this Court deems just and equitable.
There being no showing the summons was duly served upon the defendant Liu Tua Ben who has filed no answer
in this case, plaintiff's complaint is hereby dismissed as against defendant Liu Tua Ben without prejudice.
Costs against the defendants Joseph Cochingyan, Jr. and Jose K. Villanueva.
Not satisfied with the decision of the trial court, the petitioners took this appeal to the Court of Appeals which, as
already noted, certified the case to us as one raising only questions of law.
The issues we must confront in this appeal are:
1. whether or not the Trust Agreement had extinguished, by novation, the obligation of R & B Surety to the PNB under
the Surety Bond which, in turn, extinguished the obligations of the petitioners under the Indemnity Agreements;
2. whether the Trust Agreement extended the term of the Surety Bond so as to release petitioners from their obligation
as indemnitors thereof as they did not give their consent to the execution of the Trust Agreement; and
3. whether or not the filing of this complaint was premature since the PNB had not yet filed a suit against R & B Surety
for the forfeiture of its Surety Bond.
We address these issues seriatim.
1. The Trust Agreement referred to by both petitioners in their separate briefs, was executed on 28 December 1965 (two
years after the Surety Bond and the Indemnity Agreements were executed) between: (1) Jose and Susana Cochingyan,
Sr., doing business under the name and style of the Catholic Church Mart, represented by Joseph Cochingyan, Jr.,
as Trustor[s]; (2) Tomas Besa, a PNB official, as Trustee; and (3) the PNB as beneficiary. The Trust Agreement provided, in
pertinent part, as follows:
WHEREAS, the TRUSTOR has guaranteed a bond in the amount of P400,000.00 issued by the R & B Surety and
Insurance Co. (R & B) at the instance of Pacific Agricultural Suppliers, Inc. (PAGRICO) on December 21, 1963, in
favor of the BENEFICIARY in connection with the application of PAGRICO for an advance line of P400,000.00 to
P800,000.00;
WHEREAS, the TRUSTOR has also guaranteed a bond issued by the Consolacion Insurance & Surety Co., Inc.
(CONSOLACION) in the amount of P900,000.00 in favor of the BENEFICIARY to secure certain credit facilities
extended by the BENEFICIARY to the Pacific Copra Export Co., Inc. (PACOCO);
WHEREAS, the PAGRICO and the PACOCO have defaulted in the payment of their respective obligations in favor
of the BENEFICIARY guaranteed by the bonds issued by the R & B and the CONSOLACION, respectively, and by
reason of said default, the BENEFICIARY has demanded compliance by the R & B and the CONSOLACION of their
respective obligations under the aforesaid bonds;
WHEREAS, the TRUSTOR is, therefore, bound to comply with his obligation under the indemnity agreements
aforementioned executed by him in favor of R & B and the CONSOLACION, respectively and in order to forestall
impending suits by the BENEFICIARY against said companies, he is willing as he hereby agrees to pay the
obligations of said companies in favor of the BENEFICIARY in the total amount of P1,300,000 without interest
from the net profits arising from the procurement of reparations consumer goods made thru the allocation of
WARVETS; . . .
l. TRUSTOR hereby constitutes and appoints Atty. TOMAS BESA as TRUSTEE for the purpose of paying to the
BENEFICIARY Philippine National Bank in the manner stated hereunder, the obligations of the R & B under the R
& B Bond No. G-4765 for P400,000.00 dated December 23, 1963, and of the CONSOLACION under The
Consolacion Bond No. G-5938 of June 3, 1964 for P900,000.00 or the total amount of P1,300,000.00 without
interest from the net profits arising from the procurement of reparations consumer goods under the
Memorandum of Settlement and Deeds of Assignment of February 2, 1959 through the allocation of WARVETS;
xxx xxx xxx
6. THE BENEFICIARY agrees to hold in abeyance any action to enforce its claims against R & B and
CONSOLACION, subject of the bond mentioned above. In the meantime that this TRUST AGREEMENT is being
implemented, the BENEFICIARY hereby agrees to forthwith reinstate the R & B and the CONSOLACION as among
the companies duly accredited to do business with the BENEFICIARY and its branches, unless said companies
have been blacklisted for reasons other than those relating to the obligations subject of the herein TRUST
AGREEMENT;
xxx xxx xxx
9. This agreement shall not in any manner release the R & B and CONSOLACION from their respective liabilities
under the bonds mentioned above. (emphasis supplied)
There is no question that the Surety Bond has not been cancelled or fully discharged 2 by payment of the Principal
Obligation. Unless, therefore, the Surety Bond has been extinguished by another means, it must still subsist. And so
must the supporting Indemnity Agreements. 3
We are unable to sustain petitioners' claim that the Surety Bond and their respective obligations under the Indemnity
Agreements were extinguished by novation brought about by the subsequent execution of the Trust Agreement.
Novation is the extinguishment of an obligation by the substitution or change of the obligation by a subsequent one
which terminates it, either by changing its object or principal conditions, or by substituting a new debtor in place of the
old one, or by subrogating a third person to the rights of the creditor. 4 Novation through a change of the object or
principal conditions of an existing obligation is referred to as objective (or real) novation. Novation by the change of
either the person of the debtor or of the creditor is described as subjective (or personal) novation. Novation may also be
both objective and subjective (mixed) at the same time. In both objective and subjective novation, a dual purpose is
achieved-an obligation is extinguished and a new one is created in lieu thereof.5
If objective novation is to take place, it is imperative that the new obligation expressly declare that the old obligation is
thereby extinguished, or that the new obligation be on every point incompatible with the old one. 6 Novation is never
presumed: it must be established either by the discharge of the old debt by the express terms of the new agreement, or
by the acts of the parties whose intention to dissolve the old obligation as a consideration of the emergence of the new
one must be clearly discernible. 7
Again, if subjective novation by a change in the person of the debtor is to occur, it is not enough that the juridical
relation between the parties to the original contract is extended to a third person. It is essential that the old debtor be
released from the obligation, and the third person or new debtor take his place in the new relation. If the old debtor is
not released, no novation occurs and the third person who has assumed the obligation of the debtor becomes merely a
co-debtor or surety or a co-surety. 8
Applying the above principles to the instant case, it is at once evident that the Trust Agreement does not expressly
terminate the obligation of R & B Surety under the Surety Bond. On the contrary, the Trust Agreement expressly
provides for the continuing subsistence of that obligation by stipulating that "[the Trust Agreement] shall not in any
manner release" R & B Surety from its obligation under the Surety Bond.
Neither can the petitioners anchor their defense on implied novation. Absent an unequivocal declaration of
extinguishment of a pre-existing obligation, a showing of complete incompatibility between the old and the new
obligation (and nothing else) would sustain a finding of novation by implication. 9 But where, as in this case, the parties
to the new obligation expressly recognize the continuing existence and validity of the old one, where, in other words,
the parties expressly negated the lapsing of the old obligation, there can be no novation. The issue of implied novation is
not reached at all.
