Republic of the Philippines

SUPREME COURT
Manila

THIRD DIVISION

G.R. No. 188539 March 12, 2014

MARIANO LIM, Petitioner,

vs.
SECURITY BANK CORPORATION,* Respondent.

DECISION

PERALTA, J.:

This deals with the Petition for Review on Certiorari under Rule 45 of the Rules of Court praying that the
Decision1 of the Court of Appeals (CA), promulgated on July 30, 2008, and the Resolution 2 dated June 1,
2009, denying petitioner's motion for reconsideration thereof, be reversed and set aside.

Petitioner executed a Continuing Suretyship in favor of respondent to secure "any and all types of credit
accommodation that may be granted by the bank hereinto and hereinafter" in favor of Raul Arroyo for the
amount of ₱2,000,000.00 which is covered by a Credit Agreement/Promissory Note. 3 Said promissory note
stated that the interest on the loan shall be 19% per annum, compounded monthly, for the first 30 days
from the date thereof, and if the note is not fully paid when due, an additional penalty of 2% per month of
the total outstanding principal and interest due and unpaid, shall be imposed.

In turn, the Continuing Suretyship4 executed by petitioner stipulated that:

3. Liability of the Surety. - The liability of the Surety is solidary and not contingent upon the pursuit of the
Bank of whatever remedies it may have against the Debtor or the collaterals/liens it may possess. If any of
the Guaranteed Obligations is not paid or performed on due date (at stated maturity or by acceleration), the
Surety shall, without need for any notice, demand or any other act or deed, immediately become liable
therefor and the Surety shall pay and perform the same. 5

Guaranteed Obligations are defined in the same document as follows:

a) "Guaranteed Obligations" - the obligations of the Debtor arising from all credit accommodations
extended by the Bank to the Debtor, including increases, renewals, roll-overs, extensions, restructurings,
amendments or novations thereof, as well as (i) all obligations of the Debtor presently or hereafter owing to
the Bank, as appears in the accounts, books and records of the Bank, whether direct or indirect, and (ii)
any and all expenses which the Bank may incur in enforcing any of its rights, powers and remedies under
the Credit Instruments as defined hereinbelow.6

The debtor, Raul Arroyo, defaulted on his loan obligation. Thereafter, petitioner received a Notice of Final
Demand dated August 2, 2001, informing him that he was liable to pay the loan obtained by Raul and
Edwina Arroyo, including the interests and penalty fees amounting to ₱7,703,185.54, and demanding
payment thereof. For failure of petitioner to comply with said demand, respondent filed a complaint for
collection of sum of money against him and the Arroyo spouses. Since the Arroyo spouses can no longer
be located, summons was not served on them, hence, only petitioner actively participated in the case.

After trial, the Regional Trial Court of Davao (RTC) rendered judgment against petitioner. 7 The dispositive
portion of the RTC Decision reads as follows:

Wherefore, judgment is hereby rendered ordering defendant Lim to pay the following sums.

1. The principal sum of two million pesos plus nineteen percent interest of the outstanding principal
interest due and unpaid to be computed from January 28, 1997 until fully paid, plus two percent
interest per month as penalty to be computed from February 28, 1997 until fully paid.

2. Four hundred thousand pesos as attorney's fees.

3. Thirty thousand pesos as litigation expenses.

SO ORDERED.8

Petitioner appealed to the CA, but the appellate court, in its Decision dated July 30, 2008, affirmed the RTC
judgment with the modification that interest be computed from August 1, 1997; the penalty should start only
from August 28, 1997; the award of attorney's fees is set at 10% of the total amount due; and the award for
litigation expenses increased to ₱92,321.10.9

Petitioner's motion for reconsideration of the CA Decision was denied per Resolution dated June 1, 2009.
Petitioner then elevated the matter to this Court via a petition for review on certiorari, where the main issue
is whether petitioner may validly be held liable for the principal debtor's loan obtained six months after the
execution of the Continuing Suretyship.

The other issues, such as the proper computation of the total indebtedness and the amount of litigation
expenses are factual matters that had been satisfactorily addressed by the CA, to wit: (1) the CA ruled that
respondent should recompute the total amount due, since the proceeds from the foreclosure of the real
estate and chattel mortgages were deducted only on June 20, 2001, when the public auctions were
conducted on August 26, 1998 and September 7, 1999, respectively, thus, the amount of the proceeds from
the foreclosure of the mortgaged properties should have been deducted from the amount of indebtedness
on the date the public auction was held; and (2) the CA likewise pointed out that as can be seen from the
Legal Fees Form,10 the litigation expense incurred by respondent was ₱92,321.10, the amount it paid as
filing fee. It is hornbook principle that this Court is not a trier of facts, hence, such issues will not be
revisited by this Court in the present petition. With regard to the propriety of making petitioner a hostile
witness, respondent is correct that the issue cannot be raised for the first time on appeal. Thus, the Court
will no longer address these issues which had been improperly raised in this petition for review on
certiorari.

The main issue deserves scant consideration, but the matter of the award of attorney's fees deserves
reexamination.

The nature of a suretyship is elucidated in Philippine Charter Insurance Corporation v. Petroleum

Distributors & Service Corporation11 in this wise:

A contract of suretyship is an agreement whereby a party, called the surety, guarantees the performance by
another party, called the principal or obligor, of an obligation or undertaking in favor of another party, called
the obligee. Although the contract of a surety is secondary only to a valid principal obligation, the surety
becomes liable for the debt or duty of another although it possesses no direct or personal interest over the
obligations nor does it receive any benefit therefrom. This was explained in the case of Stronghold
Insurance Company, Inc. v. Republic-Asahi Glass Corporation, where it was written:

The surety's obligation is not an original and direct one for the performance of his own act, but merely
accessory or collateral to the obligation contracted by the principal. Nevertheless, although the contract of a
surety is in essence secondary only to a valid principal obligation, his liability to the creditor or promisee of
the principal is said to be direct, primary and absolute; in other words, he is directly and equally bound with
the principal.

xxxx

Thus, suretyship arises upon the solidary binding of a person deemed the surety with the principal debtor
for the purpose of fulfilling an obligation. A surety is considered in law as being the same party as the
debtor in relation to whatever is adjudged touching the obligation of the latter, and their liabilities are
interwoven as to be inseparable. x x x.12

In this case, what petitioner executed was a Continuing Suretyship, which the Court described in Saludo,
Jr. v. Security Bank Corporation13 as follows:

The essence of a continuing surety has been highlighted in the case of Totanes v. China Banking
Corporation in this wise:

Comprehensive or continuing surety agreements are, in fact, quite commonplace in present day financial
and commercial practice. A bank or financing company which anticipates entering into a series of credit
transactions with a particular company, normally requires the projected principal debtor to execute a
continuing surety agreement along with its sureties. By executing such an agreement, the principal places
itself in a position to enter into the projected series of transactions with its creditor; with such suretyship
agreement, there would be no need to execute a separate surety contract or bond for each financing or
credit accommodation extended to the principal debtor. 14

The terms of the Continuing Suretyship executed by petitioner, quoted earlier, are very clear. It states that
1âwphi1

petitioner, as surety, shall, without need for any notice, demand or any other act or deed, immediately
become liable and shall pay "all credit accommodations extended by the Bank to the Debtor, including
increases, renewals, roll-overs, extensions, restructurings, amendments or novations thereof, as well as (i)
all obligations of the Debtor presently or hereafter owing to the Bank, as appears in the accounts, books
and records of the Bank, whether direct or indirect, and

(ii) any and all expenses which the Bank may incur in enforcing any of its rights, powers and remedies
under the Credit Instruments as defined hereinbelow." 15 Such stipulations are valid and legal and constitute
the law between the parties, as Article 2053 of the Civil Code provides that "[a] guaranty may also be given
as security for future debts, the amount of which is not yet known; x x x." Thus, petitioner is unequivocally
bound by the terms of the Continuing Suretyship. There can be no cavil then that petitioner is liable for the
principal of the loan, together with the interest and penalties due thereon, even if said loan was obtained by
the principal debtor even after the date of execution of the Continuing Suretyship.

With regard to the award of attorney's fees, it should be noted that Article 2208 of the Civil Code does not
prohibit recovery of attorney's fees if there is a stipulation in the contract for payment of the same. Thus, in
Asian Construction and Development Corporation v. Cathay Pacific Steel Corporation (CAPASCO), 16 the
Court, citing Titan Construction Corporation v. Uni-Field Enterprises, Inc., 17 expounded as follows:

The law allows a party to recover attorney's fees under a written agreement. In Barons Marketing
Corporation v. Court of Appeals, the Court ruled that:

[T]he attorney's fees here are in the nature of liquidated damages and the stipulation therefor is aptly called
a penal clause. It has been said that so long as such stipulation does not contravene law, morals, or public
order, it is strictly binding upon defendant. The attorney's fees so provided are awarded in favor of the
litigant, not his counsel.

On the other hand, the law also allows parties to a contract to stipulate on liquidated damages to be paid in
case of breach. A stipulation on liquidated damages is a penalty clause where the obligor assumes a
greater liability in case of breach of an obligation. The obligor is bound to pay the stipulated amount without
need for proof on the existence and on the measure of damages caused by the breach. 18

However, even if such attorney's fees are allowed by law, the courts still have the power to reduce the
same if it is unreasonable. In Trade & Investment Corporation of the Philippines v. Roblett Industrial
Construction Corp.,19 the Court equitably reduced the amount of attorney's fees to be paid since interests
and penalties had ballooned to thrice as much as the principal debt. That is also the case here. The award
of attorney's fees amounting to ten percent (10%) of the principal debt, plus interest and penalty charges,
would definitely exceed the principal amount; thus, making the attorney's fees manifestly exorbitant. Hence,
we reduce the amount of attorney's fees to ten percent (10%) of the principal debt only.

WHEREFORE, the petition is PARTIALLY GRANTED. The Decision of the Court of Appeals, dated July 30,
2008, in CA-G.R. CV No. 00462, is AFFIRMED with MODIFICATION in that the award of attorney's fees is
reduced to ten percent (10%) of the principal debt only.

SO ORDERED.

DIOSDADO M. PERALTA
Associate Justice

WE CONCUR:

PRESBITERO J. VELASCO, JR.

Associate Justice
Chairperson

ROBERTO A. ABAD JOSE CATRAL MENDOZA

Associate Justice Associate Justice
MARVIC MARIO VICTOR F. LEONEN
Associate Justice

ATTE S TATI O N

I attest that the conclusions in the above Decision had been reached in consultation before the case was
assigned to the writer of the opinion of the Court's Division.

PRESBITERO J. VELASCO, JR.

Associate Justice
Chairperson, Third Division

C E RTI F I CATI O N

Pursuant to Section 13, Article VIII of the Constitution and the Division Chairperson's Attestation, I certify
that the conclusions in the above Decision had been reached in consultation before the case was assigned
to the writer of the opinion of the Court's Division.

MARIA LOURDES P. A. SERENO

Chief Justice
 Republic of the Philippines
SUPREME COURT
Manila

THIRD DIVISION

G.R. No. 89775 November 26, 1992

JACINTO UY DIÑO and NORBERTO UY, petitioners,

vs.
HON. COURT OF APPEALS and METROPOLITAN BANK AND TRUST COMPANY, respondents.

DAVIDE, JR., J.:

Continuing Suretyship Agreements signed by the petitioners set off this present controversy.

Petitioners assail the 22 June 1989 Decision of the Court in CA-G.R. CV No. 17724 1 which reversed the
2 December 1987 Decision of Branch 45 of the Regional Trial Court (RTC) of Manila in a collection suit entitled "Metropolitan Bank and Trust Company vs. Uy
Tiam, doing business under the name of "UY TIAM ENTERPRISES & FREIGHT SERVICES," Jacinto Uy Diño and Norberto Uy" and docketed as Civil Case No.
82-9303. They likewise challenge public respondent's Resolution of 21 August 1989 2 denying their motion for the reconsideration of the former.

The impugned Decision of the Court summarizes the antecedent facts as follows:

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

Having paid the obligation under the above letter of credit in 1977, UTEFS, through Uy
Tiam, obtained another credit accommodation from METROBANK in 1978, which credit
accommodation was fully settled before an irrevocable letter of credit was applied for and
obtained by the abovementioned business entity in 1979 (September 8, 1987, tsn, pp. 14-
15).

