(1)
(2) SECURITY BANK AND TRUST COMPANY, Inc.,petitioner, vs.RODOLFO
M. CUENCA,respondent.
[G.R. No. 138544.October 3, 2000]
D E C I S I O N
PANGANIBAN,J.:Being an onerous undertaking, a surety agreement
is strictly construed against the creditor, and every doubt is
resolved in favor of the solidary debtor.The fundamental rules of
fair play require the creditor to obtain the consent of the surety
to any material alteration in the principal loan agreement, or at
least to notify it thereof.Hence, petitioner bank cannot hold
herein respondent liable for loans obtained in excess of the amount
or beyond the period stipulated in the original agreement, absent
any clear stipulation showing that the latter waived his right to
be notified thereof, or to give consent thereto.This is especially
true where, as in this case, respondent was no longer the principal
officer or major stockholder of the corporate debtor at the time
the later obligations were incurred.He was thus no longer in a
position to compel the debtor to pay the creditor and had no more
reason to bind himself anew to the subsequent obligations.The
CaseThis is the main principle used in denying the present Petition
for Review under Rule 45 of the Rules of Court.Petitioner assails
the December 22, 1998 Decision[1]of the Court of Appeals (CA) in
CA-GR CV No. 56203, the dispositive portion of which reads as
follows:WHEREFORE, the judgment appealed from is hereby amended in
the sense that defendant-appellant Rodolfo M. Cuenca[herein
respondent] isRELEASEDfrom liability to pay any amount stated in
the judgment.Furthermore, [Respondent] Rodolfo M. Cuencas
counterclaim is herebyDISMISSEDfor lack of merit.In all other
respect[s], the decision appealed from isAFFIRMED.[2]Also
challenged is the April 14, 1999 CA Resolution,[3]which denied
petitioners Motion for Reconsideration.Modified by the CA was the
March 6, 1997 Decision[4]of the Regional Trial Court (RTC) of
Makati City (Branch 66) in Civil Case No. 93-1925, which disposed
as follows:WHEREFORE, judgment is hereby rendered ordering
defendants Sta. Ines Melale Corporation and Rodolfo M. Cuenca to
pay, jointly and severally, plaintiff Security Bank & Trust
Company the sum ofP39,129,124.73 representing the balance of the
loan as of May 10, 1994 plus 12% interest per annum until fully
paid, and the sum ofP100,000.00 as attorneys fees and litigation
expenses and to pay the costs.SO ORDERED.The FactsThe facts are
narrated by the Court of Appeals as follows:[5]The antecedent
material and relevant facts are that defendant-appellant Sta. Ines
Melale (Sta. Ines) is a corporation engaged in logging
operations.It was a holder of a Timber License Agreement issued by
the Department of Environment and Natural Resources (DENR).On 10
November 1980, [Petitioner] Security Bank and Trust Co. granted
appellant Sta. Ines Melale Corporation [SIMC] a credit line in the
amount of [e]ight [m]llion [p]esos (P8,000,000.00) to assist the
latter in meeting the additional capitalization requirements of its
logging operations.The Credit Approval Memorandum expressly stated
that theP8M Credit Loan Facility shall be effective until 30
November 1981:JOINT CONDITIONS:1.Against Chattel Mortgage on
logging trucks and/or inventories (except logs) valued at 200% of
the lines plus JSS of Rodolfo M. Cuenca.2.Submission of an
appropriate Board Resolution authorizing the borrowings, indicating
therein the companys duly authorized
signatory/ies;3.Reasonable/compensating deposit balances in current
account shall be maintained at all times; in this connection, a
Makati account shall be opened prior to availment on lines;4.Lines
shall expire on November 30, 1981; and5.The bank reserves the right
to amend any of the aforementioned terms and conditions upon
written notice to the Borrower.(Emphasis supplied.)To secure the
payment of the amounts drawn by appellant SIMC from the
above-mentioned credit line, SIMC executed a Chattel Mortgage dated
23 December 1980 (Exhibit A) over some of its machinery and
equipment in favor of [Petitioner] SBTC.As additional security for
the payment of the loan, [Respondent] Rodolfo M. Cuenca executed an
Indemnity Agreement dated 17 December 1980 (Exhibit B) in favor of
[Petitioner] SBTC whereby he solidarily bound himself with SIMC as
follows:x x xx x xx x xRodolfo M. Cuencax x xhereby binds himself x
x xjointly and severallywith the client (SIMC) in favor of the bank
for the payment, upon demand and without the benefit of excussion
of whatever amount x x xthe client may be indebted to the bank x x
xby virtue of aforesaid credit accommodation(s)including the
substitutions, renewals, extensions, increases, amendments,
conversions and revivals of the aforesaid credit accommodation(s) x
x x .(Emphasis supplied).On 26 November 1981, four (4) days prior
to the expiration of the period of effectivity of theP8M-Credit
Loan Facility, appellant SIMC made a first drawdown from its credit
line with [Petitioner] SBTC in the amount of [s]ix [m]illion [o]ne
[h]undred [t]housand [p]esos (P6,100,000.00).To cover said
drawdown, SIMC duly executed promissory Note No. TD/TLS-3599-81 for
said amount (Exhibit C).Sometime in 1985, [Respondent] Cuenca
resigned as President and Chairman of the Board of Directors of
defendant-appellant Sta. Ines.Subsequently, the shareholdings of
[Respondent] Cuenca in defendant-appellant Sta. Ines were sold at a
public auction relative to Civil Case No. 18021 entitled Adolfo A.