What the trust agreement did was, at most, merely to bring in another person or persons-the Trustor[s]-to assume the
same obligation that R & B Surety was bound to perform under the Surety Bond. It is not unusual in business for a
stranger to a contract to assume obligations thereunder; a contract of suretyship or guarantee is the classical example.
The precise legal effect is the increase of the number of persons liable to the obligee, and not the extinguishment of the
liability of the first debtor. 10 Thus, in Magdalena Estates vs. Rodriguez, 11 we held that:
[t]he mere fact that the creditor receives a guaranty or accepts payments from a third person who has agreed to
assume the obligation, when there is no agreement that the first debtor shall be released from responsibility,
does not constitute a novation, and the creditor can still enforce the obligation against the original debtor.
In the present case, we note that the Trustor under the Trust Agreement, the CCM, was already previously bound to R &
B Surety under its Indemnity Agreement. Under the Trust Agreement, the Trustor also became directly liable to the PNB.
So far as the PNB was concerned, the effect of the Trust Agreement was that where there had been only two, there
would now be three obligors directly and solidarily bound in favor of the PNB: PAGRICO, R & B Surety and the Trustor.
And the PNB could proceed against any of the three, in any order or sequence. Clearly, PNB never intended to release,
and never did release, R & B Surety. Thus, R & B Surety, which was not a party to the Trust Agreement, could not have
intended to release any of its own indemnitors simply because one of those indemnitors, the Trustor under the Trust
Agreement, became also directly liable to the PNB.
2. We turn to the contention of petitioner Jose K. Villanueva that his obligation as indemnitor under the 24 December
1963 Indemnity Agreement with R & B Surety was extinguished when the PNB agreed in the Trust Agreement "to hold in
abeyance any action to enforce its claims against R & B Surety .
The Indemnity Agreement speaks of the several indemnitors "apply[ing] jointly and severally (in solidum) to the R & B
Surety] — to become SURETY upon a SURETY BOND demanded by and in favor of [PNB] in the sum of [P400,000.00] for
the faithful compliance of the terms and conditions set forth in said SURETY BOND — ." This part of the Agreement
suggests that the indemnitors (including the petitioners) would become co-sureties on the Security Bond in favor of
PNB. The record, however, is bereft of any indication that the petitioners-indemnitors ever in fact became co-sureties of
R & B Surety vis-a-vis the PNB. The petitioners, so far as the record goes, remained simply indemnitors bound to R & B
Surety but not to PNB, such that PNB could not have directly demanded payment of the Principal Obligation from the
petitioners. Thus, we do not see how Article 2079 of the Civil Code-which provides in part that "[a]n extension granted
to the debtor by the creditor without the consent of the guarantor extinguishes the guaranty" could apply in the instant
case.
The petitioner-indemnitors are, as, it were, second-tier parties so far as the PNB was concerned and any extension of
time granted by PNB to any of the first-tier obligators (PAGRICO, R &B Surety and the trustors[s]) could not prejudice the
second-tier parties.
There is no other reason why petitioner Villanueva's contention must fail. PNB's undertaking under the Trust Agreement
"to hold in abeyance any action to enforce its claims" against R & B Surety did not extend the maturity of R & B Surety's
obligation under the Surety Bond. The Principal Obligation had in fact already matured, along with that of R &B Surety,
by the time the Trust Agreement was entered into. Petitioner's Obligation had in fact already matured, for those
obligations were to amture "as soon as [R & B Surety] became liable to make payment of any sum under the terms of
the [Surety Bond] — whether the said sum or sums or part thereof have been actually paid or not." Thus, the situation
was that precisely envisaged in Article 2079:
[t]he mere failure on the part of the creditor to demand payment after the debt has become due does not of
itself constitute any extension of the referred to herein.(emphasis supplied)
The theory behind Article 2079 is that an extension of time given to the principal debtor by the creditor without the
surety of his right to pay the creditor and to be immediately subrogated to the creditor's remedies against the principal
debtor upon the original maturity date. The surety is said to be entitled to protect himself against the principal debtor
upon the orginal maturity date. The surety is said to be entitled to protect himself against the contingency of the
principal debtor or the indemnitors becoming insolvent during the extended period. The underlying rationale is not
present in the instant case. As this Court has held,
merely delay or negligence in proceeding against the principal will not discharge a surety unless there is between
the creditor and the principal debtor a valid and binding agreement therefor, one which tends to prejudice [the
surety] or to deprive it of the power of obtaining indemnity by presenting a legal objection for the time, to the
prosecution of an action on the original security.12
In the instant case, there was nothing to prevent the petitioners from tendering payment, if they were so minded, to
PNB of the matured obligation on behalf of R & B Surety and thereupon becoming subrogated to such remedies as R & B
Surety may have against PAGRICO.
3. The last issue can be disposed of quicjly, Clauses (b) and (c) of the Indemnity Agreements (quoted above) allow R & B
Surety to recover from petitioners even before R & B Surety shall have paid the PNB. We have previously held similar
indemnity clauses to be enforceable and not violative of any public policy. 13
The petitioners lose sight of the fact that the Indemnity Agreements are contracts of indemnification not only against
actual loss but against liability as well. 14 While in a contract of indemnity against loss as indemnitor will not be liable
until the person to be indemnified makes payment or sustains loss, in a contract of indemnity against liability, as in this
case, the indemnitor's liability arises as soon as the liability of the person to be indemnified has arisen without regard to
whether or not he has suffered actual loss. 15 Accordingly, R & B Surety was entitled to proceed against petitioners not
only for the partial payments already made but for the full amount owed by PAGRICO to the PNB.
Summarizing, we hold that :
(1) The Surety Bond was not novated by the Trust Agreement. Both agreements can co-exist. The Trust Agreement
merely furnished to PNB another party obligor to the Principal Obligation in addition to PAGRICO and R & B Surety.
(2) The undertaking of the PNB to 'hold in abeyance any action to enforce its claim" against R & B Surety did not amount
to an "extension granted to the debtor" without petitioner's consent so as to release petitioner's from their undertaking
as indemnitors of R & B Surety under the INdemnity Agreements; and
(3) Petitioner's are indemnitors of R & B Surety against both payments to and liability for payments to the PNB. The
present suit is therefore not premature despite the fact that the PNB has not instituted any action against R & B Surety
for the collection of its matured obligation under the Surety Bond.
WHEREFORE, the petitioner's appeal is DENIED for the lack of merit and the decision of the trial court is AFFIRMED in
toto. Costs against the petitioners.
SO ORDERED.
Yap (Chairman), Narvasa, Melencio-Herrera, Cruz, Gancayco and Sarmiento, JJ., concur.
G.R. No. L-43862 January 13, 1989
MERCANTILE INSURANCE CO., INC., plaintiff-appellee,
vs.
FELIPE YSMAEL, JR., & CO., INC., defendants-appellants.
Beltran, Evangelista & Cuasay for plaintiff-appellee.
Abraham F. Sarmiento Law Office for defendants-appellants.