The Irrevocable Letter of Credit No. SN-Loc-309, dated March 30, 1979, in the sum of
P815, 600.00, covered UTEFS' purchase of "8,000 Bags Planters Urea and 4,000 Bags
Planters 21-0-0." It was applied for and obtain by UTEFS without the participation of
Norberto Uy and Jacinto Uy Diño as they did not sign the document denominated as
"Commercial Letter of Credit and Application." Also, they were not asked to execute any
suretyship to guarantee its payment. Neither did METROBANK nor UTEFS inform them that
the 1979 Letter of Credit has been opened and the Continuing Suretyships separately
executed in February, 1977 shall guarantee its payment (Appellees brief, pp. 2-3; rollo, p.
28).

The 1979 letter of credit (Exhibit "B") was negotiated. METROBANK paid Planters Products
the amount of P815,600.00 which payment was covered by a Bill of Exchange (Exhibit "C"),
dated 4 June 1979, in favor of (Original Records, p. 331).

Pursuant to the above commercial transaction, UTEFS executed and delivered to

METROBANK and Trust Receipt (Exh. "D"), dated 4 June 1979, whereby the former
acknowledged receipt in trust from the latter of the aforementioned goods from Planters
Products which amounted to P815, 600.00. Being the entrusted, the former agreed to
deliver to METROBANK the entrusted goods in the event of non-sale or, if sold, the
proceeds of the sale thereof, on or before September 2, 1979.

However, UTEFS did not acquiesce to the obligatory stipulations in the trust receipt. As a
consequence, METROBANK sent letters to the said principal obligor and its sureties,
Norberto Uy and Jacinto Uy Diño, demanding payment of the amount due. Informed of the
amount due, UTEFS made partial payments to the Bank which were accepted by the latter.
 Answering one of the demand letters, Diño, thru counsel, denied his liability for the amount
demanded and requested METROBANK to send him copies of documents showing the
source of his liability. In its reply, the bank informed him that the source of his liability is the
Continuing Suretyship which he executed on February 25, 1977.

As a rejoinder, Diño maintained that he cannot be held liable for the 1979 credit
accommodation because it is a new obligation contracted without his participation. Besides,
the 1977 credit accommodation which he guaranteed has been fully paid.

Having sent the last demand letter to UTEFS, Diño and Uy and finding resort to extrajudicial
remedies to be futile, METROBANK filed a complaint for collection of a sum of money
(P613,339.32, as of January 31, 1982, inclusive of interest, commission penalty and bank
charges) with a prayer for the issuance of a writ of preliminary attachment, against Uy Tiam,
representative of UTEFS and impleaded Diño and Uy as parties-defendants.

The court issued an order, dated 29 July 1983, granting the attachment writ, which writ was
returned unserved and unsatisfied as defendant Uy Tiam was nowhere to be found at his
given address and his commercial enterprise was already non-operational (Original
Records, p. 37).

On April 11, 1984, Norberto Uy and Jacinto Uy Diño (sureties-defendant herein) filed a
motion to dismiss the complaint on the ground of lack of cause of action. They maintained
that the obligation which they guaranteed in 1977 has been extinguished since it has
already been paid in the same year. Accordingly, the Continuing Suretyships executed in
1977 cannot be availed of to secure Uy Tiam's Letter of Credit obtained in 1979 because a
guaranty cannot exist without a valid obligation. It was further argued that they can not be
held liable for the obligation contracted in 1979 because they are not privies thereto as it
was contracted without their participation (Records, pp. 42-46).

On April 24, 1984, METROBANK filed its opposition to the motion to dismiss. Invoking the
terms and conditions embodied in the comprehensive suretyships separately executed by
sureties-defendants, the bank argued that sureties-movants bound themselves as solidary
obligors of defendant Uy Tiam to both existing obligations and future ones. It relied on
Article 2053 of the new Civil Code which provides: "A guaranty may also be given as
security for future debts, the amount of which is not yet known; . . . ." It was further asserted
that the agreement was in full force and effect at the time the letter of credit was obtained in
1979 as sureties-defendants did not exercise their right to revoke it by giving notice to the
bank. (Ibid., pp. 51-54).

Meanwhile, the resolution of the aforecited motion to dismiss was held in abeyance pending
the introduction of evidence by the parties as per order dated February 21, 1986 (Ibid., p.
71).

Having been granted a period of fifteen (15) days from receipt of the order dated March 7,
1986 within which to file the answer, sureties-defendants filed their responsive pleading
which merely rehashed the arguments in their motion to dismiss and maintained that they
are entitled to the benefit of excussion (Original Records, pp. 88-93).

On February 23, 1987, plaintiff filed a motion to dismiss the complaint against defendant Uy
Tiam on the ground that it has no information as to the heirs or legal representatives of the
latter who died sometime in December, 1986, which motion was granted on the following
day (Ibid., pp. 180-182).

After trial, . . . the court a quo, on December 2, 198, rendered its judgment, a portion of which reads:

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

Are the defendants Jacinto Uy Diñoand Norberto Uy liable for the obligation
contracted by Uy Tiam under the Letter of Credit (Exh. B) issued on March
30, 1987 by virtue of the Continuing Suretyships they executed on February
25, 1977?

Under the admitted proven facts, the Court finds that they are not.

a) When Uy and Diño executed the continuing suretyships, exhibits E and F,

on February 25, 1977, Uy Tiam was obligated to the plaintiff in the amount of
P700,000.00 — and this was the obligation which both obligation which both
defendants guaranteed to pay. Uy Tiam paid this 1977 obligation –– and
 such payment extinguished the obligation they assumed as
guarantors/sureties.

b) The 1979 Letter of Credit (Exh. B) is different from the 1977 Letter of
Credit which covered the 1977 account of Uy Tiam. Thus, the obligation
under either is apart and distinct from the obligation created in the other —
as evidenced by the fact that Uy Tiam had to apply anew for the 1979
transaction (Exh. A). And Diño and Uy, being strangers thereto, cannot be
answerable thereunder.

c) The plaintiff did not serve notice to the defendants Diño and Uy when it
extended to Credit — at least to inform them that the continuing suretyships
they executed on February 25, 1977 will be considered by the plaintiff to
secure the 1979 transaction of Uy Tiam.

d) There is no sufficient and credible showing that Diño and Uy were fully
informed of the import of the Continuing Suretyships when they affixed their
signatures thereon –– that they are thereby securing all future obligations
which Uy Tiam may contract the plaintiff. On the contrary, Diño and Uy
categorically testified that they signed the blank forms in the office of Uy
Tiam at 623 Asuncion Street, Binondo, Manila, in obedience to the
instruction of Uy Tiam, their former employer. They denied having gone to
the office of the plaintiff to subscribe to the documents (October 1, 1987, tsn,
pp. 5-7, 14; October 15, 1987, tsn, pp. 3-8, 13-16). (Records, pp. 333-334). 3

xxx xxx xxx

In its Decision, the trial court decreed as follows:

PREMISES CONSIDERED, judgment is hereby rendered:

a) dismissing the COMPLAINT against JACINTO UY DIÑO and NORBERTO UY;

b) ordering the plaintiff to pay to Diño and Uy the amount of P6,000.00 as attorney's fees
and expenses of litigation; and

c) denying all other claims of the parties for want of legal and/or factual basis.

SO ORDERED. (Records, p. 336) 4

From the said Decision, the private respondent appealed to the Court of Appeals. The case was docketed
as CA-G.R. CV No. 17724. In support thereof, it made the following assignment of errors in its Brief:

I. THE LOWER COURT SERIOUSLY ERRED IN NOT FINDING AND HOLDING THAT
DEFENDANTS-APPELLEES JACINTO UY DIÑO AND NORBERTO UY ARE SOLIDARILY
LIABLE TO PLAINTIFF-APPELLANT FOR THE OBLIGATION OF DEFENDANT UY TIAM
UNDER THE LETTER OF CREDIT ISSUED ON MARCH 30, 1979 BY VIRTUE OF THE
CONTINUING SURETYSHIPS THEY EXECUTED ON FEBRUARY 25, 1977.

II. THE LOWER COURT ERRED IN HOLDING THAT PLAINTIFF-APPELLANT IS

ANSWERABLE TO DEFENDANTS-APPELLEES JACINTO UY DIÑO AND NORBERTO UY
FOR ATTORNEY'S FEES AND EXPENSES OF LITIGATION. 5

On 22 June 1989, public respondent promulgated the assailed Decision the dispositive portion of which
reads:

WHEREFORE, premises considered, the judgment appealed from is hereby REVERSED

AND SET, ASIDE. In lieu thereof, another one is rendered:

1) Ordering sureties-appellees Jacinto Uy Diño and Norberto Uy to pay,

jointly and severally, to appellant METROBANK the amount of
P2,397,883.68 which represents the amount due as of July 17, 1987
inclusive of principal, interest and charges;

2) Ordering sureties-appellees Jacinto Uy Diño and Norberto Uy to pay,

jointly and severally, appellant METROBANK the accruing interest, fees and
charges thereon from July 18, 1987 until the whole monetary obligation is
paid; and

3) Ordering sureties-appellees Jacinto Uy Diño and Norberto Uy to pay,

jointly and severally, to plaintiff P20,000.00 as attorney's fees.
 With costs against appellees.

SO ORDERED. 6

In ruling for the herein private respondent (hereinafter METROBANK), public respondent held that the
Continuing Suretyship Agreements separately executed by the petitioners in 1977 were intended to
guarantee payment of Uy Tiam's outstanding as well as future obligations; each suretyship arrangement
was intended to remain in full force and effect until METROBANK would have been notified of its
revocation. Since no such notice was given by the petitioners, the suretyships are deemed outstanding and
hence, cover even the 1979 letter of credit issued by METROBANK in favor of Uy Tiam.

Petitioners filed a motion to reconsider the foregoing Decision. They questioned the public respondent's
construction of the suretyship agreements and its ruling with respect to the extent of their liability
thereunder. They argued the even if the agreements were in full force and effect when METROBANK
granted Uy Tiam's application for a letter of credit in 1979, the public respondent nonetheless seriously
erred in holding them liable for an amount over and above their respective face values.

In its Resolution of 21 August 1989, public respondent denied the motion:

. . . considering that the issues raised were substantially the same grounds utilized by the
lower court in rendering judgment for defendants-appellees which We upon appeal found
and resolved to be untenable, thereby reversing and setting aside said judgment and
rendering another in favor of plaintiff, and no new or fresh issues have been posited to
justify reversal of Our decision herein, . . . . 7

Hence, the instant petition which hinges on the issue of whether or not the petitioners may be held liable as
sureties for the obligation contracted by Uy Tiam with METROBANK on 30 May 1979 under and by virtue of
the Continuing Suretyship Agreements signed on 25 February 1977.

Petitioners vehemently deny such liability on the ground that the Continuing Suretyship Agreements were
automatically extinguished upon payment of the principal obligation secured thereby, i.e., the letter of credit
obtained by Uy Tiam in 1977. They further claim that they were not advised by either METROBANK or Uy
Tiam that the Continuing Suretyship Agreements would stand as security for the 1979 obligation. Moreover,
it is posited that to extend the application of such agreements to the 1979 obligation would amount to a
violation of Article 2052 of the Civil Code which expressly provides that a guaranty cannot exist without a
valid obligation. Petitioners further argue that even granting, for the sake of argument, that the Continuing
Suretyship Agreements still subsisted and thereby also secured the 1979 obligations incurred by Uy Tiam,
they cannot be held liable for more than what they guaranteed to pay because it s axiomatic that the
obligations of a surety cannot extend beyond what is stipulated in the agreement.

On 12 February 1990, this Court resolved to give due course to the petition after considering the
allegations, issues and arguments adduced therein, the Comment thereon by the private respondent and
the Reply thereto by the petitioners; the parties were required to submit their respective Memoranda.