Angala vs. Universal Holdings, Inc. and Rodolfo M. Cuenca.Said
shares were bought by Adolfo Angala who was the highest bidder
during the public auction.Subsequently, appellant SIMC repeatedly
availed of its credit line and obtained six (6) other loan[s] from
[Petitioner] SBTC in the aggregate amount of [s]ix [m]illion
[t]hree [h]undred [s]ixty-[n]ine [t]housand [n]ineteen and 50/100
[p]esos (P6,369,019.50).Accordingly, SIMC executed Promissory Notes
Nos. DLS/74/760/85, DLS/74773/85, DLS/74/78/85, DLS/74/760/85
DLS/74/12/86, and DLS/74/47/86 to cover the amounts of the
abovementioned additional loans against the credit line.Appellant
SIMC, however, encountered difficulty[6]in making the amortization
payments on its loans and requested [Petitioner] SBTC for a
complete restructuring of its indebtedness.SBTC accommodated
appellant SIMCs request and signified its approval in a letter
dated 18 February 1988 (Exhibit G) wherein SBTC and
defendant-appellant Sta. Ines, without notice to or the prior
consent of [Respondent] Cuenca, agreed to restructure the past due
obligations of defendant-appellant Sta. Ines.[Petitioner] Security
Bank agreed to extend to defendant-appellant Sta. Ines the
following loans:a. Term loan in the amount of [e]ight [m]illion
[e]ight [h]undred [t]housand [p]esos (P8,800,000.00), to be applied
to liquidate the principal portion of defendant-appellant Sta.
Ines[]total outstanding indebtedness to [Petitioner] Security Bank
(cf. P. 1 of Exhibit G, Expediente, at Vol. II, p. 336; Exhibit
5-B-Cuenca, Expediente, et Vol I, pp. 33 to 34) andb. Term loan in
the amount of [t]hree [m]illion [f]our [h]undred [t]housand [p]esos
(P3,400,000.00), to be applied to liquidate the past due interest
and penalty portion of the indebtedness of defendant-appellant Sta.
Ines to [Petitioner] Security Bank (cf. Exhibit G, Expediente, at
Vol. II, p. 336; Exhibit 5-B-Cuenca, Expediente, at Vol. II, p. 33
to 34).It should be pointed out that in restructuring
defendant-appellant Sta. Ines obligations to [Petitioner] Security
Bank, Promissory Note No. TD-TLS-3599-81 in the amount of [s]ix
[m]illion [o]ne [h]undred [t]housand [p]esos (P6,100,000.00), which
was the only loan incurred prior to the expiration of the
P8M-Credit Loan Facility on 30 November 1981 and the only one
covered by the Indemnity Agreement dated 19 December 1980 (Exhibit
3-Cuenca, Expediente, at Vol. II, p. 331), was not segregated from,
but was instead lumped together with, the other loans, i.e.,
Promissory Notes Nos. DLS/74/12/86, DLS/74/28/86 and DLS/74/47/86
(Exhibits D, E, and F, Expediente, at Vol. II, pp. 333 to 335)
obtained by defendant-appellant Sta. Ines which were not secured by
said Indemnity Agreement.Pursuant to the agreement to restructure
its past due obligations to [Petitioner] Security Bank,
defendant-appellant Sta. Ines thus executed the following
promissory notes, both dated 09 March 1988 in favor of [Petitioner]
Security Bank:PROMISSORY NOTE
NO.AMOUNTRL/74/596/88P8,800,000.00RL/74/597/88P3,400,000.00-------------------TOTALP12,200,000.00(Exhibits
H and I, Expediente, at Vol. II, pp. 338 to 343).To formalize their
agreement to restructure the loan obligations of
defendant-appellant Sta. Ines, [Petitioner] Security Bank and
defendant-appellant Sta. Ines executed a Loan Agreement dated 31
October 1989 (Exhibit 5-Cuenca, Expediente, at Vol. I, pp. 33 to
41).Section 1.01 of the said Loan Agreement dated 31 October 1989
provides:1.01 Amount - The Lender agrees to grant loan to the
Borrower in the aggregate amount of TWELVE MILLION TWO HUNDRED
THOUSAND PESOS (P12,200,000.00), Philippines [c]urrency (the
Loan).The loan shall be released in two (2) tranches
ofP8,800,000.00 for the first tranche (the First Loan)
andP3,400,000.00 for the second tranche (the Second Loan) to be
applied in the manner and for the purpose stipulated
hereinbelow.1.02. Purpose - The First Loan shall be applied
toliquidatethe principal portion of the Borrowers present total
outstanding indebtedness to the Lender (the indebtedness) while the
Second Loan shall be appliedto liquidatethe past due interest and
penalty portion of the Indebtedness. (Underscoring supplied.)(cf.