BIDIN, J.:
This is an appeal from the decision** dated October 30, 1971 of the Court of First Instance of Manila (now Regional Trial
Court) in Civil Case No. 82168 entitled "Mercantile Insurance Co., Inc. (herein referred to as the plaintiff-appellee) vs.
Felipe Ysmael, Jr. &. Co., Inc., et al (hereinafter referred to as the defendant-appellant) ordering defendants-appellants
Felipe Ysmael, Jr. & Co., Inc. and Felipe Ysmael, Jr., to pay jointly and severally to the plaintiff the sum of P100,000.00
plus 15% thereof as attorney's fees, and costs. On appeal to the Court of Appeals, this case which involves only a
question of law, was certified to this Court.
The factual milieu of this case as found by the trial court is as follows:
Felipe Ysmael, Jr. & Co., Inc., represented by Felipe Ysmael filed an application for an overdraft line of
Pl,000,000.00 and credit line of Pl,000,000.00 with the Philippine National Bank. The latter was willing to
grant credit accommodation of P2,000,000.00 applied for provided that the applicant shall have filed a
bond in the sum of P140,000.00 to guarantee the payment of the said amount. Accordingly, on March 6,
1967, Felipe Ysmael, Jr. & Co., Inc., represented by Felipe Ysmael filed surety bond No. G(16) 007 of
Mercantile Insurance Co., Inc. in the sum of P100,000.00 (Exh. A). On December 4, 1967, Felipe Ysmael
Jr. & Co., Inc. as principal and the Mercantile Insurance Co., Inc. executed another surety bond MERICO
Bond No. G (16) 0030 in the sum of P40,000.00. It is the condition in both bonds that if the principal
Felipe Ysmael, Jr. & Co., Inc. shall perform and fulfill its undertakings with the Philippine National Bank,
then these surety bonds shall be null and void (Exh. B).
As security and in consideration of the execution of the surety bonds, exhibits A and B, Felipe Ysmael, Jr.
& Co., Inc. and Magdalena Estate, lnc. represented by Felipe Ysmael, Jr. as president and in his personal
capacity executed with the plaintiff Mercantile Insurance Co., Inc. an indemnity agreement (Exh. D)
wherein the defendants Felipe Ysmael, Jr. & Co., Inc. and Felipe Ysmael, Jr. bound themselves jointly and
severally to indemnify the plaintiff, hold save it harmless from and against any and all payments,
damages, costs, losses, penalties, charges and expenses which said company as surety (relative to
MERICO Bond No. 0007) shall incur or become liable to pay plus an additional amount as attorney's fees
equal to 20% of the amount due to the company, Paragraph 3 of the indemnity agreement expressly
provides:
3) ACCRUAL OF ACTION: — Notwithstanding the provisions of the next preceding paragraph, where the
obligation involves a liquidated amount for the payment of which the company has become legally liable
under the terms of the obligation and its suretyship undertaking or by the demand of the obligee or
otherwise and the latter has merely allowed the COMPANY a term or extension for payment of the
latter's demand the full amount necessary to discharge the COMPANY's aforesaid liability irrespective of
whether or not payment has actually been made by the COMPANY, the COMPANY for the protection of
its interest may forthwith proceed against the undersigned or either of them by court action or
otherwise to enforce payment even prior to making payment to the obligee which may hereafter be
done by the COMPANY.
On September 6, 1967, Gabriel Daza, Jr., Edgardo L. Tordesillas and Augusta Torres in their official
capacities and the defendants executed another indemnity agreement (Exh. E) with the plaintiff in
consideration of the surety bond (referring to MERICO Bond No. G (16) 0030. In the indemnity
agreement (Exh. E) the same provisions of paragraph 3 found in exhibit D is provided for.
By agreement dated September 5, 1967 (Exh. C), the amount of the Bond was reduced by P40,000.00 so
that the total liability of the plaintiff to the Philippine National Bank in view of the aforesaid reduction is
P100,000.00 (Exh. C), P60,000.00 on Surety Bond No. 0007 plus P40,000.00 on Surety Bond No. 0030.
In view of the failure of the defendants to pay the overdraft and credit line with the Philippine National
Bank demanded from the Mercantile Insurance Co., Inc. settlement of its obligation under surety bonds
No. (G-16)-0007 for P 60,000.00 which expired on March 6, 1970 and No. G (-16)- 0030 for P 40,000.00
which expired since September 4, 1968 (Exh. P) otherwise drastic measures for collection to protect the
interest of the bank would be taken. Attached to the demand letter is a statement of account.
By letter of December 17, 1970, the Legal Department of plaintiff company wrote a letter of demand to
the defendants (Exhs. G and H) inviting their attention to the letter of demand of the Philippine National
Bank sent to the plaintiff and demanding from the defendants the settlement of said account. These
letters were received as shown by the registry return receipts (Exhs. G-2 and H-2). Since the defendants
failed to settle their obligation with the Philippine National Bank, on February 10, 1971, plaintiff brought
the present action.
Instead of filing their answer, the defendants (appellants herein) filed a motion to DISMISS, which motion was
subsequently denied. Thereafter, the defendants filed their answer and the case was set for pre-trial. On the date
scheduled for pre-trial, the defendants and their counsel failed to appear, thus on motion of the plaintiff, they were
declared in default and plaintiff was allowed to present its evidence ex-parte. Upon motion for reconsideration filed by
the defendants, the case was ordered re-opened and the case was scheduled for reception of defendant's evidence.
Thereafter, the parties were required to submit their respective memoranda and the case was submitted for decision.
On October 30, 1971, the trial court rendered its decision, the dispositive part of which reads:
WHEREFORE, in view of the foregoing considerations, judgment is rendered for the plaintiff and the
defendants are ordered to pay jointly and severally the plaintiff the sum of P100,000.00 plus the further
sum of 15% thereof in the concept of reasonable attorney's fees and the costs.
Plaintiff upon payment of this judgment, shall deliver the sum of P100,000.00 to the Philippine National
Bank in partial satisfaction of the obligation of the defendants to said Bank.
SO ORDERED. (Record on Appeal, p. 96)
Said decision was appealed to the Court of Appeals on questions of facts and law. Acting on the appeal and finding that
the only question raised therein involves a question of law, the Court of Appeals by resolution *** dated April 29, 1976,
certified the same to this Court, for proper disposition (Rollo, pp. 62-63).
This Court, thru its First Division by Resolution dated May 31, 1978, resolved to have the case docketed and declared the
same submitted for decision (Rollo, p. 65).
The defendants-appellants raised the following assignments of errors in the Court of Appeals:
I
THE LOWER COURT ERRED IN NOT DISMISSING THE CASE FOR LACK OF CAUSE OF ACTION, THE
COMPLAINT BEING PREMATURE BECAUSE THE PLAINTIFF HAS PAID NOTHING ON THE SURETY BONDS
AND HAS SUFFERED NO ACTUAL DAMAGE.
II
THE LOWER COURT ERRED IN NOT DECLARING THAT PARAGRAPH 3 OF THE INDEMNITY AGREEMENTS IS
VOID.
III
CONSEQUENTLY, THE TRIAL COURT ERRED IN ORDERING THE DEFENDANTS-APPELLANT'S TO PAY
JOINTLY AND SEVERALLY TO THE PLAINTIFF THE SUM OF P100,000.00 PLUS THE FURTHER SUM OF 15%
THEREOF IN THE CONCEPT OF REASONABLE ATTORNEY'S FEES AND THE COSTS. (Brief for Defendants-
Appellants, CA, pp. 1-2).
The crux of the controversy is whether or not the surety can be allowed indemnification from the defendants-
appellants, upon the latter's default even before the former has paid to the creditor.
There is no dispute that the overdraft line of P1,000,000.00 and the credit line of Pl,000,000.00 applied for by the
defendant was granted by the Philippine National Bank on the strength of the two surety bonds denominated as
MERICO Bond No. G(16) 0007 for one hundred thousand pesos (Exh. A) and MERICO Bond No. G(16) 0030 for forty
thousand pesos (Exh. B), later reduced as above stated on September 5, 1967 (Exh. C) by P40,000.00 or a total amount
of P100,000.00. As security and in consideration of the execution of the surety bonds, the defendants executed with the