The issues presented for determination are quite simple:

1. Whether petitioners are liable as sureties for the 1979 obligations of Uy Tiam to
METROBANK by virtue of the Continuing Suretyship Agreements they separately signed in
1977; and

2. On the assumption that they are, what is the extent of their liabilities for said 1979
obligations.

Under the Civil Code, a guaranty may be given to secure even future debts, the amount of which may not
known at the time the guaranty is
executed. 8 This is the basis for contracts denominated as continuing guaranty or suretyship. A continuing guaranty is one which is not limited to a single
transaction, but which contemplates a future course of dealing, covering a series of transactions, generally for an indefinite time or until revoked. It is prospective
in its operation and is generally intended to provide security with respect to future transactions within certain limits, and contemplates a succession of liabilities,
for which, as they accrue, the guarantor becomes liable. 9 Otherwise stated, a continuing guaranty is one which covers all transactions, including those arising in
the future, which are within the description or contemplation of the contract, of guaranty, until the expiration or termination thereof. 10 A guaranty shall be
construed as continuing when by the terms thereof it is evident that the object is to give a standing credit to the principal debtor to be used from time to time
either indefinitely or until a certain period, especially if the right to recall the guaranty is expressly reserved. Hence, where the contract of guaranty states that the
same is to secure advances to be made "from time to time" the guaranty will be construed to be a continuing one. 11

In other jurisdictions, it has been held that the use of particular words and expressions such as payment of
"any debt," "any indebtedness," "any deficiency," or "any sum," or the guaranty of "any transaction" or
money to be furnished the principal debtor "at any time," or "on such time" that the principal debtor may
require, have been construed to indicate a continuing guaranty. 12

In the case at bar, the pertinent portion of paragraph I of the suretyship agreement executed by petitioner
Uy provides thus:
 I. For and in consideration of any existing indebtedness to the BANK of UY TIAM
(hereinafter called the "Borrower"), for the payment of which the SURETY is now obligated
to the BANK, either as guarantor or otherwise, and/or in order to induce the BANK, in its
discretion, at any time or from time to time hereafter, to make loans or advances or to
extend credit in any other manner to, or at the request, or for the account of the
Borrower, either with or without security, and/or to purchase or discount, or to make any
loans or advances evidence or secured by any notes, bills, receivables, drafts,
acceptances, checks, or other instruments or evidences of indebtedness (all hereinafter
called "instruments") upon which the Borrower is or may become liable as maker, endorser,
acceptor, or otherwise, the SURETY agrees to guarantee, and does hereby guarantee, the
punctual payment at maturity to the loans, advances credits and/or other obligations
hereinbefore referred to, and also any and all other indebtedness of every kind which is now
or may hereafter become due or owing to the BANK by the Borrower, together with any and
all expenses which may be incurred by the BANK in collecting all or any such instruments or
other indebtedness or obligations herein before referred to, and/or in enforcing any rights
hereunder, and the SURETY also agrees that the BANK may make or cause any and all
such payments to be made strictly in accordance with the terms and provisions of any
agreement(s) express or implied, which has (have) been or may hereafter be made or
entered into by the Borrow in reference thereto, regardless of any law, regulation or decree,
unless the same is mandatory and non-waivable in character, nor or hereafter in effect,
which might in any manner affect any of the terms or provisions of any such agreement(s)
or the Bank's rights with respect thereto as against the Borrower, or cause or permit to be
invoked any alteration in the time, amount or manner of payment by the Borrower of any
such instruments, obligations or indebtedness; provided, however, that the liability of the
SURETY hereunder shall not exceed at any one time the aggregate principal sum of
PESOS: THREE HUNDRED THOUSAND ONLY (P300,000.00) (irrespective of the
currenc(ies) in which the obligations hereby guaranteed are payable), and such interest as
may accrue thereon either before or after any maturity(ies) thereof and such expenses as
may be incurred by the BANK as referred to above. 13

Paragraph I of the Continuing Suretyship Agreement executed by petitioner Diño contains identical
provisions except with respect to the guaranteed aggregate principal amount which is EIGHT THOUSAND
PESOS (P800,000.00). 14

Paragraph IV of both agreements stipulate that:

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

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

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

xxx xxx xxx

When the Irrevocable Letter of Credit No. SN-Loc-309 was obtained from appellant bank,
for the purpose of obtaining goods (covered by a trust receipt) from Planters Products, the
continuing suretyships were in full force and effect. Hence, even if sureties-appellees did not
sign the "Commercial Letter of Credit and Application, they are still liable as the credit
accommodation (letter of credit/trust receipt) was covered by the said suretyships. What
makes them liable thereunder is the condition which provides that the Borrower "is or may
 become liable as maker, endorser, acceptor or otherwise." And since UTEFS which (sic)
was liable as principal obligor for having failed to fulfill the obligatory stipulations in the trust
receipt, they as insurers of its obligation, are liable thereunder. 16

Petitioners maintain, however, that their Continuing Suretyship Agreements cannot be made applicable to
the 1979 obligation because the latter was not yet in existence when the agreements were executed in
1977; under Article 2052 of the Civil Code, a guaranty "cannot exist without a valid obligation." We cannot
agree. First of all, the succeeding article provides that "[a] guaranty may also be given as security for future
debts, the amount of which is not yet known." Secondly, Article 2052 speaks about a valid obligation, as
distinguished from a void obligation, and not an existing or current obligation. This distinction is made
clearer in the second paragraph of Article 2052 which reads:

Nevertheless, a guaranty may be constituted to guarantee the performance of a voidable or

an unenforceable contract. It may also guarantee a natural obligation.

As to the amount of their liability under the Continuing Suretyship Agreements, petitioners contend that the
public respondent gravely erred in finding them liable for more than the amount specified in their respective
agreements, to wit: (a) P800,000.00 for petitioner Diño and (b) P300,000.00 for petitioner Uy.

The limit of the petitioners respective liabilities must be determined from the suretyship agreement each
had signed. It is undoubtedly true that the law looks upon the contract of suretyship with a jealous eye, and
the rule is settled that the obligation of the surety cannot be extended by implication beyond its specified
limits. To the extent, and in the manner, and under the circumstances pointed out in his obligation, he is
bound, and no farther. 17

Indeed, the Continuing Suretyship Agreements signed by petitioner Diño and petitioner Uy fix the
aggregate amount of their liability, at any given time, at P800,000.00 and P300,000.00, respectively. The
law is clear that a guarantor may bond himself for less, but not for more than the principal debtor, both as
regards the amount and the onerous nature of the conditions. 18 In the case at bar, both agreements
provide for liability for interest and expenses, to wit:

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

They further provide that:

In the event of judicial proceedings being instituted by the BANK against the SURETY to
enforce any of the terms and conditions of this undertaking, the SURETY further agrees to
pay the BANK a reasonable compensation for and as attorney's fees and costs of collection,
which shall not in any event be less than ten per cent (10%) of the amount due (the same to
be due and payable irrespective of whether the case is settled judicially or extrajudicially). 20

Thus, by express mandate of the Continuing Suretyship Agreements which they had signed,
petitioners separately bound themselves to pay interest, expenses, attorney's fees and costs. The
last two items are pegged at not less than ten percent (10%) of the amount due.

Even without such stipulations, the petitioners would, nevertheless, be liable for the interest and judicial
costs. Article 2055 of the Civil Code provides: 21

Art. 2055. A guaranty is not presumed; it must be express and cannot extend to more than
what is stipulated therein.

If it be simple or indefinite, it shall comprise not only the principal obligation, but also all its
accessories, including the judicial costs, provided with respect to the latter, that the
guarantor shall only be liable for those costs incurred after he has been judicially required to
pay.

Interest and damages are included in the term accessories. However, such interest should run only
from the date when the complaint was filed in court. Even attorney's fees may be imposed
whenever appropriate, pursuant to Article 2208 of the Civil Code. Thus, in Plaridel Surety &
Insurance Co., Inc. vs. P.L. Galang Machinery Co., Inc., 22 this Court held:

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

xxx xxx xxx

The objection has to be overruled, because as far back as the year 1922 this Court held in
Tagawa vs. Aldanese, 43 Phil. 852, that creditors suing on a suretyship bond may recover
 from the surety as part of their damages, interest at the legal rate even if the surety would
thereby become liable to pay more than the total amount stipulated in the bond. The theory
is that interest is allowed only by way of damages for delay upon the part of the sureties in
making payment after they should have done so. In some states, the interest has been
charged from the date of the interest has been charged from the date of the judgment of the
appellate court. In this jurisdiction, we rather prefer to follow the general practice, which is to
order that interest begin to run from the date when the complaint was filed in court, . . .

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

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

As to attorney's fees. Before the enactment of the New Civil Code, successful litigants could
not recover attorney's fees as part of the damages they suffered by reason of the litigation.
Even if the party paid thousands of pesos to his lawyers, he could not charge the amount to
his opponent (Tan Ti vs. Alvear, 26 Phil. 566).

However the New Civil Code permits recovery of attorney's fees in eleven cases
enumerated in Article 2208, among them, "where the court deems it just and equitable that
attorney's (sic) fees and expenses of litigation should be recovered" or "when the defendant
acted in gross and evident bad faith in refusing to satisfy the plaintiff's plainly valid, just and
demandable claim." This gives the courts discretion in apportioning attorney's fees.

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

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

Since the complaint was filed on 18 May 1982, it is obvious that on that date, the outstanding
principal obligation of Uy Tiam, secured by the petitioners' Continuing Suretyship Agreements, was
less than P613,339.32. Such amount may be fully covered by the Continuing Suretyship Agreement
executed by petitioner Diño which stipulates an aggregate principal sum of not exceeding
P800,000.00, and partly covered by that of petitioner Uy which pegs his maximum liability at
P300,000.00.

Consequently, the judgment of the public respondent shall have to be modified to conform to the foregoing
exposition, to which extent the instant petition is impressed with partial merit.

WHEREFORE, the petition is partly GRANTED, but only insofar as the challenged decision has to be
modified with respect to the extend of petitioners' liability. As modified, petitioners JACINTO UY DIÑO and
NORBERTO UY are hereby declared liable for and are ordered to pay, up to the maximum limit only of their
respective Continuing Suretyship Agreement, the remaining unpaid balance of the principal obligation of
UY TIAM or UY TIAM ENTERPRISES & FREIGHT SERVICES under Irrevocable Letter of Credit No. SN-
Loc-309, dated 30 March 1979, together with the interest due thereon at the legal rate commencing from
the date of the filing of the complaint in Civil Case No. 82-9303 with Branch 45 of the Regional Trial Court
of Manila, as well as the adjudged attorney's fees and costs.

All other dispositions in the dispositive portion of the challenged decision not inconsistent with the above
are affirmed.

SO ORDERED.

Gutierrez, Jr., Bidin, Romero and Melo, JJ., concur.

 Republic of the Philippines
SUPREME COURT
Baguio City

SECOND DIVISION

G.R. No. 103066 April 25, 1996

WILLEX PLASTIC INDUSTRIES, CORPORATION, petitioner,

vs.
HON. COURT OF APPEALS and INTERNATIONAL CORPORATE BANK, respondents.

MENDOZA, J.:p
This is a petition for review on certiorari of the decision1 of the Court of Appeals in C.A.-G.R. CV No. 19094, affirming the decision of the Regional Trial Court of
the National Capital Judicial Region, Branch XLV, Manila, which ordered petitioner Willex Plastic Industries Corporation and the Inter-Resin Industrial
Corporation, jointly and severally, to pay private respondent International Corporate Bank certain sums of money, and the appellate court's resolution of October
17, 1989 denying petitioner's motion for reconsideration.

The facts are as follows:

Sometime in 1978, Inter-Resin Industrial Corporation opened a letter of credit with the Manila Banking
Corporation. To secure payment of the credit accomodation, Inter-Resin Industrial and the Investment and
Underwriting Corporation of the Philippines (IUCP) executed two documents, both entitled "Continuing
Surety Agreement" and dated December 1, 1978, whereby they bound themselves solidarily to pay
Manilabank "obligations of every kind, on which the [Inter-Resin Industrial] may now be indebted or
hereafter become indebted to the [Manilabank]." The two agreements (Exhs. J and K) are the same in all
respects, except as to the limit of liability of the surety, the first surety agreement being limited to
US$333,830.00, while the second one is limited to US$334,087.00.

On April 2, 1979, Inter-Resin Industrial, together with Willex Plastic Industries Corp., executed a
"Continuing Guaranty" in favor of IUCP whereby "For and in consideration of the sum or sums obtained
and/or to be obtained by Inter-Resin Industrial Corporation" from IUCP, Inter-Resin Industrial and Willex
Plastic jointly and severally guaranteed "the prompt and punctual payment at maturity of the NOTE/S
issued by the DEBTOR/S . . . to the extent of the aggregate principal sum of FIVE MILLION PESOS
(P5,000,000.00) Philippine Currency and such interests, charges and penalties as hereafter may be
specified."

On January 7, 1981, following demand upon it, IUCP paid to Manilabank the sum of P4,334,280.61
representing Inter-Resin Industrial's outstanding obligation. (Exh. M-1) On February 23 and 24, 1981,
Atrium Capital Corp., which in the meantime had succeeded IUCP, demanded from Inter-Resin Industrial
and Willex Plastic the payment of what it (IUCP) had paid to Manilabank. As neither one of the sureties
paid, Atrium filed this case in the court below against Inter-Resin Industrial and Willex Plastic.