p. 1 of Exhibit 5-Cuenca, Expediente, at Vol. I, p. 33)From 08
April 1988 to 02 December 1988, defendant-appellant Sta. Ines made
further payments to [Petitioner] Security Bank in the amount of
[o]ne [m]illion [s]even [h]undred [f]ifty-[s]even [t]housand
[p]esos (P1,757,000.00) (Exhibits 8, 9-P-SIMC up to 9-GG-SIMC,
Expediente, at Vol. II, pp. 38, 70 to 165)Appellant SIMC defaulted
in the payment of its restructured loan obligations to [Petitioner]
SBTC despite demands made upon appellant SIMC and CUENCA, the last
of which were made through separate letters dated 5 June 1991
(Exhibit K) and 27 June 1991 (Exhibit L), respectively.Appellants
individually and collectively refused to pay the [Petitioner]
SBTC.Thus, SBTC filed a complaint for collection of sum of money on
14 June 1993, resulting after trial on the merits in a decision by
the court a quo, x x xfrom which [Respondent] Cuenca
appealed.Ruling of the Court of AppealsIn releasing Respondent
Cuenca from liability, the CA ruled that the 1989 Loan Agreement
had novated the 1980 credit accommodation earlier granted by the
bank to Sta. Ines.Accordingly, such novation extinguished the
Indemnity Agreement,by which Cuenca, who was then the Board
chairman and president of Sta. Ines, had bound himself solidarily
liable for the payment of the loans secured by that credit
accommodation.It noted that the 1989 Loan Agreement had been
executed without notice to, much less consent from, Cuenca who at
the time was no longer a stockholder of the corporation.The
appellate court also noted that the Credit Approval Memorandum had
specified that the credit accommodation was for a total amount ofP8
million, and that its expiry date was November 30, 1981.Hence, it
ruled that Cuenca was liable only for loans obtained prior to
November 30, 1981, and only for an amount not exceedingP8
million.It further held that the restructuring of Sta. Ines
obligation under the 1989 Loan Agreement was tantamount to a grant
of an extension of time to the debtor without the consent of the
surety.Under Article 2079 of the Civil Code, such extension
extinguished the surety.The CA also opined that the surety was
entitled to notice, in case the bank and Sta. Ines decided to
materially alter or modify the principal obligation after the
expiry date of the credit accommodation.Hence, this recourse to
this Court.[7]The IssuesIn its Memorandum, petitioner submits the
following for our consideration:[8]A.Whether or not the Honorable
Court of Appeals erred in releasing Respondent Cuenca from
liability as surety under the Indemnity Agreement for the payment
of the principal amount of twelve million two hundred thousand
pesos (P12,200,000.00) under Promissory Note No. RL/74/596/88 dated
9 March 1988 and Promissory Note No. RL/74/597/88 dated 9 March
1988, plus stipulated interests, penalties and other charges due
thereon;i. Whether or not the Honorable Court of Appeals erred in
ruling that Respondent Cuencas liability under the Indemnity
Agreement covered only availments on SIMCs credit line to the
extent of eight million pesos (P8,000,000.00) and made on or before
30 November 1981;ii. Whether or not the Honorable Court of Appeals
erred in ruling that the restructuring of SIMCs indebtedness under
theP8 million credit accommodation was tantamount to an extension
granted to SIMC without Respondent Cuencas consent, thus
extinguishing his liability under the Indemnity Agreement pursuant
to Article 2079 of the Civil Code;iii. Whether or not the Honorable
Court of appeals erred in ruling that the restructuring of SIMCs
indebtedness under theP8 million credit accommodation constituted a
novation of the principal obligation, thus extinguishing Respondent
Cuencas liability under the indemnity agreement;B. Whether or not
Respondent Cuencas liability under the Indemnity Agreement was
extinguished by the payments made by SIMC;C. Whether or not
petitioners Motion for Reconsideration was pro-forma;D. Whether or
not service of the Petition by registered mail sufficiently
complied with Section 11, Rule 13 of the 1997 Rules of Civil
Procedure.Distilling the foregoing, the Court will resolve the
followingissues: (a) whether the 1989 Loan Agreement novated the
original credit accommodation and Cuencas liability under the
Indemnity Agreement; and (b) whether Cuenca waived his right to be
notified of and to give consent to any substitution, renewal,
extension, increase, amendment, conversion or revival of the said
credit accommodation.As preliminary matters, the procedural
questions raised by respondent will also be addressed.The Courts
RulingThe Petition has no merit.