plaintiff identical indemnity agreements (Exhs. D and E) which provide, among others that payment of indemnity or
compensation may be claimed irrespective of whether or not plaintiff company has actually paid the same.
Defendants-appellants maintain that the complaint is premature and that paragraph 3 of the indemnity agreements is
void for being contrary to law, public policy and good morals. They argued that to allow plaintiff surety (appellee herein)
to receive indemnity or compensation for something it has not paid in its capacity as surety would constitute unjust
enrichment at the expense of another. (Brief for Defendants-Appellants, CA, p.6).
To bolster their contention, defendants-appellants argue that it is an indispensable requisite for an action to prosper,
that the party bringing the action must have a cause of action against the other party; and that for a cause of action to
be ripe for litigation, there must be both wrongful violation and damages; all of which are not present in the case at bar
because plaintiff-appellee has not suffered any injury whatsoever, notwithstanding the demand sent to it by the
Philippine National Bank, nor has plaintiff-appellee made a single actual payment to said bank. Hence, to allow plaintiff-
appellee to recover from them something which it has not paid in its capacity as surety would violate the fundamental
principle which states NEMOCUM ALTERIUS DETRIMENTO LOCOPLETARI POTEST (No person should unjustly enrich
himself at the expense of another). [Defendants-Appellants' Brief, pp. 7-8; 49].
The question as to whether or not under the Indemnity Agreement of the parties, the Surety can demand
indemnification from the principal, upon the latter's default, even before the former has paid to the creditor, has long
been settled by this Court in the affirmative.
It has been held that:
The stipulation in the indemnity agreement allowing the surety to recover even before it paid the
creditor is enforceable. In accordance therewith, the surety may demand from the indemnitors even
before paying the creditors. (Cosmopolitan Ins. Co., Inc. v. Reyes, 15 SCRA 528 [1965] citing; Security
Bank v. Globe Assurance, 58 Off. Gaz. 3709 [April 30, 1962]; Alto Surety and Ins. Co., v. Aguilar, et al.,
G.R. No. L-5625, March 16, 1954).
Hence, appellants contention that the action of the appellee (surety company) is premature or that the complaint fails
to state a cause of action because the surety has not paid anything to the bank, cannot be sustained (Cosmopolitan Ins.
Co., Inc. v. Reyes, supra). In fact, such contention is belied not only by the allegations in the complaint but also by the
agreement entered into between the appellants and the appellee in favor of the bank.
The records show that the cause of action is distinctly set forth in the complaint, the pertinent portion of which states:
 6. That defendants, by virtue of the two Surety Bonds (Annexes "A" and "B") were extended by the
Philippine National Bank, a credit accommodation in the sum of TWO MILLION (P2,000,000.00) PESOS;
7. That the Philippine National Bank is demanding and collecting from the plaintiff the sum of ONE
HUNDRED THOUSAND (P100,000.00) PESOS which is the defendants' account with the said bank that is
secured and covered by the above-mentioned bonds (Annexes "A" and "B");
8. That under the terms of the Indemnity Agreements (Annexes "D" and "E") more particularly
paragraph 3, plaintiff may forthwith proceed against the defendants to impose payment, even prior to
making payment to the Philippine National Bank;
9. That notwithstanding series of demands made by plaintiff, the defendants failed and refused to pay
the Philippine National Bank the sum of ONE HUNDRED THOUSAND (P l00,000.00) PESOS;
10. That on account of defendants' default, plaintiff becomes liable to the Philippine National Bank in
the sum of ONE HUNDRED THOUSAND (P100,000.00) PESOS;' (Record on Appeal, p. 2.)
Correspondingly, it is readily apparent that said cause of action was derived from the terms of the Indemnity
Agreement, paragraph 3 thereof, as above quoted. By virtue of the provisions of the Indemnity Agreement, defendants-
appellants have undertaken to hold plaintiff-appellee free and harmless from any suit, damage or liability which may be
incurred by reason of non-performance by the defendants-appellants of their obligation with the Philippine National
Bank. The Indemnity Agreement is principally entered into as security of plaintiff-appellee in case of default of
defendants-appellants; and the liability of the parties under the surety bonds is joint and several, so that the obligee
PNB may proceed against either of them for the satisfaction of the obligation. (Brief for Plaintiff-Appellee, p. 7).
II
Defendants-appellants have, by virtue of the Indemnity Agreement, given the plaintiff-appellee the prerogative of filing
an action even prior to the latter's making any payment to the Philippine National Bank.
Contracts are respected as the law between the contracting parties (Henson v. IAC, 148 SCRA 11 [1987], citing Castro v.
CA, 99 SCRA 722 [1980] and Escano v. CA, 100 SCRA 197 [1980]) It is settled that the parties may establish such
stipulations, clauses, terms and conditions as they may want to include, and as long as such agreements are not contrary
to law, morals, good customs, public policy or public order, they shall have the force of law between them (Herrera v.
Petrophil Corp., 146 SCRA [1986].
Contracts should be interpreted according to their literal meaning and should not be interpreted beyond their obvious
intentment (Ibid.). It is a basic and fundamental rule in the interpretation of contracts that if the terms thereof are clear
and leave no doubt as to the intention of the contracting parties, the literal meaning of the stipulation shall control.
In the case at bar, there is no dispute as to meaning of the terms of the Indemnity Agreement. The only bone of
contention is whether or not such terms are null and void as defendants-appellants would have this Court declare.
A careful analysis of the contract in question will show that the provisions therein do not contravene any law or public
policy much less do they militate against the public good. In fact, as shown above, they are fully sanctioned by well-
established jurisprudence. Having voluntarily entered into such contract, the appellants cannot now be heard to
complain. Their indemnity agreement have the force and effect of law.
Elucidating further on the obligations of the parties in agreements of this nature, this Court ruled:
...The indemnity agreement was not executed for the benefit of the creditors; it was rather for the
benefit of the surety and if the latter thought it necessary in its own interest to impose this stipulation,
and the indemnitors voluntarily agreed to the same, the court should respect the agreement of the
parties and require them to abide by their contract. (Security Bank v. Globe Assurance, 107 Phil. 733
[1960].
III
Finally, the trial court did not err in ordering defendants-appellants to pay jointly and severally the plaintiff the sum of
P100,000.00 plus 15% as attorney's fees.
It must be stressed that in the case at bar, the principal debtors, defendants-appellants herein, are simultaneously the
same persons who executed the Indemnity Agreement. Thus, the position occupied by them is that of a principal debtor
and indemnitor at the same time, and their liability being joint and several with the plaintiff-appellee's, the Philippine
National Bank may proceed against either for fulfillment of the obligation as covered by the surety bonds. There is,
therefore, no principle of guaranty involved and, therefore, the provision of Article 2071 of the Civil Code does not
apply. Otherwise stated, there is no more need for the plaintiff-appellee to exhaust all the properties of the principal
debtor before it may proceed against defendants-appellants.
As to the attorney's fees, it has been squarely ruled by this Court that the award of fifteen (15) per cent for cases of this
nature is not unreasonable (Cosmopolitan Insurance Co., Inc. v. Reyes, supra).
WHEREFORE, the decision appealed from is hereby AFFIRMED.
SO ORDERED.
Fernan, C.J., Gutierrez, Jr., Feliciano and Cortes, JJ., concur.
 SECOND DIVISION