On August 11, 1982, Inter-Resin Industrial paid Interbank, which had in turn succeeded Atrium, the sum of
P687,600.00 representing the proceeds of its fire insurance policy for the destruction of its properties.

In its answer, Inter-Resin Industrial admitted that the "Continuing Guaranty" was intended to secure
payment to Atrium of the amount of P4,334,280.61 which the latter had paid to Manilabank. It claimed,
however, that it had already fully paid its obligation to Atrium Capital.

On the other hand, Willex Plastic denied the material allegations of the complaint and interposed the
following Special Affirmative Defenses:

(a) Assuming arguendo that main defendant is indebted to plaintiff, the former's liability is
extinguished due to the accidental fire that destroyed its premises, which liability is covered
by sufficient insurance assigned to plaintiff;

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

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

(d) WLLLEX is only a guarantor of the principal obliger, and thus, its liability is only
secondary to that of the principal;
 (e) Plaintiff failed to exhaust the ultimate remedy in pursuing its claim against the principal
obliger;

(f) Plaintiff has no personality to sue.

On April 29, 1986, Interbank was substituted as plaintiff in the action. The case then proceeded to trial.

On March 4, 1988, the trial court declared Inter-Resin Industrial to have waived the right to present
evidence for its failure to appear at the hearing despite due notice. On the other hand, Willex Plastic rested
its case without presenting any evidence. Thereafter Interbank and Willex Plastic submitted their respective
memoranda.

On April 5, 1988, the trial court rendered judgment, ordering Inter-Resin Industrial and Willex Plastic jointly
and severally to pay to Interbank the following amounts:

(a) P3, 646,780.61, representing their indebtedness to the plaintiff, with interest of 17% per
annum from August 11, 1982, when Inter-Resin Industrial paid P687,500.00 to the plaintiff,
until full payment of the said amount;

(b) Liquidated damages equivalent to 178 of the amount due; and

(c) Attorney's fees and expenses of litigation equivalent to 208 of the total amount due.

Inter-Resin Industrial and Willex Plastic appealed to the Court of Appeals. Willex Plastic filed its brief, while
Inter-Resin Industrial presented a "Motion to Conduct Hearing and to Receive Evidence to Resolve Factual
Issues and to Defer Filing of the Appellant's Brief." After its motion was denied, Inter-Resin Industrial did not
file its brief anymore.

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

Willex Plastic filed a motion for reconsideration praying that it be allowed to present evidence to show that
Inter-Resin Industrial had already paid its obligation to Interbank, but its motion was denied on December
6, 1991:

The motion is denied for lack of merit. We denied defendant-appellant Inter-Resin

Industrial's motion for reception of evidence because the situation or situations in which we
could exercise the power under BP 129 did not exist. Movant here has not presented any
argument which would show otherwise.

Hence, this petition by Willex Plastic for the review of the decision of February 22, 1991 and the resolution
of December 6, 1991 of the Court of Appeals.

Petitioner raises a number of issues.

[1] The main issue raised is whether under the "Continuing Guaranty" signed on April 2, 1979 petitioner
Willex Plastic may be held jointly and severally liable with Inter-Resin Industrial for the amount paid by
Interbank to Manilabank.

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

For and in consideration of the sums obtained and/or to be obtained by INTER-RESIN

INDUSTRIAL CORPORATION, hereinafter referred to as the DEBTOR/S, from you and/or
your principal/s as may be evidenced by promissory note/s, checks, bills receivable/s and/or
other evidence/s of indebtedness (hereinafter referred to as the NOTE/S), I/We hereby
jointly and severally and unconditionally guarantee unto you and/or your principal/s,
successor/s and assigns the prompt and punctual payment at maturity of the NOTE/S
issued by the DEBTOR/S in your and/or your principal/s, successor/s and assigns favor to
the extent of the aggregate principal sum of FIVE MILLION PESOS (P5,000,000.00),
Philippine Currency, and such interests, charges and penalties as may hereinafter be
specified.

The contention is untenable. What Willex Plastic has overlooked is the fact that evidence aliunde was
introduced in the trial court to explain that it was actually to secure payment to Interbank (formerly IUCP) of
amounts paid by the latter to Manilabank that the "Continuing Guaranty" was executed. In its complaint
below, Interbank's predecessor-in-interest, Atrium Capital, alleged:
 5. to secure the guarantee made by plaintiff of the credit accommodation granted to
defendant IRIC [Inter-Resin Industrial] by Manilabank, the plaintiff required defendant IRIC
[Inter-Resin Industrial] to execute a chattel mortgage in its favor and a Continuing Guaranty
which was signed by the other defendant WPIC [Willex Plastic].

In its answer, Inter-Resin Industrial admitted this allegation although it claimed that it had already paid its
obligation in its entirety. On the other hand, Willex Plastic, while denying the allegation in question, merely
did so "for lack of knowledge or information of the same." But, at the hearing of the case on September 16,
1986, when asked by the trial judge whether Willex Plastic had not filed a crossclaim against Inter-Resin
Industrial, Willex Plastic's counsel replied in the negative and manifested that "the plaintiff in this case
[Interbank] is the guarantor and my client [Willex Plastic] only signed as a guarantor to the guarantee." 2

For its part Interbank adduced evidence to show that the "Continuing Guaranty" had been made to
guarantee payment of amounts made by it to Manilabank and not of any sums given by it as loan to Inter-
Resin Industrial. Interbank's witness testified under cross examination by counsel for Willex Plastic that
Willex "guaranteed the exposure/of whatever exposure of ACP [Atrium Capital] will later be made because
of the guarantee to Manila Banking Corporation."3

It has been held that explanatory evidence may be received to show the circumstances under which a
document has been made and to what debt it relates. 4 At all events, Willex Plastic cannot now claim that its
liability is limited to any amount which Interbank, as creditor, might give directly to Inter-Resin Industrial as
debtor because, by failing to object to the parol evidence presented, Willex Plastic waived the protection of
the parol evidence rule.5

Accordingly, the trial court found that it was "to secure the guarantee made by plaintiff of the credit
accommodation granted to defendant IRIC [Inter-Resin Industrial] by Manilabank, [that] the plaintiff required
defendant IRIC to execute a chattel mortgage in its favor and a Continuing Guaranty which was signed by
the defendant Willex Plastic Industries Corporation." 6

Similarly, the Court of Appeals found it to be an undisputed fact that "to secure the guarantee undertaken
by plaintiff-appellee [Interbank] of the credit accommodation granted to Inter-Resin Industrial by
Manilabank, plaintiff-appellee required defendant-appellants to sign a Continuing Guaranty." These factual
findings of the trial court and of the Court of Appeals are binding on us not only because of the rule that on
appeal to the Supreme Court such findings are entitled to great weight and respect but also because our
own examination of the record of the trial court confirms these findings of the two courts. 7

Nor does the record show any other transaction under which Inter-Resin Industrial may have obtained
sums of money from Interbank. It can reasonably be assumed that Inter-Resin Industrial and Willex Plastic
intended to indemnify Interbank for amounts which it may have paid Manilabank on behalf of Inter-Resin
Industrial.

Indeed, in its Petition for Review in this Court, Willex Plastic admitted that it was "to secure the aforesaid
guarantee, that INTERBANK required principal debtor IRIC [Inter-Resin Industrial] to execute a chattel
mortgage in its favor, and so a "Continuing Guaranty" was executed on April 2, 1979 by WILLEX PLASTIC
INDUSTRIES CORPORATION (WILLEX for brevity) in favor of INTERBANK for and in consideration of the
loan obtained by IRIC [Inter-Resin Industrial]."

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

Put in another way the consideration necessary to support a surety obligation need not pass directly to the
surety, a consideration moving to the principal alone being sufficient. For a "guarantor or surety is bound by
the same consideration that makes the contract effective between the principal parties thereto. It is never
necessary that a guarantor or surety should receive any part or benefit, if such there be, accruing to his
principal."9 In an analogous case, 10 this Court held:

At the time the loan of P100,000.00 was obtained from petitioner by Daicor, for the purpose
of having an additional capital for buying and selling coco-shell charcoal and importation of
activated carbon, the comprehensive surety agreement was admittedly in full force and
effect. The loan was, therefore, covered by the said agreement, and private respondent,
even if he did not sign the promissory note, is liable by virtue of the surety agreement. The
only condition that would make him liable thereunder is that the Borrower "is or may
become liable as maker, endorser, acceptor or otherwise." There is no doubt that Daicor is
liable on the promissory note evidencing the indebtedness.
 The surety agreement which was earlier signed by Enrique Go, Sr. and private respondent,
is an accessory obligation, it being dependent upon a principal one which, in this case is the
loan obtained by Daicor as evidenced by a promissory note.

[3] Willex Plastic contends that the "Continuing Guaranty" cannot be retroactivelt applied so as to secure
payments made by Interbank under the two "Continuing Surety Agreements." Willex Plastic invokes the
ruling in El Vencedor v. Canlas 11 and Diño v. Court of Appeals 12 in support of its contention that a contract
of suretyship or guaranty should be applied prospectively.

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

On the other hand, in Diño v. Court of Appeals the issue was whether the sureties could be held liable for
an obligation contracted after the execution of the continuing surety agreement. It was held that by its very
nature a continuing suretyship contemplates a future course of dealing. "It is prospective in its operation
and is generally intended to provide security with respect to future transactions." By no means, however,
was it meant in that case that in all instances a contrast of guaranty or suretyship should be prospective in
application.

Indeed, as we also held in Bank of the Philippine Islands v. Foerster, 13 although a contract of suretyship is
ordinarily not to be construed as retrospective, in the end the intention of the parties as revealed by the
evidence is controlling. What was said there 14 applies mutatis mutandis to the case at bar:

In our opinion, the appealed judgment is erroneous. It is very true that bonds or other
contracts of suretyship are ordinarily not to be construed as retrospective, but that rule must
yield to the intention of the contracting parties as revealed by the evidence, and does not
interfere with the use of the ordinary tests and canons of interpretation which apply in
regard to other contracts.

In the present case the circumstances so clearly indicate that the bond given by Echevarria
was intended to cover all of the indebtedness of the Arrocera upon its current account with
the plaintiff Bank that we cannot possibly adopt the view of the court below in regard to the
effect of the bond.

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

Art. 2059. This excussion shall not take place:

(1) If the guarantor has expressly renounced it;

(2) If he has bound himself solidarily with the debtor;

The pertinent portion of the "Continuing Guaranty" executed by Willex Plastic and Inter-Resin Industrial in
favor of IUCP (now Interbank) reads:

If default be made in the payment of the NOTE/s herein guaranteed you and/or your
principal/s may directly proceed against Me/Us without first proceeding against and
exhausting DEBTOR/s properties in the same manner as if all such liabilities constituted
My/Our direct and primary obligations. (emphasis supplied)

This stipulation embodies an express renunciation of the right of excussion. In addition, Willex Plastic
bound itself solidarily liable with Inter-Resin Industrial under the same agreement:

For and in consideration of the sums obtained and/or to be obtained by INTER-RESIN

INDUSTRIAL CORPORATION, hereinafter referred to as the DEBTOR/S, from you and/or
your principal/s as may be evidenced by promissory note/s, checks, bills receivable/s and/or
other evidence/s of indebtedness (hereinafter referred to as the NOTE/S), I/We hereby
jointly and severally and unconditionally guarantee unto you and/or your principal/s,
successor/s and assigns the prompt and punctual payment at maturity of the NOTE/S
issued by the DEBTOR/S in your and/or your principal/s, successor/s and assigns favor to
the extent of the aggregate principal sum of FIVE MILLION PESOS (P5,000,000.00),
Philippine Currency, and such interests, charges and penalties as may hereinafter he
specified.
[5] Finally it is contended that Inter-Resin Industrial had already paid its indebtedness to Interbank and that
Willex Plastic should have been allowed by the Court of Appeals to adduce evidence to prove this. Suffice it
to say that Inter-Resin Industrial had been given generous opportunity to present its evidence but it failed to
make use of the same. On the otherhand, Willex Plastic rested its case without presenting evidence.

The reception of evidence of Inter-Resin Industrial was set on January 29, 1987, but because of its failure
to appear on that date, the hearing was reset on March 12, 26 and April 2, 1987.

On March 12, 1987 Inter-Resin Industrial again failed to appear. Upon motion of Willex Plastic, the hearings
on March 12 and 26, 1987 were cancelled and "reset for the last time" on April 2 and 30, 1987.