Preliminary Matters:Procedural QuestionsMotion for
Reconsideration Not Pro FormaRespondent contends that petitioners
Motion for Reconsideration of the CA Decision, in merely rehashing
the arguments already passed upon by the appellate court, was pro
forma; that as such, it did not toll the period for filing the
present Petition for Review.[9]Consequently,the Petition was filed
out of time.[10]We disagree.A motion for reconsideration is not pro
forma just because it reiterated the arguments earlier passed upon
and rejected by the appellate court.The Court has explained that a
movant may raise the same arguments, preciselyto convince the court
that its ruling was erroneous.[11]Moreover, there is no clear
showing of intent on the part of petitioner to delay the
proceedings.InMarikina Valley Development Corporation v.
Flojo,[12]the Court explained that a pro forma motion had no other
purpose than to gain time and to delay or impede the
proceedings.Hence, where the circumstances of a case do not show an
intent on the part of the movant merely to delay the proceedings,
our Court has refused to characterize the motion as simply pro
forma.It held:We note finally that because the doctrine relating to
pro forma motions for reconsideration impacts upon the reality and
substance of the statutory right of appeal, that doctrine should be
applied reasonably, rather than literally.The right to appeal,
where it exists, is an important and valuable right.Public policy
would be better served by according the appellate court an
effective opportunity to review the decision of the trial court on
the merits, rather than by aborting the right to appeal by a
literal application of the procedural rules relating to pro forma
motions for reconsideration.Service by Registered Mail Sufficiently
ExplainedSection 11, Rule 13 of the 1997 Rules of Court, provides
as follows:SEC. 11.Priorities in modes of service and
filing.--Whenever practicable, the service and filing of pleadings
and other papers shall be done personally.Except with respect to
papers emanating from the court, a resort to other modes must be
accompanied by a written explanation why the service or filing was
not done personally.A violation of this Rule may be cause to
consider the paper as not filed.Respondent maintains that the
present Petition for Review does not contain a sufficient written
explanation why it was served by registered mail.We do not think
so.The Court held inSolar Entertainment v. Ricafort[13]that the
aforecited rule was mandatory, and that only when personal service
or filing is not practicable may resort to other modes be had,
which must then be accompanied by a written explanation as to why
personal service or filing was not practicable to begin with.In
this case, the Petition does state that it was served on the
respective counsels of Sta. Ines and Cuenca by registered mail in
lieu of personal service due to limitations in time and
distance.[14]This explanation sufficiently shows that personal
service was not practicable.In any event, we find no adequate
reason to reject the contention of petitioner and thereby deprive
it of the opportunity to fully argue its cause.First Issue:Original
Obligation Extinguished by NovationAn obligation may be
extinguished by novation, pursuant to Article 1292 of the Civil
Code, which reads as follows:ART. 1292.In order that an obligation
may be extinguished by another which substitute the same, it is
imperative that it be so declared in unequivocal terms, or that the
old and the new obligations be on every point incompatible with
each other.Novation of a contract is never presumed.It has been
held that [i]n the absence of an express agreement, novation takes
place only when the old and the new obligations are incompatible on
every point.[15]Indeed, the following requisites must be
established: (1) there is a previous valid obligation; (2) the
parties concerned agree to a new contract; (3) the old contract is
extinguished; and (4) there is a valid new contract.[16]Petitioner
contends that there was no absolute incompatibility between the old
and the new obligations, and that the latter did not extinguish the
earlier one.It further argues that the 1989 Agreement did not
change the original loan in respect to the parties involved or the
obligations incurred.It adds that the terms of the 1989 Contract
were not more onerous.[17]Since the original credit accomodation
was not extinguished, it concludes that Cuenca is still liableunder
the Indemnity Agreement.We reject these contentions.Clearly, the
requisites of novation are present in this case.The 1989 Loan
Agreement extinguished the obligation[18]obtained under the 1980
credit accomodation.This is evident from its explicit provision to
liquidate the principal and the interest of the earlier
indebtedness, as the following shows:1.02.Purpose.The First Loan
shall be applied toliquidatethe principal portion of the Borrowers
present total outstanding Indebtedness to the Lender (the
Indebtedness) while the Second Loan shall be applied toliquidatethe
past due interest and penalty portion of the
Indebtedness.[19](Italics supplied.)The testimony of an
officer[20]of the bank that the proceeds of the 1989 Loan Agreement
were used to pay-off the original indebtedness serves to strengthen
this ruling.[21]Furthermore, several incompatibilities between the
1989 Agreement and the 1980 original obligation demonstrate that
the two cannot coexist.While the 1980 credit accommodation had
stipulated that the amount of loan was not to exceedP8
million,[22]the 1989 Agreement provided that the loan wasP12.2
million.The periods for payment were also different.Likewise, the
later contract contained conditions, positive covenants and
negative covenants not found in the earlier obligation.As an
example of a positive covenant, Sta. Ines undertook from time to
time and upon request by the Lender, [to] perform such further acts
and/or execute and deliver such additional documents and writings