SALVADOR P. ESCAO G. R. No. 151953

and MARIO M. SILOS,
Petitioners,
Present:
QUISUMBING,
- versus - Chairperson,
CARPIO,
CARPIO MORALES,
TINGA, and
RAFAEL ORTIGAS, JR., VELASCO, JR., JJ.
Respondent.
Promulgated:

June 29, 2007

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

DECISION

TINGA, J.:

The main contention raised in this petition is that petitioners are not under obligation to reimburse respondent,
a claim that can be easily debunked. The more perplexing question is whether this obligation to repay is solidary, as
contended by respondent and the lower courts, or merely joint as argued by petitioners.

On 28 April 1980, Private Development Corporation of the Philippines (PDCP)[1]entered into a loan agreement
with Falcon Minerals, Inc. (Falcon) whereby PDCP agreed to make available and lend to Falcon the amount of
US$320,000.00, for specific purposes and subject to certain terms and conditions.[2] On the same day, three stockholders-
officers of Falcon, namely: respondent Rafael Ortigas, Jr. (Ortigas), George A. Scholey and George T. Scholey executed an
Assumption of Solidary Liability whereby they agreed to assume in [their] individual capacity, solidary liability with [Falcon]
for the due and punctual payment of the loan contracted by Falcon with PDCP.[3] In the meantime, two separate guaranties
were executed to guarantee the payment of the same loan by other stockholders and officers of Falcon, acting in their
personal and individual capacities. One Guaranty[4] was executed by petitioner Salvador Escao (Escao), while the other[5] by
petitioner Mario M. Silos (Silos), Ricardo C. Silverio (Silverio), Carlos L. Inductivo (Inductivo) and Joaquin J. Rodriguez
(Rodriguez).

Two years later, an agreement developed to cede control of Falcon to Escao, Silos and Joseph M. Matti (Matti). Thus,
contracts were executed whereby Ortigas, George A. Scholey, Inductivo and the heirs of then already deceased George T.
Scholey assigned their shares of stock in Falcon to Escao, Silos and Matti.[6] Part of the consideration that induced the sale
of stock was a desire by Ortigas, et al., to relieve themselves of all liability arising from their previous joint and several
undertakings with Falcon, including those related to the loan with PDCP. Thus, an Undertaking dated 11 June 1982 was
executed by the concerned parties,[7]namely: with Escao, Silos and Matti identified in the document as SURETIES, on one
hand, and Ortigas, Inductivo and the Scholeys as OBLIGORS, on the other. The Undertaking reads in part:

3. That whether or not SURETIES are able to immediately cause PDCP and PAIC to release OBLIGORS
from their said guarantees [sic], SURETIES hereby irrevocably agree and undertake to assume all of
OBLIGORs said guarantees [sic] to PDCP and PAIC under the following terms and conditions:

a. Upon receipt by any of [the] OBLIGORS of any demand from PDCP and/or PAIC for the
payment of FALCONs obligations with it, any of [the] OBLIGORS shall immediately inform
SURETIES thereof so that the latter can timely take appropriate measures;

b. Should suit be impleaded by PDCP and/or PAIC against any and/or all of OBLIGORS for
collection of said loans and/or credit facilities, SURETIES agree to defend OBLIGORS at
their own expense, without prejudice to any and/or all of OBLIGORS impleading SURETIES
therein for contribution, indemnity, subrogation or other relief in respect to any of the
claims of PDCP and/or PAIC; and
 c. In the event that any of [the] OBLIGORS is for any reason made to pay any
amount to PDCP and/or PAIC, SURETIES shall reimburse OBLIGORS for said amount/s
within seven (7) calendar days from such payment;

4. OBLIGORS hereby waive in favor of SURETIES any and all fees which may be due from FALCON
arising out of, or in connection with, their said guarantees[sic].[8]

Falcon eventually availed of the sum of US$178,655.59 from the credit line extended by PDCP. It would also execute a
Deed of Chattel Mortgage over its personal properties to further secure the loan. However, Falcon subsequently defaulted
in its payments. After PDCP foreclosed on the chattel mortgage, there remained a subsisting deficiency of P5,031,004.07,
which Falcon did not satisfy despite demand.[9]
On 28 April 1989, in order to recover the indebtedness, PDCP filed a complaint for sum of money with the Regional
Trial Court of Makati (RTC) against Falcon, Ortigas, Escao, Silos, Silverio and Inductivo. The case was docketed as Civil Case
No. 89-5128. For his part, Ortigas filed together with his answer a cross-claim against his co-defendants Falcon, Escao and
Silos, and also manifested his intent to file a third-party complaint against the Scholeys and Matti.[10] The cross-claim
lodged against Escao and Silos was predicated on the 1982 Undertaking, wherein they agreed to assume the liabilities of
Ortigas with respect to the PDCP loan.

Escao, Ortigas and Silos each sought to seek a settlement with PDCP. The first to come to terms with PDCP was
Escao, who in December of 1993, entered into a compromise agreement whereby he agreed to pay the
bank P1,000,000.00. In exchange, PDCP waived or assigned in favor of Escao one-third (1/3) of its entire claim in the
complaint against all of the other defendants in the case.[11] The compromise agreement was approved by the RTC in a
Judgment[12] dated 6 January 1994.

Then on 24 February 1994, Ortigas entered into his own compromise agreement[13]with PDCP, allegedly without
the knowledge of Escao, Matti and Silos. Thereby, Ortigas agreed to pay PDCP P1,300,000.00 as full satisfaction of the
PDCPs claim against Ortigas,[14] in exchange for PDCPs release of Ortigas from any liability or claim arising from the Falcon
loan agreement, and a renunciation of its claims against Ortigas.

In 1995, Silos and PDCP entered into a Partial Compromise Agreement whereby he agreed to pay P500,000.00 in
exchange for PDCPs waiver of its claims against him.[15]

In the meantime, after having settled with PDCP, Ortigas pursued his claims against Escao, Silos and Matti, on the
basis of the 1982 Undertaking. He initiated a third-party complaint against Matti and Silos,[16] while he maintained his
cross-claim against Escao. In 1995, Ortigas filed a motion for Summary Judgment in his favor against Escao, Silos and Matti.
On 5 October 1995, the RTC issued the Summary Judgment, ordering Escao, Silos and Matti to pay Ortigas, jointly and
severally, the amount of P1,300,000.00, as well as P20,000.00 in attorneys fees.[17] The trial court ratiocinated that none
of the third-party defendants disputed the 1982 Undertaking, and that the mere denials of defendants with respect to
non-compliance of Ortigas of the terms and conditions of the Undertaking, unaccompanied by any substantial fact which
would be admissible in evidence at a hearing, are not sufficient to raise genuine issues of fact necessary to defeat a motion
for summary judgment, even if such facts were raised in the pleadings.[18] In an Order dated 7 March 1996, the trial court
denied the motion for reconsideration of the Summary Judgment and awarded Ortigas legal interest of 12% per annum
to be computed from 28 February 1994.[19]

From the Summary Judgment, recourse was had by way of appeal to the Court of Appeals. Escao and Silos
appealed jointly while Matti appealed by his lonesome. In a Decision[20] dated 23 January 2002, the Court of Appeals
dismissed the appeals and affirmed the Summary Judgment. The appellate court found that the RTC did not err in
rendering the summary judgment since the three appellants did not effectively deny their execution of the 1982
Undertaking. The special defenses that were raised, payment and excussion, were characterized by the Court of Appeals
as appear[ing] to be merely sham in the light of the pleadings and supporting documents and affidavits.[21] Thus, it was
concluded that there was no genuine issue that would still require the rigors of trial, and that the appealed judgment was
decided on the bases of the undisputed and established facts of the case.

Hence, the present petition for review filed by Escao and Silos.[22] Two main issues are raised. First, petitioners
dispute that they are liable to Ortigas on the basis of the 1982 Undertaking, a document which they do not disavow and
have in fact annexed to their petition. Second, on the assumption that they are liable to Ortigas under the 1982
Undertaking, petitioners argue that they are jointly liable only, and not solidarily. Further assuming that they are liable,
petitioners also submit that they are not liable for interest and if at all, the proper interest rate is 6% and not 12%.