On April 2, 1987, Inter-Resin Industrial again failed to appear. Accordingly the trial court issued the
following order:

Considering that, as shown by the records, the Court had exerted every earnest effort to
cause the service of notice or subpoena on the defendant Inter-Resin Industrial but to no
avail, even with the assistance of the defendant Willex the defendant Inter-Resin Industrial
is hereby deemed to have waived the right to present its evidence.

On the other hand, Willex Plastic announced it was resting its case without presenting any
evidence.

Upon motion of Inter-Resin Industrial, however, the trial court reconsidered its order and set the hearing
anew on July 23, 1987. But Inter-Resin Industrial again moved for the postponement of the hearing be
postponed to August 11, 1987. The hearing was, therefore, reset on September 8 and 22, 1987 but the
hearings were reset on October 13, 1987, this time upon motion of Interbank. To give Interbank time to
comment on a motion filed by Inter-Resin Industrial, the reception of evidence for Inter-Resin Industrial was
again reset on November 17, 26 and December 11, 1987. However, Inter-Resin Industrial again moved for
the postponement of the hearing. Accordingly the hearing was reset on November 26 and December 11,
1987, with warning that the hearings were intransferrable.

Again, the reception of evidence for Inter-Resin Industrial was reset on January 22, 1988 and February 5,
1988 upon motion of its counsel. As Inter-Resin Industrial still failed to present its evidence, it was declared
to have waived its evidence.

To give Inter-Resin Industrial a last opportunity to present its evidence, however, the hearing was
postponed to March 4, 1988. Again Inter-Resin Industrial's counsel did not appear. The trial court,
therefore, finally declared Inter-Resin Industrial to have waived the right to present its evidence. On the
other hand, Willex Plastic, as before, manifested that it was not presenting evidence and requested instead
for time to file a memorandum.

There is therefore no basis for the plea made by Willex Plastic that it be given the opportunity of showing
that Inter-Resin Industrial has already paid its obligation to Interbank.

WHEREFORE, the decision of the Court of Appeals is AFFIRMED, with costs against the petitioner.

SO ORDERED.

Regalado, Romero, Puno and Torres, Jr., JJ., concur.

 EN BANC

[G.R. No. 8147. October 26, 1914. ]

G. URRUTIA & CO., Plaintiff-Appellant, v. AMALIA MORENO and LEON REYES, sheriff of
Ambos Camarines, Defendants-Appellees.

Rafael de la Sierra, for Appellant.

Robert E. Manly, for appellee Amalia Moreno.

No appearance for the other appellee.

SYLLABUS

1. SUBROGATION; RIGHT OF SURETY TO REDEEM LAND SOLD ON EXECUTION. — Where

a judgment has been obtained jointly against a principal and his surety and real estate of the principal
has been sold under execution issued upon said judgment and the surety, in order to avoid the sale of
his own property, steps forward and pays the judgment, he does not thereby become entitled, under
section 464 of the Code of Civil Procedure, to redeem the lands of the principal sold under execution.

2. EXECUTION SALE; PERSONS ENTITLED TO REDEEM. — The only persons who are entitled
to redeem real estate sold under execution are the judgment debtor, or his successor in interest in the
whole or any part of the property, and a creditor having a lien by attachment, judgment, or mortgage on
the property sold or on some part thereof, subsequent to that under which the property was sold.

DECISION

MORELAND, J. :

This case comes before us upon an agreed statement of facts, as

follows:jgc:chanrobles.com.ph

"1. Mendezona & Co., a partnership, in liquidation, obtained a judgment on a bond in the
Court of First Instance of Manila in civil cause No. 3326 against Mariano Moreno, as principal,
and against Amalia Moreno, Camilo Moreno, and Rafael Serra, as sureties, for the sum of
P18,154.24, with interest at 6 per cent per annum from the 11th day February, 1905;
together with costs. Mendezona & Co. on the 2d day of July, 1908, by an instrument in
writing, sold and transferred said judgment to G. Urrutia & Co.

"2. On the 1st day of July, 1908, the sheriff sold under execution issued upon the judgment
described in the preceding paragraph one house belonging to Mariano Moreno, described in
the first paragraph of the complaint, to Mendezona & Co. for the sum of P2,500. At the same
time and under the same execution the sheriff sold seven parcels of land belonging to said
Mariano Moreno, described in the second paragraph of the complaint, to said Mendezona &
Co. for the various sums stated in the complaint, amounting in all to P2,710. Under the same
execution there were also sold other lands belonging to Mariano Moreno and to his sureties,
among them lands belonging to Amalia Moreno, those belonging to the latter selling for
P5,250.

"3. The clerk of the Court of First Instance of Manila on the 24th of June, 1908, issued an
execution upon a judgment in civil cause No. 4905 in an action entitled G. Urrutia & Co. v.
Mariano Moreno, said judgment being for the sum of P27,185.90, with interest from the 31st
of July, 1906, at 9 ½ per cent per annum. Said G. Urrutia & Co. presented said execution to
the registrar of real estate titles of the Province of Ambos Camarines on the 24th of July of
the same year, who entered in his daily registry of property at folio 483, entry No. 6411, the
following annotation:jgc:chanrobles.com.ph

"‘Don Antonio V. Herrero, agent and attorney for G. Urrutia & Co., presents at 4:30 of the
afternoon of this day an execution issued in cause No. 4905 in the Court of First Instance of
Manila begun by G. Urrutia & Co. as plaintiff against Mariano Moreno as defendant, a
judgment wherein [which] was entered by Judge Powell in favor of the plaintiff company; said
presentation of said execution being made for the purpose of making a levy upon all of the
real estate which according to the index of the registry of property belongs to said Mariano
Moreno, said company desiring at the same time to levy upon and attach the right of
redemption therein which said Mariano Moreno has according to section 464 of the Code of
Civil Procedure in each and every one of said parcels of land which appears in his name, it
appearing that all of said parcels are announced for public sale on the 27th of the present
month. Nueva Caceres, 24th of July, 1908. (Sgd.) Tomas Flordeliza. — Antonio V. Herrero.’

"The registrar made a preventive annotation of said execution in the books and pages
corresponding to the lands described in paragraphs 1 and 2 of the complaint.

"4. Doña Amalia Moreno, as surety of said Mariano Moreno, and subrogated to the rights of
Mendezona & Co. and its successors in interest, delivered to the defendant sheriff, Leon
Reyes, the sum for which the lands of Mariano Moreno described in the complaint had been
sold, together with interest at 1 per cent per month to the 16th of June and the 22d of July,
1909, and said sheriff executed to said Amalia Moreno two documents to the effect that the
said Amalia Moreno had redeemed the said lands as such surety and under said subrogation
within the legal period.

"5. No other creditor of Mariano Moreno, nor any other person, has redeemed the said lands
described in the complaint.

"6. G. Urrutia & Co., on its own behalf and as successors in interest to Mendezona & Co.,
refused to receive the sum delivered by Amalia Moreno to the sheriff for the redemption of
the lands of Mariano Moreno and refuses to recognize the validity of such redemption and
alleges that Amalia Moreno had and has no right to redeem nor to retain possession of the
said lands of Mariano Moreno, nor to be subrogated in the rights of Mendezona & Co. and its
successor in interest.

"7. Doña Amalia Moreno is now and has been since the month of July, 1909, in possession of
the lands described in the complaint, pretending that she is the owner of the same and
alleging that having been obliged to pay as surety of said Mariano Moreno the sum of
P5,796.66 for the satisfaction of the judgment against him, she was subrogated in all of the
rights which pertain to Mendezona & Co. or to its assigns with regard to the said lands to the
extent of the money paid by her.

"8. The amount paid by Amalia Moreno for the redemption of said lands described in the
complaint is in the hands of the defendant sheriff, Leah Reyes." cralaw virtua1aw library

Upon this statement the learned trial court held that Amalia Moreno was entitled under the
law to redeem the premises belonging to Mariano Moreno which were sold under the
judgment held by Mendezona & Co. This appeal is from that judgment.

The question presented for our determination is whether or not a surety against whom a
judgment has been obtained jointly with the principal can redeem the real estate belonging to
the principal which was sold by virtue of an execution issued upon said judgment, the surety
having been obliged to contribute to the payment thereof.

It does not appear from the record whether the judgment was fully satisfied by the sale of
the properties described in the stipulation of facts. Whether it was or not we do not consider
important, although the claim that it was not perhaps gave rise to the contention that the
case of Somes v. Molina (15 Phil. Rep., 133), is decisive of this case. Whether the judgment
was fully paid by the sale under execution does not affect in any way the right to redeem,
whereas in the Somes case it was the decisive question. In that case we held that
subrogation rests upon purely equitable grounds and will not be enforced against superior
equities; and that it ought not to be allowed to the plaintiff in that case because it would
work an injustice to the creditor. For the purpose of showing its inapplicability to the present
case, we incorporate a memorandum which, while not added as a part of the opinion in that
case, was before the court and was part of the reasoning by which the final decision was
reached.

"Subrogation ought not to be allowed to the plaintiff because it would work an injustice to the
creditor. The defendant Molina, in making Somes pay under the appeal bond, merely took
advantage of a right; which Somes gave him. Can Molina, in thus exercising that legal right,
be made to suffer in his relations with De la Riva? Can one be prejudiced for rightfully taking
what the law gives him? No act of Molina injured Somes. If the latter has suffered any loss it
is because of his own act in signing the bond in question. What Molina did was merely to take
advantage of a right which Somes had already given him and for the exercise of which Molina
had already paid a valuable and adequate consideration. The bond in question, so far as
Somes is concerned, is not without consideration; the consideration for the principal
indebtedness of De la Riva is the consideration also for the secondary obligation of Somes as
surety. Molina had a right, except for the intervention of the law of appeal, to take advantage
of judgment No. 3402, which he had secured against De la Riva, and proceed to collect it
forthwith. Every presumption was in favor of its validity and he had the undoubted right to
proceed at once to its collection, except for the code provisions relating to appeals. They
provide that when a judgment-debtor shall appeal from the judgment against him, the judge
of the court from which the appeal is taken may require him to give a bond, with sufficient
sureties, conditioned that, in case the judgment is affirmed by the appellate court, he will see
that it is paid. This bond is required by the judge when he believes it necessary for the
protection of the judgment-creditor. By this provision the judgment-creditor, by being obliged
to forbear collection of the judgment he has, is deprived of certain rights, and, in
compensation for and the protection of those rights, he is given a bond by the judgment-
debtor by which he shall be assured of the payment of his judgment should it be affirmed by
the appellate court. All this indicates clearly and necessarily that the law regards the
forbearance of the judgment-creditor as a valuable and adequate consideration for the
obligation of the judgment-debtor and the sureties incurred under the bond in question. If
this were not so, and, if the judgment-creditor were not, by his forbearance, giving a valuable
consideration, then the law would be giving him something for nothing, in that it would be
requiring his protection at the hands of the judgment-debtor and his sureties without the
judgment-creditor doing anything to warrant it. This the law never does. That forbearance to
prosecute a judgment to collection is a valuable and adequate consideration upon which to
found an obligation is recognized in the jurisprudence of every country, and the law, in
requiring a bond on appeal as a prerequisite to this forbearance, recognizes fully the valuable
and adequate character of such forbearance as a consideration for that bond.

"The result of all of this is that, when the bond is executed and the creditor is obliged to
forego the prosecution of his judgment, the transaction is closed; the creditor has paid his
consideration and, as a result thereof, the surety has, incurred his obligation. Now, to compel
the surety to fulfill that obligation does not require any new consideration on the part of the
judgment-creditor; nor does it place him under a new or additional obligation. The
consideration for what the surety does when he pays was given by the creditor when he
withheld the prosecution of his judgment, even though that was done by mandate of the law.
It ought to be evident that no new obligation is incurred by the creditor in requiring the
surety to do the very thing for which the original consideration was given by the creditor.
Therefore, if subrogation is allowed in this case and the surety is permitted to share with the
creditor in the debtor’s property pro rata, we are making the creditor pay again for the
privilege of collecting from the surety on an obligation the consideration of which had already
once been paid by the creditor. When the creditor withholds his rights to collect and awaits
the law’s delays, and the resulting risks, for an opportunity to prosecute the appeal from the
judgment which he has obtained in order that he may realize upon it, and incurs the
expenses incident thereto, is it then just to say to him that he must divide the benefits which
the law gives him for this waiting, this expense, and this risk, with the very man who has
caused it all? The weapon which the law gave the creditor for his own protection ought not
now to be placed in the hands of his enemies for use against him.