as may be necessary or proper to effectively carry out the
provisions and purposes of this Loan Agreement.[23]Likewise, SIMC
agreed that it would not create any mortgage or encumbrance on any
asset owned or hereafter acquired, nor would it participate in any
merger or consolidation.[24]Since the 1989 Loan Agreement had
extinguished the original credit accommodation, the Indemnity
Agreement, an accessory obligation, was necessarily extinguished
also, pursuant to Article 1296 of the Civil Code, which
provides:ART. 1296.When the principal obligation is extinguished in
consequence of a novation, accessory obligations may subsist only
insofar as they may benefit third persons who did not give their
consent.Alleged ExtensionPetitioner insists that the 1989 Loan
Agreement was a mere renewal or extension of theP8 million original
accommodation; it was not a novation.[25]This argument must be
rejected.To begin with, the 1989 Loan Agreement expressly
stipulated that its purpose was to liquidate, not to renew or
extend, the outstanding indebtedness.Moreover, respondent did not
sign or consent to the 1989 Loan Agreement, which had allegedly
extended the originalP8 million credit facility.Hence, his
obligation as a surety should be deemed extinguished, pursuant to
Article 2079 of the Civil Code, which specifically states that [a]n
extension granted to the debtor by the creditor without the consent
of the guarantor extinguishes the guaranty. x x x.In an earlier
case,[26]the Court explained the rationale of this provision in
this wise:The theory behind Article 2079 is that an extension of
time given to the principal debtor by the creditor without the
suretys consent would deprive the surety of his right to pay the
creditor and to be immediately subrogated to the creditors remedies
against the principal debtor upon the maturity date.The surety is
said to be entitled to protect himself against the contingency of
the principal debtor or the indemnitors becoming insolvent during
the extended period.Binding Nature of the Credit Approval
MemorandumAs noted earlier, the appellate court relied on the
provisions of the Credit Approval Memorandum in holding that the
credit accommodation was only forP8 million, and that it was for a
period of one year ending on November 30, 1981.Petitioner objects
to the appellate courts reliance on that document, contending that
it was not a binding agreement because it was not signed by the
parties.It adds that it was merely for its internal use.We
disagree.It was petitioner itself which presented the said document
to prove the accommodation.Attached to the Complaint as Annex A was
a copy thereof evidencing the accommodation.[27]Moreover, in its
Petition before this Court, it alluded to the Credit Approval
Memorandum in this wise:4.1On 10 November 1980, Sta. Ines Melale
Corporation (SIMC) was granted by the Bank a credit line in the
aggregate amount of Eight Million Pesos (P8,000,000.00) to assist
SIMC in meeting the additional capitalization requirements for its
logging operations.For this purpose, the Bank issued a Credit
Approval Memorandum dated 10 November 1980.Clearly, respondent is
estopped from denying the terms and conditions of theP8 million
credit accommodation as contained in the very document it presented
to the courts.Indeed, it cannot take advantage of that document by
agreeing to be bound only by those portions that are favorable to
it, while denying those that are disadvantageous.Second
Issue:Alleged Waiver of ConsentPursuing another course, petitioner
contends that Respondent Cuencaimpliedly gave his consent to any
modification of the credit accommodation or otherwise waived his
right to be notified of, or to give consent to, the
same.[28]Respondents consent or waiver thereof is allegedly found
in the Indemnity Agreement, in which he held himself liable for the
credit accommodation including [its] substitutions,renewals,
extensions,increases, amendments, conversions and revival. It
explains that the novation of the original credit accommodation by
the 1989 Loan Agreement is merely itsrenewal,which connotes
cessation of an old contract and birth of another onex x x.[29]At
the outset, we should emphasize that an essential alteration in the
terms of the Loan Agreement without the consent of the surety
extinguishes the latters obligation.As the Court held inNational
Bank v. Veraguth,[30][i]t is fundamental in the law of suretyship
that any agreement between the creditor and the principal debtor
which essentially varies the terms of the principal contract,
without the consent of the surety, will release the surety from
liability.In this case, petitioners assertion - that respondent
consented to the alterations in the credit accommodation -- finds
no support in the text of the Indemnity Agreement,
whichisreproduced hereunder:Rodolfo M. Cuenca of legal age, with
postal address c/o Sta. Ines Malale Forest Products Corp., Alco
Bldg., 391 Buendia Avenue Ext., Makati Metro Manila for and in
consideration of the credit accommodation in the total amount of
eight million pesos (P8,000,000.00) granted by the SECURITY BANK
AND TRUST COMPANY, a commercial bank duly organized and existing
under and by virtue of the laws of the Philippine, 6778 Ayala
Avenue, Makati, Metro Manila hereinafter referred to as the BANK in
favor of STA. INES MELALE FOREST PRODUCTS CORP., x x x ----
hereinafter referred to as the CLIENT, with the stipulated
interests and charges thereon, evidenced by that/those certain
PROMISSORY NOTE[(S)], made, executed and delivered by the CLIENT in
favor of the BANK herebybind(s) himself/themselves jointly and
severally with the CLIENT in favor of the BANK for the payment ,
upon demand and without benefit of excussion of whatever amount or
amounts the CLIENT may be indebted to the BANK under and by virtue
of aforesaid credit accommodation(s) including the substitutions,
renewals, extensions, increases, amendment, conversions and