Interestingly, petitioners do not challenge, whether in their petition or their memorandum before the Court, the
appropriateness of the summary judgment as a relief favorable to Ortigas. Under Section 3, Rule 35 of the 1997 Rules of
Civil Procedure, summary judgment may avail if the pleadings, supporting affidavits, depositions and admissions on file
show that, except as to the amount of damages, there is no genuine issue as to any material fact and that the moving
party is entitled to a judgment as a matter of law. Petitioner have not attempted to demonstrate before us that there
existed a genuine issue as to any material fact that would preclude summary judgment. Thus, we affirm with ease the
common rulings of the lower courts that summary judgment is an appropriate recourse in this case.

The vital issue actually raised before us is whether petitioners were correctly held liable to Ortigas on the basis of
the 1982 Undertaking in this Summary Judgment. An examination of the document reveals several clauses that make it
clear that the agreement was brought forth by the desire of Ortigas, Inductivo and the Scholeys to be released from their
liability under the loan agreement which release was, in turn, part of the consideration for the assignment of their shares
in Falcon to petitioners and Matti. The whereas clauses manifest that Ortigas had bound himself with Falcon for the
payment of the loan with PDCP, and that amongst the consideration for OBLIGORS and/or their principals aforesaid selling
is SURETIES relieving OBLIGORS of any and all liability arising from their said joint and several undertakings with
FALCON.[23] Most crucial is the clause in Paragraph 3 of the Undertaking wherein petitioners irrevocably agree and
undertake to assume all of OBLIGORs said guarantees [sic] to PDCP x x x under the following terms and conditions.[24]

At the same time, it is clear that the assumption by petitioners of Ortigass guarantees [sic] to PDCP is governed
by stipulated terms and conditions as set forth in sub-paragraphs (a) to (c) of Paragraph 3. First, upon receipt by any of
OBLIGORS of any demand from PDCP for the payment of Falcons obligations with it, any of OBLIGORS was to immediately
inform SURETIES thereof so that the latter can timely take appropriate measures. Second, should any and/or all of
OBLIGORS be impleaded by PDCP in a suit for collection of its loan, SURETIES agree[d] to defend OBLIGORS at their own
expense, without prejudice to any and/or all of OBLIGORS impleading SURETIES therein for contribution, indemnity,
subrogation or other relief[25] in respect to any of the claims of PDCP. Third, if any of the OBLIGORS is for any reason made
to pay any amount to [PDCP], SURETIES [were to] reimburse OBLIGORS for said amount/s within seven (7) calendar days
from such payment.[26]

Petitioners claim that, contrary to paragraph 3(c) of the Undertaking, Ortigas was not made to pay PDCP the
amount now sought to be reimbursed, as Ortigas voluntarily paid PDCP the amount of P1.3 Million as an amicable
settlement of the claims posed by the bank against him. However, the subject clause in paragraph 3(c) actually reads [i]n
the event that any of OBLIGORS is for any reason made to pay any amount to PDCP x x x[27] As pointed out by Ortigas,
the phrase for any reason reasonably includes any extra-judicial settlement of obligation such as what Ortigas had
undertaken to pay to PDCP, as it is indeed obvious that the phrase was incorporated in the clause to render the eventual
payment adverted to therein unlimited and unqualified.

The interpretation posed by petitioners would have held water had the Undertaking made clear that the right of
Ortigas to seek reimbursement accrued only after he had delivered payment to PDCP as a consequence of a final and
executory judgment. On the contrary, the clear intent of the Undertaking was for petitioners and Matti to relieve the
burden on Ortigas and his fellow OBLIGORS as soon as possible, and not only after Ortigas had been subjected to a final
and executory adverse judgment.

Paragraph 1 of the Undertaking enjoins petitioners to exert all efforts to cause PDCP x x x to within a reasonable
time release all the OBLIGORS x x x from their guarantees [sic] to PDCP x x x [28] In the event that Ortigas and his fellow
OBLIGORS could not be released from their guaranties, paragraph 2 commits petitioners and Matti to cause the Board of
Directors of Falcon to make a call on its stockholders for the payment of their unpaid subscriptions and to pledge or assign
such payments to Ortigas, et al., as security for whatever amounts the latter may be held liable under their guaranties. In
addition, paragraph 1 also makes clear that nothing in the Undertaking shall prevent OBLIGORS, or any one of them, from
themselves negotiating with PDCP x x x for the release of their said guarantees [sic].[29]

There is no argument to support petitioners position on the import of the phrase made to pay in the Undertaking,
other than an unduly literalist reading that is clearly inconsistent with the thrust of the document. Under the Civil Code,
the various stipulations of a contract shall be interpreted together, attributing to the doubtful ones that sense which may
result from all of them taken jointly.[30] Likewise applicable is the provision that if some stipulation of any contract
should admit of several meanings, it shall be understood as bearing

that import which is most adequate to render it effectual.[31] As a means to effect the general intent of the document to
relieve Ortigas from liability to PDCP, it is his interpretation, not that of petitioners, that holds sway with this Court.

Neither do petitioners impress us of the non-fulfillment of any of the other conditions set in paragraph 3, as they
claim. Following the general assertion in the petition that Ortigas violated the terms of the Undertaking, petitioners add
that Ortigas paid PDCP BANK the amount of P1.3 million without petitioners ESCANO and SILOSs knowledge and
consent.[32]Paragraph 3(a) of the Undertaking does impose a requirement that any of the OBLIGORS shall immediately
inform SURETIES if they received any demand for payment of FALCONs obligations to PDCP, but that requirement is
reasoned so that the [SURETIES] can timely take appropriate measures[33] presumably to settle the obligation without
having to burden the OBLIGORS. This notice requirement in paragraph 3(a) is markedly way off from the suggestion of
petitioners that Ortigas, after already having been impleaded as a defendant in the collection suit, was obliged under the
1982 Undertaking to notify them before settling with PDCP.

The other arguments petitioners have offered to escape liability to Ortigas are similarly weak.

Petitioners impugn Ortigas for having settled with PDCP in the first place. They note that Ortigas had, in his answer,
denied any liability to PDCP and had alleged that he signed the Assumption of Solidary Liability not in his personal capacity,
but as an officer of Falcon. However, such position, according to petitioners, could not be justified since Ortigas later
voluntarily paid PDCP the amount of P1.3 Million. Such circumstances, according to petitioners, amounted to estoppel on
the part of Ortigas.

Even as we entertain this argument at depth, its premises are still erroneous. The Partial Compromise Agreement
between PDCP and Ortigas expressly stipulated that Ortigass offer to pay PDCP was conditioned without [Ortigass]
admitting liability to plaintiff PDCP Banks complaint, and to terminate and dismiss the said case as against Ortigas
solely.[34] Petitioners profess it is unthinkable for Ortigas to have voluntarily paid PDCP without admitting his liability,[35] yet
such contention based on assumption cannot supersede the literal terms of the Partial Compromise Agreement.

Petitioners further observe that Ortigas made the payment to PDCP after he had already assigned his obligation
to petitioners through the 1982 Undertaking. Yet the fact is PDCP did pursue a judicial claim against Ortigas
notwithstanding the Undertaking he executed with petitioners. Not being a party to such Undertaking, PDCP was not
precluded by a contract from pursuing its claim against Ortigas based on the original Assumption of Solidary Liability.

At the same time, the Undertaking did not preclude Ortigas from relieving his distress through a settlement with
the creditor bank. Indeed, paragraph 1 of the Undertaking expressly states that nothing herein shall prevent OBLIGORS,
or any one of them, from themselves negotiating with PDCP x x x for the release of their said guarantees [sic].[36] Simply
put, the Undertaking did not bar Ortigas from pursuing his own settlement with PDCP. Neither did the Undertaking bar
Ortigas from recovering from petitioners whatever amount he may have paid PDCP through his own settlement. The
stipulation that if Ortigas was for any reason made to pay any amount to PDCP[,] x x x SURETIES shall reimburse OBLIGORS
for said amount/s within seven (7) calendar days from such payment[37] makes it clear that petitioners remain liable to
reimburse Ortigas for the sums he paid PDCP.