"When the creditor’s obligation against the debtor is fully paid, then the surety will have his
subrogation to the rights of the creditor in this judgment, and he may then take it and collect
it against the debtor whenever opportunity may offer.

"It is evident that if subrogation is allowed in this case the creditor will be injured. He has
already collected judgment No. 3402 from the plaintiff’s surety, Somes. This he had a right to
do because he had long before paid the consideration for the privilege of doing that very
thing. There remains of the judgment-debtor’s property not enough to pay the two remaining
judgments now held by the judgment-creditor against him. If now Somes is allowed to be
subrogated and share under judgment No. 3402 with the judgment-creditor in said property,
pro rata, it is evident that the creditor will be injured; for, the property of the debtor, which
ought to be divided between two judgments, will be divided among three. Bearing in mind
the fact that the creditor has already paid for the privilege of making Somes pay judgment
No. 3402, why should he pay again for that same privilege by permitting Somes to share in
property which rightfully belongs to him?"

This additional exposition of the Somes case shows that it is not authority in the case before
us. Here the question is one of redemption rather than one between the creditor and the
surety. The former right is granted by statute and its provisions define specifically and clearly
the persons who are entitled to exercise it. Section 464 of the Code of Civil Procedure
reads:jgc:chanrobles.com.ph

"Who may redeem. — Property sold subject to redemption, as provided in the last section, or
any part sold separately, may be redeemed in the manner hereinafter provided, by the
following persons, or their successors in interest: jgc:chanrobles.com.ph

"1. The judgment debtor, or his successor in interest in the whole or any part of the property;

"2. A creditor having a lien by attachment, judgment, or mortgage on the property sold, or
on some part thereof, subsequent to that on which the property was sold.

"Persons mentioned in the second subdivision of this section are termed

redemptioners."cralaw virtua1aw library

From these provisions it is clear that in order to be able to redeem, the defendant Amalia
Moreno must be either the judgment-debtor or his successor in interest or must hold a lien
by judgment or mortgage upon the premises to be redeemed, which lien is subsequent to the
lien of the judgment under which the property to be redeemed was sold. Passing without
comment the word "lien," as it has been defined by this court, we observe instantly when we
ask the question whether or not the defendant Amalia Moreno falls within the first class
entitled under the section to redeem, that she does not fall within that class unless her
contribution to the payment of the judgment against her principal is sufficient in law to
substitute her in the place of the judgment-debtor or to make her his successor in interest to
the extent of conferring upon her the right to redeem We are of the opinion that she does not
occupy the place of the judgment-debtor in this or any sense. The right of redemption is a
right belonging to the debtor and cannot be taken away from him without authorization of
law. If the surety upon payment of the judgment were to be substituted in his place and
allowed to redeem as such, the right of the judgment-debtor would be thereby destroyed or,
better said, would be exercised by another and he would be unable to exercise it thereafter
himself. The surety has no right directly to take the property of his principal whose debt he
has paid or assisted in paying unless he is expressly authorized to do so by law or has
pursued the courses necessary under the law to that end. Courts are not authorized,
generally speaking, to take rights from one person and give them to another without notice
to the person from whom they are taken and an opportunity to be heard. Not being the
judgment debtor or his successor in interest in short, not representing him in such a way as
to be able to exercise his right relative to the redemption, defendant’s claim under the first
class must fail.

We arrive at the same conclusion when we consider whether the defendant falls within the
second class. As a general proposition it is true that when a surety pays a. judgment which
has been obtained jointly against him and his principal, he is subrogated to the rights of the
creditor (not the debtor) in the judgment and may execute that judgment against his
principal in the same manner and with the same effect as the creditor could have executed it;
and it is a rule laid down by some courts that the judgment is kept alive and subsists as a lien
in favor of the surety paying it. This principle of subrogation, however, does not aid the
surety in this case. The judgment, to the rights in which she is subrogated, is the same
judgment that the creditor held. Its lien is the same as to time. The code, however, requires,
before the right of redemption can be exercised, that the person who exercises it must be the
owner of a judgment the lien of which is subsequent to the Judgment under which the sale of
the property to be redeemed was made. This is the particular provision which prevents the
defendant from exercising the right of redemption under the second class even though we
concede to her the benefits of the widest doctrine of subrogation. The language of the statute
is plain. It needs no interpretation or construction. Our duty, then, is simply to apply it.
Applying it, we exclude the defendant from the class known as redemptioners.

It is, therefore, adjudged that the defendant Amalia Moreno has no right to redeem the lands
belonging to Mariano Moreno sold under judgment obtained against him by Mendezona & Co.
and referred to in the stipulation of facts; and that the attempt to redeem and all of the acts
performed in relation thereto by said defendant are without force or effect against the
plaintiff. The judgment is reversed, without costs in this instance.

Nothing in this decision shall be understood as preventing Amalia Moreno from redeeming her
own lands that were sold under execution, provided she has not done so, and her right to do
so still subsists.

Arellano, C.J., Torres and Araullo, JJ., concur.

Johnson, J., concurs in the result.

Carson and Trent, JJ., dissent.

 Republic of the Philippines
SUPREME COURT
Manila

EN BANC

G.R. No. L-22108 August 30, 1967

GOVERNMENT OF THE REPUBLIC OF THE PHILIPPINES, represented by the BUREAU OF SUPPLY

COORDINATION plaintiff-appellee,
vs.
MARCELINO TIZON, ET AL., defendants.
CAPITAL INSURANCE and SURETY CO., INC., defendant-appellant.

Achacoso, Nera and Ocampo for defendant-appellant.

Office of the Solicitor General Arturo A. Alafriz, Assistant Solicitor General J.C. Borromeo and Solicitor N. P.
Eduardo for plaintiff-appellee.

ANGELES, J.:

Appeal from an order of the Court of First Instance of Manila, dated September 11, 1963, expunging from
the record of the case the answer of the Capital Insurance & Surety, Co., Inc. and remanding said record to
the City Court of Manila for execution against the Surety of the decision rendered by the latter court.

It appears that in a bidding conducted by the Bureau of Supply Coordination of the Department of General
Services, for the supply of "one (1) Baylift portable heavy-duty truck and auto lift, fully air operated, 500 lbs.
capacity, and two (2) Baylift Ramps, U.S. manufacture", Tizon engineering, of which Marcelino Tizon was
the sole owner and proprietor, won the bid, having offered the lowest bid of P4,000.00. To guarantee faithful
performance of the conditions of the bid, the Bureau of Supply Coordination required Tizon Engineering to
give a bond in the sum of P10,000.00. On September 12, 1958, the Surety issued its bond for the said
amount in favor of the Republic of the Philippines. Tizon Engineering failed to comply with the conditions of
the bid, failing as he did to deliver the equipment called for in the Buyer's order No. 42546 of the Bureau of
Supply, constraining the latter to purchase the equipment from Fema Trading, the second lowest bidder,
resulting in a loss of P2,975.00 to the Government. Notwithstanding demands made by the Bureau of
Supply on defendants Marcelino Tizon and the Surety to pay said amount, they failed and refused. Hence,
complaint was filed in the City Court of Manila by the Republic of the Philippines to recover the said sum
with legal interests, plus attorney's fees and costs.

Defendant Tizon averred in his answer that: (a) "the alleged bidding conducted by the Bureau of Supply is
in utter disregard and wanton violation of the Rules and Regulations of the said office"; (b) "that assuming
that a corresponding buyer's order was prepared, the same was not delivered to and duly received by him,
such that there has never been a binding contract between plaintiff and the answering defendant;
furthermore, the plaintiff deliberately failed to notify the answering defendant as to the acceptance of his
bid, thus again violating the Rules and Regulations mentioned above"; (c) that the bond-issued by the
Surety "answers only (for) those contracts legally entered into by the herein defendants with the Bureau of
Supply and certainly not those contracts and/or bids which are of doubtful legality, as in the present case."

The defendant Surety, in answer to the complaint, admitted having executed a bond in favor of the
Republic of the Philippines for the purpose as therein stated, but denied "that it failed and refused to pay
the demand (of the plaintiff), the truth of the matter being that its co-defendant, Marcelino Tizon, doing
business under the name of Tizon Engineering, has put it on notice not to settle the claim because he is not
in any way whatsoever liable to plaintiff." As cross-claim against defendant Tizon, the Surety asserted that if
it is made liable to the plaintiff on its bond, Marcelino Tizon should be ordered to make the corresponding
reimbursement, with interest of 12%, plus attorney's fees.

After trial, judgment was rendered in favor of the plaintiff and against the defendants, ordering the latter to
pay, jointly and severally, the sum of P2,972.00 with legal interests from November 12, 1960, and the costs
of suit. On the cross-claim of the Surety, defendant Tizon was ordered to reimburse the cross-plaintiff of
whatever amount the latter might have paid to the plaintiff, plus P100.00 as attorney's fees.

Only defendant Tizon appealed from the decision to the Court of First Instance of Manila.

Within fifteen days from receipt of notice from the clerk of the Court of First Instance of Manila, that the
case has been received and docketed in said court, the defendants, Tizon and the Surety, each filed
separate manifestations that they were reproducing their respective answers filed in the City Court.
On August 29, 1963, the plaintiff filed a motion praying "(a) To strike out the answer filed by the Surety
reproducing its answer filed in the City Court; (b) To remand the case to the City Court, as concerns the
Surety, for execution of the judgment rendered in said court."

The Surety opposed the motion on two grounds: (a) that although it did not appeal from the decision of the
inferior court, the appeal interposed by its co-defendant inured to its benefit, because the obligation sued
on "is so dependent on that of the principal debtor, that the Surety is considered in law as being the same
party in relation to whatever is adjudged, touching the obligation of its co-defendant"; and (b) the appeal of
its co-defendant, the principal debtor, "should be considered in law as to include the defendant Surety, in
view of the latter's cross-claim against the former." The opposition was over-ruled in the order appealed
from.

The issue at this instance is whether an appeal by one of the parties sentenced to pay solidarily a sum of
money, inures to the benefit of the other who did not appeal. The pronouncements in the case
of Municipality of Orion vs. Concha, 50 Phil. 682, provide ample guideposts in the resolution of the issue at
bar. In said case this Court held:

The judgment was joint and several, which means that they are severally liable. We have made a
careful examination of numerous authorities and believe that we are correct in saying that the effect
of the appeal by one judgment debtor upon the co-debtors depends upon the particular facts and
conditions in each case. The difference in the apparently conflicting opinions may be well illustrated
in this very case.

Suppose, for example, that F. B. Concha, the contractor, had appealed from the judgment of the
lower court upon the ground that he had either completed his contract within time or that the
municipality had suffered no damages whatever, and the Supreme Court had reversed the
judgment of the lower court on his appeal. Certainly that judgment would have the effect of relieving
the bondsmen from any liability whatever, for the reason that their liability was consequent upon the
liability of the contractor; and the court having declared that no liability for damages had resulted
from the execution of said contract, then certainly the bondsmen would have been relieved because
their liability depended upon the liability of the principal. That example gives us a clear case,
showing that the effect of the appeal of the one of the judgment debtors would necessarily have the
effect of releasing his co-judgment debtors.

xxx xxx xxx

As we have already said, whether an appeal by one of several judgment debtors will affect the
liability of those who did not appeal must depend upon the facts in each particular case. If the
judgment can only be sustained upon the liability of the one who appeals and the liability of the
other co-judgment debtors depends solely upon the question whether or not the appellant is liable,
and the judgment is revoked as to that appellant, then the result of his appeal will inure to the
benefit of all. . . .

The rule is quite general that a reversal as to parties appealing does not necessitate a reversal as
to parties not appealing, but that the judgment may be affirmed or left undisturbed as to them. An
exception to the rule exists, however, where a judgment cannot be reversed as to the party
appealing without affecting the rights of his co-debtor. (4 C.J. 1184)

A reversal of a judgment on appeal is binding on the parties to the suit, but does not inure to the
benefit of parties against whom judgment was rendered in the lower court who did not join in the
appeal, unless their rights and liabilities and those of the parties appealing are so interwoven and
dependent as to be inseparable, in which case a reversal as to one operates as a reversal as to
all. (4 C.J., 1206; Alling vs. Wenzel, 133 Ill., 264-278.)