revivals of the aforesaid credit accommodation(s),as well as of the
amount or amounts of such other obligations that the CLIENT may owe
the BANK, whether direct or indirect, principal or secondary, as
appears in the accounts, books and records of the BANK, plus
interest and expenses arising from any agreement or agreements that
may have heretofore been made, or may hereafter be executed by and
between the parties thereto, including the substitutions, renewals,
extensions, increases, amendments, conversions and revivals of the
aforesaid credit accommodation(s), and further bind(s)
himself/themselves with the CLIENT in favor of the BANK for the
faithful compliance of all the terms and conditions contained in
the aforesaid credit accommodation(s), all of which are
incorporated herein and made part hereof by reference.While
respondent held himself liable for the credit accommodation or any
modification thereof, such clause should be understood in the
context of theP8 million limit and the November 30, 1981 term.It
did not give the bank or Sta. Ines any license to modify the nature
and scope of the original credit accommodation, without informing
or getting the consent of respondent who was solidarily
liable.Taking the banks submission to the extreme, respondent (or
his successors) would be liable for loans even amounting to,
say,P100 billion obtained 100 years after the expiration of the
credit accommodation, on the ground that he consented to
allalterations and extensions thereof.Indeed, it has been held that
a contract of surety cannot extend to more than what is
stipulated.It is strictly construed against the creditor, every
doubt being resolved against enlarging the liability of the
surety.[31]Likewise, the Court has ruled that it is a well-settled
legal principle that if there is any doubt on the terms and
conditions of the surety agreement, the doubt should be resolved in
favor of the surety x x x.Ambiguous contracts are construed against
the party who caused the ambiguity.[32]In the absence of an
unequivocal provision that respondent waived his right to be
notified of or to give consent to any alteration of the credit
accommodation, we cannot sustain petitioners view that there was
such a waiver.It should also be observed that the Credit Approval
Memorandumclearly shows that the bank did not have absolute
authority to unilaterally change the terms of the loan
accommodation.Indeed, it may do so only upon notice to the
borrower, pursuant to this condition:5. The Bank reserves the right
to amend any of the aforementioned terms and conditions upon
written notice to the Borrower.[33]We reject petitioners submission
that only Sta. Ines as the borrower, not respondent, was entitled
to be notified of any modification in the original loan
accommodation.[34]Following the banks reasoning, such modification
would not be valid as to Sta. Ines if no notice were given; but
would still be valid as to respondent to whom no notice need be
given.The latters liability would thus be more burdensome than that
of the former.Such untenable theory is contrary to the principle
that a surety cannot assume an obligation more onerous than that of
the principal.[35]The present controversy must be distinguished
fromPhilamgen v. Mutuc,[36]in which the Court sustained a
stipulation whereby the surety consented to be bound not only for
the specified period, but to any extension thereafter made, an
extension x x x that could be had without his having to be
notified.In that case, the surety agreement contained this
unequivocal stipulation:It is hereby further agreed that in case of
any extension of renewal of the bond, we equally bind ourselves to
the Company under the same terms and conditions as herein provided
without the necessity of executing another indemnity agreement for
the purpose and thatwe hereby equally waive our right to be
notified of any renewal or extension of the bond which may be
granted under this indemnity agreement.In the present case, there
is no such express stipulation.At most, the alleged basis of
respondents waiver is vague and uncertain.It confers no clear
authorization on the bank orSta. Ines to modify or extend the
original obligation without the consent of the surety or notice
thereto.Continuing SuretyContending that the Indemnity Agreement
was in the nature of a continuing surety, petitioner maintains that
there was no need for respondent to execute another surety contract
to secure the 1989 Loan Agreement.This argument is incorrect.That
the Indemnity Agreement is a continuing surety does not authorize
the bank to extend the scope of the principal obligation
inordinately.[37]InDino v. CA,[38]the Court held that 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.To repeat, in the present case, the Indemnity
Agreement was subject to the two limitations of the credit
accommodation:(1) that the obligation should not exceedP8 million,
and(2) that the accommodation should expire not later than November
30, 1981.Hence, itwas a continuing surety only in regard to loans
obtained on or before the aforementioned expiry date and not
exceeding the total ofP8 million.Accordingly, the surety of Cuenca
secured only the first loan ofP6.1 million obtained on November 26,
1991.It did not secure the subsequent loans, purportedly under the
1980 credit accommodation, that were obtained in1986.Certainly, he
could not have guaranteed the 1989 Loan Agreement, which was
executed after November 30, 1981 and which exceeded the stipulated
P8 million ceiling.Petitioner, however, cites theDinoruling in
which the Court found the surety liable for the loan
obtainedafterthe payment of the original one, which was covered by
a continuing surety agreement.At the risk of being repetitious, we
hold that inDino, the surety Agreement specifically provided that
each suretyship is a continuing one which shall remain in full
force and effectuntil this bank is notified of its revocation.