We now turn to the set of arguments posed by petitioners, in the alternative, that is, on the assumption that they
are indeed liable.

Petitioners submit that they could only be held jointly, not solidarily, liable to Ortigas, claiming that the
Undertaking did not provide for express solidarity. They cite Article 1207 of the New Civil Code, which states in part that
[t]here is a solidary liability only when the obligation expressly so states, or when the law or the nature of the obligation
requires solidarity.

Ortigas in turn argues that petitioners, as well as Matti, are jointly and severally liable for the Undertaking, as the
language used in the agreement clearly shows that it is a surety agreement[38] between the obligors (Ortigas group) and
the sureties (Escao group). Ortigas points out that the Undertaking uses the word SURETIES although the document, in
describing the parties. It is further contended that the principal objective of the parties in executing the Undertaking
cannot be attained unless petitioners are solidarily liable because the total loan obligation can not be paid or settled to
free or release the OBLIGORS if one or any of the SURETIES default from their obligation in the Undertaking.[39]

In case, there is a concurrence of two or more creditors or of two or more debtors in one and the same obligation, Article
1207 of the Civil Code states that among them, [t]here is a solidary liability only when the obligation expressly so states,
or when the law or the nature of the obligation requires solidarity. Article 1210 supplies further caution against the broad
interpretation of solidarity by providing: The indivisibility of an obligation does not necessarily give rise to solidarity. Nor
does solidarity of itself imply indivisibility.

These Civil Code provisions establish that in case of concurrence of two or more creditors or of two or more debtors in
one and the same obligation, and in the absence of express and indubitable terms characterizing the obligation as solidary,
the presumption is that the obligation is only joint. It thus becomes incumbent upon the party alleging that the obligation
is indeed solidary in character to prove such fact with a preponderance of evidence.

The Undertaking does not contain any express stipulation that the petitioners agreed to bind themselves jointly
and severally in their obligations to the Ortigas group, or any such terms to that effect. Hence, such obligation established
in the Undertaking is presumed only to be joint. Ortigas, as the party alleging that the obligation is in fact solidary, bears
the burden to overcome the presumption of jointness of obligations. We rule and so hold that he failed to discharge such
burden.
 Ortigas places primary reliance on the fact that the petitioners and Matti identified themselves in the Undertaking
as SURETIES, a term repeated no less than thirteen (13) times in the document. Ortigas claims that such manner of
identification sufficiently establishes that the obligation of petitioners to him was joint and solidary in nature.

The term surety has a specific meaning under our Civil Code. Article 2047 provides the statutory definition of a
surety agreement, thus:

Art. 2047. By guaranty a person, called the guarantor, binds himself to the creditor to fulfill the
obligation of the principal debtor 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 is called a suretyship. [Emphasis
supplied][40]

As provided in Article 2047 in a surety agreement the surety undertakes to be bound solidarily with the principal
debtor. Thus, a surety agreement is an ancillary contract as it presupposes the existence of a principal contract. It appears
that Ortigass argument rests solely on the solidary nature of the obligation of the surety under Article 2047. In tandem
with the nomenclature SURETIES accorded to petitioners and Matti in the Undertaking, however, this
argument can only be viable if the obligations established in the

Undertaking do partake of the nature of a suretyship as defined under Article 2047 in the first place. That clearly is not
the case here, notwithstanding the use of the nomenclature SURETIES in the Undertaking.

Again, as indicated by Article 2047, a suretyship requires a principal debtor to whom the surety is solidarily bound
by way of an ancillary obligation of segregate identity from the obligation between the principal debtor and the creditor.
The suretyship does bind the surety to the creditor, inasmuch as the latter is vested with the right to proceed against the
former to collect the credit in lieu of proceeding against the principal debtor for the same obligation.[41]At the same time,
there is also a legal tie created between the surety and the principal debtor to which the creditor is not privy or party to.
The moment the surety fully answers to the creditor for the obligation created by the principal debtor, such obligation is
extinguished.[42] At the same time, the surety may seek reimbursement from the principal debtor for the amount paid, for
the surety does in fact become subrogated to all the rights and remedies of the creditor.[43]

Note that Article 2047 itself specifically calls for the application of the provisions on joint and solidary obligations
to suretyship contracts.[44] Article 1217 of the Civil Code thus comes into play, recognizing the right of reimbursement from
a co-debtor (the principal debtor, in case of suretyship) in favor of the one who paid (i.e., the surety).[45] However, a
significant distinction still lies between a joint and several debtor, on one hand, and a surety on the other. Solidarity
signifies that the creditor can compel any one of the joint and several debtors or the surety alone to answer for the entirety
of the principal debt. The difference lies in the respective faculties of the joint and several debtor and the surety to seek
reimbursement for the sums they paid out to the creditor.

Dr. Tolentino explains the differences between a solidary co-debtor and a surety:

A guarantor who binds himself in solidum with the principal debtor under the provisions of the second
paragraph does not become a solidary co-debtor to all intents and purposes. There is a difference
between a solidary co-debtor and a fiador in solidum (surety). The latter, outside of the liability he
assumes to pay the debt before the property of the principal debtor has been exhausted, retains all the
other rights, actions and benefits which pertain to him by reason of the fiansa; while a solidary co-
debtor has no other rights than those bestowed upon him in Section 4, Chapter 3, Title I, Book IV of the
Civil Code.

The second paragraph of [Article 2047] is practically equivalent to the contract of suretyship. The
civil law suretyship is, accordingly, nearly synonymous with the common law guaranty; and the civil law
relationship existing between the co-debtors liable in solidum is similar to the common law suretyship.[46]

In the case of joint and several debtors, Article 1217 makes plain that the solidary debtor who effected the
payment to the creditor may claim from his co-debtors only the share which corresponds to each, with the interest for
the payment already made. Such solidary debtor will not be able to recover from the co-debtors the full amount already
paid to the creditor, because the right to recovery extends only to the proportional share of the other co-debtors, and not
as to the particular proportional share of the solidary debtor who already paid. In contrast, even as the surety is solidarily
bound with the principal debtor to the creditor, the surety who does pay the creditor has the right to recover the full
amount paid, and not just any proportional share, from the principal debtor or debtors. Such right to full reimbursement
falls within the other rights, actions and benefits which pertain to the surety by reason of the subsidiary obligation
assumed by the surety.
 What is the source of this right to full reimbursement by the surety? We find the right under Article 2066 of the
Civil Code, which assures that [t]he guarantor who pays for a debtor must be indemnified by the latter, such indemnity
comprising of, among others, the total amount of the debt.[47] Further, Article 2067 of the Civil Code likewise establishes
that [t]he guarantor who pays is subrogated by virtue thereof to all the rights which the creditor had against the debtor.[48]

Articles 2066 and 2067 explicitly pertain to guarantors, and one might argue that the provisions should not extend to
sureties, especially in light of the qualifier in Article 2047 that the provisions on joint and several obligations should apply
to sureties. We reject that argument, and instead adopt Dr. Tolentinos observation that [t]he reference in the second
paragraph of [Article 2047] to the provisions of Section 4, Chapter 3, Title I, Book IV, on solidary or several obligations,
however, does not mean that suretyship is withdrawn from the applicable provisions governing guaranty.[49] For if that
were not the implication, there would be no material difference between the surety as defined under Article 2047 and
the joint and several debtors, for both classes of obligors would be governed by exactly the same rules and limitations.