In the case of Brashear vs. Carlin, Curator (19 La. 395) a judgment was rendered in the lower court
against the principal debtor and his surety to pay damages. The principal debtor alone appealed
and the judgment was reversed. When the question of the liability of the surety under the judgment
of the lower court was raised, the court said:

"It is obvious, that the judgment of the inferior court could not be reversed as to the principal
debtor in this case, and continue in force against the surety. The latter could not remain
bound, after the former had been released; although the surety had not joined in the appeal,
the judgment rendered in this court inured to his benefit. The obligation of a surety is so
dependent on that of the principal debtor, that he is considered in law as being the same
party as the debtor in relation to whatever is adjudged, touching the obligation of the latter;
provided it be not on grounds personal to such principal debtor; it is for this reason, that a
judgment in favor of the principal debtor can be invoked as res judicata by the surety."
In the case of Schoenberger vs. White (75 Con. 605) a joint judgment was rendered against husband and
wife for a sum of money in an action ex contractu. The wife appealed. As to the effect of the appeal of the
wife upon the liability of both, the court said:

"Such a judgment is an entirety, and upon appeal to this court must be affirmed or set aside in toto."

"That the husband was not so made a party does not vary this rule. After the filing of the notice of
appeal, he had the right to be heard in this court as to all the questions brought up for review. As he
has not exercised this right, it may be assumed that he is content with the judgment against him as
it stands; but he might complain of it, were we to modify it by reducing the amount which it requires
his wife to pay, and thus reducing the amount of the contribution which he might be able to call
upon her to make, in case he paid all that it requires of him."

In the case of Philippines International Surety Co., Inc. vs. Commissioner of Customs, L-22790, December
17, 1966, this Court, speaking through Chief Justice Concepcion, sanctioned the view, albeit impliedly, that
under a given set of facts, the appeal of the principal debtor, if successful, may inure to the benefit of the
surety. Held this Court in that case:

Although the appeal taken from said decision by the importer (principal debtor) might have,
perhaps, inured to the benefit of the surety, if, the result of that appeal had been favorable to said
importer, the fact is he had failed in his appeal.
1äwphï1.ñët

Solution of the question posed in this appeal hinges on the nature of the obligation assumed by the Surety
under its bond. As Article 1222 of the new Civil Code provides:

A solidary debtor may, in actions filed by the creditor, avail himself of all defenses which are derived
from the nature of the obligation and of those which are personal to him, or pertain to his own
share. With respect to those which personally belong to the others, he may avail himself thereof
only as regards that part of the debt for which the latter are responsible.

Pertinent parts of the surety bond provides:

That we, Tizon Engineering, as principal, and the Capital Insurance & Surety Co., Inc., as
surety, . . . are held and firmly bound unto the Republic of the Philippines, in the penal sum of
P10,000.00, for the payment of which sum, well and truly to be made, we bind ourselves, Jointly
and Severally, by these presents.

Whereas, the principal agrees to comply with all the terms and conditions of the proposal with the
Bureau of Supply;

NOW THEREFORE, the conditions of this obligations are such that if the above bounden principal
shall, in case he becomes the successful bidder in any of the proposal of the Bureau of Supply —
(a) accept a contract with the Republic of the Philippines, represented by the Bureau of Supply; (b)
faithfully and truly performs in good faith the contract; (c) to pay to the Republic of the Philippines,
in case of delay and/or default in the execution of the contract, any loss or damages which the latter
may suffer by reason thereof, not to exceed the sum of P10,000.00, Philippine currency, then this
obligation shall be void, otherwise it shall remain in full force and effect.

It thus appears that the Surety bound itself, jointly and severally, with the principal obligor to pay the
Republic of the Philippines any loss or damage the latter may suffer, not exceeding P10,000.00, "in case of
delay and/or default in the execution of the contract."

However, although the defendants bound themselves in solidum, the liability of the Surety under its bond
would arise only if its co-defendant, the principal obligor, should fail to comply with the contract. To
paraphrase the ruling in the case of Municipality of Orion vs. Concha, the liability of the Surety is
"consequent upon the liability" of Tizon, or "so dependent on that of the principal debtor" that the Surety "is
considered in law as being the same party as the debtor in relation to whatever is adjudged, touching the
obligation of the latter"; or the liabilities of the two defendants herein "are so interwoven and dependent as
to be inseparable." Changing the expression, if the defendants are held liable, their liability to pay the
plaintiff would be solidary, but the nature of the Surety's undertaking is such that it does not incur liability
unless and until the principal debtor is held liable.

True, it is that the Surety did not appeal the decision of the inferior court to the Court of First Instance, and
on account of its failure to appeal, it lost its personality to appear in the latter court or to file an answer
therein. However this may be, it is not certain at this stage of the proceeding that the Surety's liability unto
plaintiff has attached. The principal debtor has asserted on appeal that it has no liability whatsoever to the
plaintiff, and, if this assertion be proven and sustained, the reversal of the judgment of the inferior court
would operate as a reversal on the Surety, even though it did not appeal, in view of the dependency of its
obligation upon the liability of the principal debtor. The principal debtor might succeed in his appeal; in such
eventuality, the judgment of the inferior court could not continue in force against the Surety. Consequently,
it is premature at this juncture to execute said judgment against the Surety.

The situation of the Surety may be likened to that of a defaulting defendant whose right is protected under
Section 4, Rule 18 of the Rules of Court as follows:

Judgment When Some Defendants Answer and Others make Default.—When a complaint states a
common cause of action against several defendants, some of whom answer, and the others fail to
do so, the court shall try the case against all upon the answer thus filed and render judgment upon
the evidence presented. The same procedure applies when a common cause of action is pleaded
in a counterclaim, cross-claim and third-party claim.

Albeit it may not personally be allowed to file an answer in the Court of First Instance, having failed to
interpose an appeal, the Surety can rely on the answer of its co-defendant and derive benefit therefrom if
the judgment on appeal should turn out to be favorable to the answering defendant (Castro vs. Peña, 80
Phil. 488, 502).

The decision in Ishar Singh vs. Liberty Insurance Corp. and Leonardo Anne, et al., (third-party defendants
in the third-party complaint of Liberty Insurance Corp.), L-16860, July 31, 1963, relied upon by the appellee,
is not applicable to the facts of the case at bar. In said case, Liberty Insurance Corp. was the only
defendant and the decision was against said defendant alone. The third party defendants were impleaded
as such upon the third party complaint filed against them by the Liberty Insurance Corp. And as stated in
the decision in said case, "the record does not disclose whether the third-party defendants filed an answer
to the third-party complaint or not." Moreover, the liability of the third-party defendants to the third-party
plaintiff stemmed from the indemnity agreement executed by them in favor of the Liberty Insurance Corp.,
and the third-party defendants did not have privity of contract with the creditor Ishar Singh.

Upon the foregoing considerations, that portion of the appealed order remanding the record of the case to
the City Court of Manila for execution of the decision of said court is hereby set aside, without costs.

Reyes, J.B.L., Dizon, Makalintal, Bengzon, J.P., Zaldivar, Sanchez, Castro and Fernando, JJ., concur.
Concepcion, C.J., is on leave.
 Republic of the Philippines
SUPREME COURT
Manila

SECOND DIVISION

G.R. No. L-45848 November 9,1977

TOWERS ASSURANCE CORPORATION, petitioner,

vs.
ORORAMA SUPERMART, ITS OWNER-PROPRIETOR, SEE HONG and JUDGE BENJAMIN K.
GOROSPE, Presiding Judge, Court of First Instance of Misamis Oriental, Branch I, respondents.

Benjamin Tabique & Zosimo T. Vasalla for petitioner.

Rodrigo F. Lim, Jr. for private respondent.

AQUINO, J.:

This case is about the liability of a surety in a counterbond for the lifting of a writ of preliminary attachment.

On February 17, 1976 See Hong, the proprietor of Ororama Supermart in Cagayan de Oro City, sued the
spouses Ernesto Ong and Conching Ong in the Court of First Instance of Misamis Oriental for the collection
of the sum of P 58,400 plus litigation expenses and attorney's fees (Civil Case No. 4930).

See Hong asked for a writ of preliminary attachment. On March 5, 1976, the lower court issued an order of
attachment. The deputy sheriff attached the properties of the Ong spouses in Valencia, Bukidnon and in
Cagayan de Oro City.

To lift the attachment, the Ong spouses filed on March 11, 1976 a counterbond in 'the amount of P 58,400
with Towers Assurance Corporation as surety. In that undertaking, the Ong spouses and Towers Assurance
Corporation bound themselves to pay solidarity to See Hong the sum of P 58,400.

On March 24, 1976 the Ong spouses filed an answer with a counterclaim. For non-appearance at the pre-
trial, the Ong spouses were declared in default.

On October 25, 1976, the lower court rendered a decision, ordering not only the Ong spouses but also their
surety, Towers Assurance Corporation, to pay solidarily to See Hong the sum of P 58,400. The court also
ordered the Ong spouses to pay P 10,000 as litigation expenses and attorney's fees.

Ernesto Ong manifested that he did not want to appeal. On March 8, 1977, Ororama Supermart filed a
motion for execution. The lower court granted that motion. The writ of execution was issued on March 14
against the judgment debtors and their surety. On March 29, 1977, Towers Assurance Corporation filed the
instant petition for certiorari where it assails the decision and writ of execution.

We hold that the lower court acted with grave abuse of discretion in issuing a writ of execution against the
surety without first giving it an opportunity to be heard as required in Rule 57 of tie Rules of Court which
provides:

SEC. 17. When execution returned unsatisfied, recovery had upon bound. — If the
execution be returned unsatisfied in whole or in part, the surety or sureties on any
counterbound given pursuant to the provisions of this rule to secure the payment of the
judgment shall become charged on such counterbound, and bound to pay to the judgment
creditor upon demand, the amount due under the judgment, which amount may be
recovered from such surety or sureties after notice and summary hearing in the same
action.

Under section 17, in order that the judgment creditor might recover from the surety on the counterbond, it is
necessary (1) that execution be first issued against the principal debtor and that such execution was
returned unsatisfied in whole or in part; (2) that the creditor made a demand upon the surety for the
satisfaction of the judgment, and (3) that the surety be given notice and a summary hearing in the same
action as to his liability for the judgment under his counterbond.

The first requisite mentioned above is not applicable to this case because Towers Assurance Corporation
assumed a solidary liability for the satisfaction of the judgment. A surety is not entitled to the exhaustion of
the properties of the principal debtor (Art. 2959, Civil Code; Luzon Steel Corporation vs. Sia, L-26449, May
15, 1969, 28 SCRA 58, 63).
But certainly, the surety is entitled to be heard before an execution can be issued against him since he is
not a party in the case involving his principal. Notice and hearing constitute the essence of procedural due
process. (Martinez vs. Villacete 116 Phil. 326; Insurance & Surety Co., Inc. vs. Hon. Piccio, 105 Phil. 1192,
1200, Luzon Surety Co., Inc. vs. Beson, L-26865-66, January 30. 1970. 31 SCRA 313).

WHEREFORE, the order and writ of execution, insofar as they concern Towers Corporation, are set aside.
The lower court is directed to conduct a summary hearing on the surety's liability on its counterbound. No
costs.

SO ORDERED.

Fernando (Chairman), Barredo, Antonio, Concepcion, Jr. and Santos, JJ., concur.
 Republic of the Philippines
SUPREME COURT
Manila

EN BANC

G.R. No. L-10749 April 25, 1958

BRIGIDO R. VALENCIA, petitioner,

vs.
REHABILITATION FINANCE CORPORATION and COURT OF APPEALS, respondents.

Eligio G. Lagman for petitioner.

Jesus A. Avancena for respondent.

CONCEPCION, J.:

Petitioner Brigido R. Valencia seeks a review, by certiorari, of a decision of the Court of Appeals, reversing
that of the Court of First Instance of Manila, and sentencing him to pay respondent Rehabilitation Finance
Corporation sum of P6,200, by way of actual damages, with legal interest thereon, from the date of the
institution of this case, apart from the sum of P1,000 as attorneys fees, and absolving respondent from the
counterclaim of said petitioner, with costs against the latter.

It appears that, prior to May 15, 1952, respondent issued and advertised to the general public an "invitation
to bid" for the construction of a reinforced concrete building at Claveria Street, City of Davao. For the
guidance of, and compliance by, the parties concerned, said invitation to bid was supplemented with
"General Specifications," "Instructions to Bidders" and "Index of General Conditions." In response to the
invitation, petitioner submitted a bid, dated May 15, 1952, pertinent parts of which read:

In accordance with your advertisement inviting proposals for the Construction of the Office Building
owned by REHABILITATION FINANCE CORPORATION, to be erected at Claveria Street, Davao
City, and subject to all conditions and requirements thereof, and of your Plans and Specifications,
with all their agenda, which so far as they relate to this proposal, are made a part thereof, we (or I)
propose to furnish, deliver, and place and complete any and all necessary work as called for by the
said Plans and Specifications, we (or I) will furnish all necessary plant, tools, appliances, and labor,
and complete the work at our (or My) own expenses, at the following prices in Philippine currency:

ITEM I:

Stipulated sum proposal for the complete construction of the Office Building as per Plans and
Specifications, including the following:

1. All electrical installations

2. All plumbing installations

Three Hundred Eighty Nine Thousand Nine Hundred Eighty Pesos

LUMP SUM ..................................................... P389,980.00

ITEM II:

Stipulated sum proposal for the complete construction of the Office Building Only as per Plans and
Specifications.