Since the bank had not been notified of such revocation, the surety
was held liable even for the subsequent obligations of the
principal borrower.No similar provision is found in the present
case.On the contrary, respondents liability was confined to the
1980 credit accommodation, the amount and the expiry date of which
were set down in the Credit Approval Memorandum.Special Nature of
the JSSIt is a common banking practice to require the JSS (joint
and solidary signature) of a major stockholder or corporate
officer, as an additional security for loans granted to
corporations.There are at least two reasons for this.First, in case
of default, the creditors recourse, which is normally limited to
the corporate properties under the veil of separate corporate
personality,would extend to the personal assets of the
surety.Second, such surety would be compelled to ensure that the
loan would be used for the purpose agreed upon, and that it would
be paid by the corporation.Following this practice, it was
therefore logical and reasonable for the bank to have required the
JSS of respondent, who was the chairman and president of Sta. Ines
in 1980 when the credit accommodation was granted.There was no
reason or logic, however, for the bank or Sta. Ines to assume that
he would still agree to act as surety in the 1989 Loan Agreement,
because at that time, he was no longer an officer or a stockholder
of the debtor-corporation.Verily, he was not in a position then to
ensure the payment of the obligation.Neither did he have any reason
to bind himself further to a bigger and more onerous
obligation.Indeed, the stipulation in the 1989 Loan Agreement
providing for the surety of respondent, without even informing him,
smacks of negligence on the part of the bank and bad faith on that
of the principal debtor.Since that Loan Agreement constituted a new
indebtedness, the old loan having been already liquidated, the
spirit of fair play should have impelled Sta. Ines to ask somebody
else to act as a surety for the new loan.In the same vein, a little
prudence should have impelled the bank to insist on the JSS of one
who was in a position to ensure the payment of the loan.Even a
perfunctory attempt at credit investigation would have revealed
that respondent was no longer connected with the corporation at the
time.As it is, the bank is now relying on an unclear Indemnity
Agreement in order to collect an obligation that could have been
secured by a fairly obtained surety.For its defeat in this
litigation, the bank has only itself to blame.In sum, we hold that
the 1989 Loan Agreement extinguished by novation the obligation
under the 1980P8 million credit accommodation.Hence, the Indemnity
Agreement, which had been an accessory to the 1980 credit
accommodation, was also extinguished.Furthermore, we reject
petitioners submission that respondent waived his right to be
notified of, or to give consent to, any modification or extension
of the 1980 credit accommodation.In this light, we find no more
need to resolve the issue of whether the loan obtained before the
expiry date of the credit accommodation has been paid.WHEREFORE,
the Petition isDENIEDand the assailed DecisionAFFIRMED.Costs
against petitioner.SO ORDERED.
(3) ESTRELLA PALMARES,petitioner,vs. COURT OF APPEALS and M.B.
LENDING CORPORATION,respondents.