Accordingly, the rights to indemnification and subrogation as established and granted to the guarantor by Articles
2066 and 2067 extend as well to sureties as defined under Article 2047. These rights granted to the surety who pays
materially differ from those granted under Article 1217 to the solidary debtor who pays, since the indemnification that
pertains to the latter extends only [to] the share which corresponds to each [co-debtor]. It is for this reason that the Court
cannot accord the conclusion that because petitioners are identified in the Undertaking as SURETIES, they are
consequently joint and severally liable to Ortigas.

In order for the conclusion espoused by Ortigas to hold, in light of the general presumption favoring joint liability,
the Court would have to be satisfied that among the petitioners and Matti, there is one or some of them who stand as the
principal debtor to Ortigas and another as surety who has the right to full reimbursement from the principal debtor or
debtors. No suggestion is made by the parties that such is the case, and certainly the Undertaking is not revelatory of such
intention. If the Court were to give full fruition to the use of the term SURETIES as conclusive indication of the existence
of a surety agreement that in turn gives rise to a solidary obligation to pay Ortigas, the necessary implication would be to
lay down a corresponding set of rights and obligations as between the SURETIES which petitioners and Matti did not clearly
intend.

It is not impossible that as between Escao, Silos and Matti, there was an agreement whereby in the event that
Ortigas were to seek reimbursement from them per the terms of the Undertaking, one of them was to act as surety and
to pay Ortigas in full, subject to his right to full reimbursement from the other two obligors. In such case, there would
have been, in fact, a surety agreement which evinces a solidary obligation in favor of Ortigas. Yet if there was indeed such
an agreement, it does not appear on the record. More consequentially, no such intention is reflected in the Undertaking
itself, the very document that creates the conditional obligation that petitioners and Matti reimburse Ortigas should he
be made to pay PDCP. The mere utilization of the term SURETIES could not work to such effect, especially as it does not
appear who exactly is the principal debtor whose obligation is assured or guaranteed by the surety.

Ortigas further argues that the nature of the Undertaking requires solidary obligation of the Sureties, since the
Undertaking expressly seeks to reliev[e] obligors of any and all liability arising from their said joint and several undertaking
with [F]alcon, and for the sureties to irrevocably agree and undertake to assume all of obligors said guarantees to
PDCP.[50] We do not doubt that a finding of solidary liability among the petitioners works to the benefit of Ortigas in the
facilitation of these goals, yet the Undertaking itself contains no stipulation or clause that establishes petitioners obligation
to Ortigas as solidary. Moreover, the aims adverted to by Ortigas do not by themselves establish that the nature of the
obligation requires solidarity. Even if the liability of petitioners and Matti were adjudged as merely joint, the full relief and
reimbursement of Ortigas arising from his payment to PDCP would still be accomplished through the complete execution
of such a judgment.

Petitioners further claim that they are not liable for attorneys fees since the Undertaking contained no such
stipulation for attorneys fees, and that the situation did not fall under the instances under Article 2208 of the Civil Code
where attorneys fees are recoverable in the absence of stipulation.

We disagree. As Ortigas points out, the acts or omissions of the petitioners led to his being impleaded in the suit
filed by PDCP. The Undertaking was precisely executed as a means to obtain the release of Ortigas and the Scholeys from
their previous obligations as sureties of Falcon, especially considering that they were already divesting their shares in the
corporation. Specific provisions in the Undertaking obligate petitioners to work for the release of Ortigas from his surety
agreements with Falcon. Specific provisions likewise mandate the immediate repayment of Ortigas should he still be made
to pay PDCP by reason of the guaranty agreements from which he was ostensibly to be released through the efforts of
petitioners. None of these provisions were complied with by petitioners, and Article 2208(2) precisely allows for the
recovery of attorneys fees [w]hen the defendants act or omission has compelled the plaintiff to litigate with third persons
or to incur expenses to protect his interest.
 Finally, petitioners claim that they should not be liable for interest since the Undertaking does not contain any
stipulation for interest, and assuming that they are liable, that the rate of interest should not be 12% per annum, as
adjudged by the RTC.

The seminal ruling in Eastern Shipping Lines, Inc. v. Court of Appeals[51] set forth the rules with respect to the
manner of computing legal interest:

I. When an obligation, regardless of its source, i.e., law, contracts, quasi-contracts, delicts or quasi-
delicts is breached, the contravenor can be held liable for damages. The provisions under Title XVIII on
Damages of the Civil Code govern in determining the measure of recoverable damages.

II. With regard particularly to an award of interest in the concept of actual and compensatory
damages, the rate of interest, as well as the accrual thereof, is imposed, as follows:

1. When the obligation is breached, and it consists in the payment of a sum of

money, i.e., a loan or forbearance of money, the interest due should be that which
may have been stipulated in writing. Furthermore, the interest due shall itself earn
legal interest from the time it is judicially demanded. In the absence of stipulation,
the rate of interest shall be 12% per annum to be computed from default, i.e., from
judicial or extrajudicial demand under and subject to the provisions of Article 1169 of
the Civil Code.

2. When an obligation, not constituting a loan or forbearance of money, is breached, an

interest on the amount of damages awarded may be imposed at the discretion of the
court at the rate of 6% per annum. No interest, however, shall be adjudged on
unliquidated claims or damages except when or until the demand can be established
with reasonable certainty. Accordingly, where the demand is established with
reasonable certainty, the interest shall begin to run from the time the claim is made
judicially or extrajudicially (Art. 1169, Civil Code) but when such certainty cannot be
so reasonably established at the time the demand is made, the interest shall begin to
run only from the date the judgment of the court is made (at which time
quantification of damages may be deemed to have been reasonably ascertained). The
actual base for the computation of legal interest shall, in any case, be on the amount
finally adjudged.

3. When the judgment of the court awarding a sum of money becomes final and
executory, the rate of legal interest, whether the case falls under paragraph 1 or
paragraph 2, above, shall be 12% per annum from such finality until its satisfaction,
this interim period being deemed to be by then an equivalent to a forbearance of
credit.[52]

Since what was the constituted in the Undertaking consisted of a payment in a sum of money, the rate of interest
thereon shall be 12% per annum to be computed from default, i.e., from judicial or extrajudicial demand. The interest rate
imposed by the RTC is thus proper. However, the computation should be reckoned from judicial or extrajudicial demand.
Per records, there is no indication that Ortigas made any extrajudicial demand to petitioners and Matti after he paid PDCP,
but on 14 March 1994, Ortigas made a judicial demand when he filed a Third-Party Complaint praying that petitioners and
Matti be made to reimburse him for the payments made to PDCP. It is the filing of this Third Party Complaint on 14 March
1994that should be considered as the date of judicial demand from which the computation of interest should be
reckoned.[53] Since the RTC held that interest should be computed from 28 February 1994, the appropriate redefinition
should be made.

WHEREFORE, the Petition is GRANTED in PART. The Order of the Regional Trial Court dated 5 October
1995 is MODIFIED by declaring that petitioners and Joseph M. Matti are only jointly liable, not jointly and severally, to
respondent Rafael Ortigas, Jr. in the amount of P1,300,000.00. The Order of the Regional Trial Court dated 7 March 1996 is
MODIFIED in that the legal interest of 12% per annum on the amount of P1,300,000.00 is to be computed from 14 March
1994, the date of judicial demand, and not from 28 February 1994 as directed in the Order of the lower court. The assailed
rulings are affirmed in all other respects. Costs against petitioners.

SO ORDERED.