Three Hundred Fifty Eight Thousand Four Hundred Eighty Pesos

LUMP SUM ...................................................... P358,480.00

ITEM III:

ELECTRICAL INSTALLATIONS only.

Eighteen Thousand Nine Hundred pesos

LUMP SUM ...................................................... P18 900.00

ITEM IV:

PLUMBING INSTALLATIONS only.

Twelve Thousand Six Hundred Pesos.

LUMP SUM ....................................................... P12,000.00.

 xxx xxx xxx

We (or I) inclose herewith Bidders Bond, in the sum of Thirty Nine Thousand Pesos (P39,000.00)
which is to be returned if this proposal is rejected or retained if accepted as security until the
execution and delivery of a satisfactory bond in the sum of twenty per centum (20%) of the total
contract price for the full and faithful performance of the contract.

On or about June 9, 1952, respondent's Board of Governors passed a resolution awarding the contract for
the construction of the building to Sanchez & Antigua Engineering Co. for P292,000, that for the electrical
installations to Lorenzo Sarmiento, for P18,340, and that for the plumbing installations to petitioner
Valencia, for P12,800 By a letter dated June 16, 1952, which was received by petitioner on June 22, 1952,
the manager of the Davao branch of respondent advised petitioner of said award, and of the fact that the
corresponding contract documents were being prepared in Manila and that he (petitioner) would be notified
upon receipt thereof. This notice was given to petitioner through a letter of said Davao Manager, dated July
28, 1952, in which petitioner was, also, requested to call at the office of the writer for the purpose of affixing
his (petitioner's) signature on the aforesaid contract and to post the performance bond for 20% of the
contract price of P12,800. Petitioner replied on August 28, 1952, expressing his "thanks and appreciation"
for the award, and stating that it would be to the advantage of respondent to award the contract for the
plumbing installations to the contractor of the main building, because the presence of petitioner's men in
the building might give said contractor an excuse to seek extension of time; because synchronization of the
work, to prevent possible delay, would not be promoted by awarding the different parts of the building to
different con-tractors; and because plumbing installations particularly should go hand in hand with the
progress of the work of construction of the building, so that its contractor may have no valid ground to ask
extension of time. In view of petitioner's failure to sign the aforementioned contract for the plumbing
installations, respondent eventually awarded the same for P19,000 to the contractor for the construction of
the building. Soon thereafter, or on December 19, 1962, respondent brought this action in the Court of First
Instance of Manila against petitioner herein, to recover the sum of P6,200 representing the difference
between the amount of the contract awarded to him and the price at which the plumbing installations were
awarded to Sanchez and Antigua Engineering Co. — plus P1,000, as attorney's fees, and the costs.

In his answer, petitioner alleged that, upon being notified of the award in his favor, he "prepared all the
necessary equipments, materials and plumbers to do and perform the plumbing installations" in
respondent's building, but, without his knowledge and consent, respondent "entered into a contract with
Sanchez and Antigua Engineering Co. for the same plumbing installations which was previously awarded"
to petitioner, for which reason he set up a counterclaim of P5,000, for compensatory damages, plus
P10,000, for moral damages, and P1,000 for attorney's fees.

In due course, the Court of First Instance of Manila rendered judgment, absolving petitioner from the
complaint, with costs against the respondent, and sentencing the latter to pay petitioner the sum of P1,000,
as "liquidated attorney's fees." On appeal, this decision was re-versed by the Court of Appeals, which
rendered judgment for respondent, as above stated. Hence, this petition for review by petitioner herein,
who maintains in his brief, that:

1. La Corte de Apelacioines erro al declarar que exists un contrato valido y obligatorio entre
Rehabilitation Finance Corporation y Brigido R. Valencia respecto a la instalacion de canerias
(plumbing) en el edificio de aquella en la ciudad de Davao.

2. Erro tambien la Corte de Apelaciones al no considerar como contra oferta la resolucion de la

junta de governadores de la Re-habilitation Finance Corporation al adjudicar a Valencia solamente
los trabajos de instalacion de canerias (P12,600.00), en lugar de aceptar o rechazar toda la oferta
de P389,980.00.

3. Erro asimismo al declarar que la fianza del postor Brigido R. Valencia debe considerarse eficaz
no obstante que en la misma se hace constar claramente que caducaba el 15 de junio de 1952.

4. Erro asimismo la Corte de Apelaciones al no declarar que la aceptacion parcial de la

Rehabilitation Finance Corporation se ha heche despues de caducada la oferta de Valencia, y por
tanto no es valida.

5. Erro finalinente la Corte de Apelaciones al revocar la decisiondel juzgado de primers instancia de

Manila y condenar a Brigido R. Valencia al pago de P6,200.00 como daños y perjuicios, mas
P1,000.00 como honoraries de abogado, y las costas.

The arguments adduced by petitioner, in support of these assignments of error, may be summed up as
follows:
1. His offer was for the construction of respondent's building in Davao, with its electrical and plumbing
installations, whereas respondent awarded to him the con-tract for the plumbing installations only. This
award substantially modified, therefore, the terms of his offer, so that a meeting of minds did not take place,
inasmuch as such modification was not accepted by petitioner herein.

2. Petitioner's offer was good until June 15, 1952 only, because it was accompanied by a bond that expired
on such date. The award in his favor came to his knowledge on June 22, 1952, when he received the letter
of respondent's representative, dated June 16, 1952, giving notice of the award. Having been effected after
the expiration of petitioner's offer, said notice of its acceptance did not perfect a contract between the
parties herein.

3. Said acceptance by respondent was made subject to a condition, namely, the giving of a performance
bond for twenty per centum (20%) of the amount of petitioner's offer. Inasmuch as this condition was not
fulfilled, no contract could, or did, exist between the parties.

With respect to the first argument, it is worthy of notice that the proposal submitted by petitioner consisted
of several items, among which are: (a) one for P389,980, for the "complete construction of the office
building" in question, "including (1) all electrical installations; and (2) all plumbing installations"; (b) another
for P358,480, for the "complete construction of the office building only", excluding, therefore, the electrical
and plumbing installations; (e) a third one for P18,900, for the "electrical installations only", excluding,
therefore, the building and its plumbing installations; and (d) a fourth item for P12,600, for the "plumbing
installations only", excluding, therefore, the building and its electrical installations.

Each one of these items was complete in itself , and, as such, it was distinct, separate and independent
from the other items. The award in favor of petitioner herein, implied, therefore, neither a modification of his
offer nor a partial acceptance thereof. It was an unqualified acceptance of the fourth item of his bid, which
item constituted a complete offer or proposal on the part of petitioner herein. The effect of said acceptance
was to perfect a contract, upon notice of the award to petitioner herein.

Incidentally, said items in petitioner's bid were due, evidently, to the terms of respondent's "instruction to
bidders," paragraph 5 of which reads:

Where bids are not qualified by specific limitations, the Rehabilitation Finance Corporation reserves
the right of awarding all or any of the items according to its best interest.

Indeed, petitioner's bid stated that it was submitted "in accordance with" respondent's " advertisement
inviting proposals for the construction" in question "and subject to all conditions and requirements thereof ,"
one of which is said paragraph 5 just quoted.

As regards the second argument, petitioner's bid did not specify its duration. It enclosed therewith a bond
for ten per centum (10%) of the amount of said bid, in compliance with paragraph 10 of the instruction to
bidders. Although the bond itself stated that it expired on June 15, 1952, this does not mean that
the bid lapsed on the same date. The bond merely guaranteed the performance of a principal obligation of
petitioner herein. Needless say, this principal obligation may stand without said bond, which is
merely accessory thereto, although the latter cannot exist without the former. Moreover, the bond was given
for the benefit, not of petitioner, but of respondent, so that the latter could legally waive said benefit.

Petitioner's brief (p. 4) says that he understood or believed that upon expiration of said bond, on June 15,
1952, his bid, likewise, lapsed. This allegation is refuted by petitioner's conduct. Upon receipt of notice of
the award in his favor, petitioner did not object thereto upon any ground whatsoever. He did not even say
that his offer had expired already or had been modified. On the contrary, he replied expressing his "thanks
and appreciation" for the award, although he stated, also, that it would be "to the advantage" of respondent
to award the plumbing installations "to the contractor of the main building." What is more, in his answer to
respondent's complaint, petitioner alleged, by way of special defense, that upon notice of the award in his
favor, he "prepared all the necessary equipments, materials and plumbers to do and perform the plumbing
installations" in question. For this reason, he alleged, also, in his answer, that he "should be the one
entitled to damages" inasmuch as respondent "awarded to Sanchez and Antigua Engineering Co. . . . the
contract for plumbing installations . . . without prior notice" to petitioner "who is the first awardee, and set up
a counterclaim for damages thus allegedly caused to him. These acts of petitioner herein show, beyond
doubt, that, upon receipt of notice of the award on June 22, 1952, he knew that the contract between him
and respondent had become perfected, and that he must have felt, accordingly, that his bid was still good
at that time.

Referring now to the third argument, paragraph 10 of the aforementioned instruction to bidders, imposed
upon them the obligation to execute the corresponding documents "within five (5) days after notice of the
acceptance of his bid." Paragraph 15 of said instruction to bidders, further provided:
 The contract shall be made and executed in quadruplicate and shall be accompanied by a bond or
bonds given by the contractor with two or more good and sufficient sureties or with a surety
company, satisfactory to the Manager, Industrial Department, RFC in a penal sum equal to twenty
(20) per cent of the full contract price of the work, conditioned for the faithful performance of the
contract according to its tenor and effect and the satisfaction of obligation for materials used and
labor employed upon the same.

The obligation to give the performance bond mentioned in this paragraph, as well as to execute the
instrument incorporating the construction contract, within five (5) days from notice of acceptance of the bid,
as stated in paragraph 10 of the instruction to bidders, were accepted by petitioner herein, for he submitted
his bid "subject to all conditions and requirements" of respondent's invitation for bids. Hence, his
(petitioner's) bid explicitly says:

We (or I) make this proposal with a full knowledge of the kind, quantity, and quality of the articles
and services required and said proposal is accepted will, after receiving written notice of such
acceptance, enter into contract within five (5) days, with good and sufficient securities for the faithful
performance thereof.

Accordingly, respondent's communication of June 16, 1952, advised petitioners that the contract for
plumbing installations was awarded to him for P12,800 "with performance bond of 20% thereof." Again, the
letter of respondent's manager in Davao, dated July 28, 1952, in-formed petitioner that the contract for the
plumbing installations had been received from the head office and asked him to call at the writer's office for
the purpose of affixing his signature on said contract, and requested him to post said performance bond.
Petitioner's failure to do so did not relieve him of the obligation arising from the un-qualified acceptance of
his offer. Much less did it affect the existence of a contract between him and respondent.

Petitioner insists that the giving of a performance bond was a condition precedent. But such condition
presupposes the existence of a contract, which is qualified thereby. Compliance with said condition is
essential to the existence of petitioner's right to undertake the plumbing installations and collect the price
thereof. But, he had a contractual right to give the performance bond, in the sense that respondent had
granted him by agreement the right to post said bond, and, once this had been done, he could invoke and
enforce his other rights by virtue of the award in his favor. At the same time, respondent had a contractual
right to demand the posting of the performance bond, and, upon failure of petitioner to do so, respondent
had a similar right to refuse to allow petitioner to under-take the plumbing installations and to demand
damages for breach of petitioner's obligations. In either case, the existence of the contractual relation
between the parties did not depend upon the posting the performance bond. Although, the latter was
essential to the birth of some of the rights stipulated in favor of petitioner herein, those of respondent
were not conditioned upon the giving of said performance bond.

Being in accordance with the facts and the law, the decision of the Court of Appeals is hereby affirmed,
therefore, with costs against petitioner Brigido R. Valencia. It is so ordered.

Paras, C.J., Montemayor, Reyes, A., Bautista Angelo, Labrador, Reyes, J.B.L., Endencia and Felix, JJ.,
concur.