[G.R. No. 126490.March 31, 1998]
D E C I S I O N
REGALADO,J.:Where a party signs a promissory note as a co-maker
and binds herself to be jointly and severally liable with the
principal debtor in case the latter defaults in the payment of the
loan, is such undertaking of the former deemed to be that of a
surety as an insurer of the debt, or of a guarantor who warrants
the solvency of the debtor?Pursuant to a promissory note dated
March 13, 1990, private respondent M.B. Lending Corporation
extended a loan to the spouses Osmea and Merlyn Azarraga, together
with petitioner Estrella Palmares, in the amount ofP30,000.00
payable on or before May 12, 1990, with compounded interest at the
rate of 6% per annum to be computed every 30 days from the date
thereof.[1]On four occasions after the execution of the promissory
note and even after the loan matured, petitioner and the Azarraga
spouses were able to pay a total ofP16,300.00, thereby leaving a
balance ofP13,700.00.No payments were made after the last payment
on September 26, 1991.[2]Consequently, on the basis of petitioners
solidary liability under the promissory note, respondent
corporation filed a complaint[3]against petitioner Palmares as the
lone party-defendant, to the exclusion of the principal debtors,
allegedly by reason of the insolvency of the latter.In her Amended
Answer with Counterclaim,[4]petitioner alleged that sometime in
August 1990, immediately after the loan matured, she offered to
settle the obligation with respondent corporation but the latter
informed her that they would try to collect from the spouses
Azarraga and that she need not worry about it; that there has
already been a partial payment in the amount ofP17,010.00; that the
interest of 6% per month compounded at the same rate per month, as
well as the penalty charges of 3% per month, are usurious and
unconscionable; and that while she agrees to be liable on the note
but only upon default of the principal debtor, respondent
corporation acted in bad faith in suing her alone without including
the Azarragas when they were the only ones who benefited from the
proceeds of the loan.During the pre-trial conference, the parties
submitted the following issues for the resolution of the trial
court:(1) what the rate of interest, penalty and damages should be;
(2) whether the liability of the defendant (herein petitioner) is
primary or subsidiary; and (3) whether the defendant Estrella
Palmares is only a guarantor with a subsidiary liability and not a
co-maker with primary liability.[5]Thereafter, the parties agreed
to submit the case for decision based on the pleadings filed and
the memoranda to be submitted by them.On November 26, 1992, the
Regional Trial Court of Iloilo City, Branch 23, rendered judgment
dismissing the complaint without prejudice to the filing of a
separate action for a sum of money against the spouses Osmea and
Merlyn Azarraga who are primarily liable on the instrument.[6]This
was based on the findings of the courta quothat the filing of the
complaint against herein petitioner Estrella Palmares, to the
exclusion of the Azarraga spouses, amounted to a discharge of a
prior party; that the offer made by petitioner to pay the
obligation is considered a valid tender of payment sufficient to
discharge a persons secondary liability on the instrument; that
petitioner, as co-maker, is only secondarily liable on the
instrument; and that the promissory note is a contract of
adhesion.Respondent Court of Appeals, however, reversed the
decision of the trial court, and rendered judgment declaring herein
petitioner Palmares liable to pay respondent corporation:1.The sum
ofP13,700.00 representing the outstanding balance still due and
owing with interest at six percent (6%) per month computed from the
date the loan was contracted until fully paid;2.The sum equivalent
to the stipulated penalty of three percent (3%) per month, of the
outstanding balance;3.Attorneys fees at 25% of the total amount due
per stipulations;4.Plus costs of suit.[7]Contrary to the findings
of the trial court, respondent appellate court declared that
petitioner Palmares is a surety since she bound herself to be
jointly and severally or solidarily liable with the principal
debtors, the Azarraga spouses, when she signed as a co-maker.As
such, petitioner is primarily liable on the note and hence may be
sued by the creditor corporation for the entire obligation.It also
adverted to the fact that petitioner admitted her liability in her
Answer although she claims that the Azarraga spouses should have
been impleaded.Respondent court ordered the imposition of the
stipulated 6% interest and 3% penalty charges on the ground that
the Usury Law is no longer enforceable pursuant to Central Bank
Circular No. 905.Finally, it rationalized that even if the
promissory note were to be considered as a contract of adhesion,
the same is not entirely prohibited because the one who adheres to
the contract is free to reject it entirely; if he adheres, he gives
his consent.Hence this petition for review oncertiorariwherein it
is asserted that:A.The Court of Appeals erred in ruling that
Palmares acted as surety and is therefore solidarily liable to pay
the promissory note.1.The terms of the promissory note are
vague.Its conflicting provisions do not establish Palmares solidary
liability.2.The promissory note contains provisions which establish
the co-makers liability as that of a
guarantor.3.Thereisnosufficientbasisfor concluding that Palmares
liability is solidary.4.The promissory note is a contract of
adhesion and should be construed against M.B. Lending
Corporation.5.Palmarescannot be compelled to pay the loan at this
point.B.Assumingthat Palmares liability is solidary, the Court of
Appeals erred in strictly imposing the interests and penalty
charges on the outstanding balance of the promissory note.The
foregoing contentions of petitioner are denied and contradicted in
their material points by respondent corporation.They are further
refuted by accepted doctrines in the American jurisdiction after
which we patterned our statutory law on suretyship and
guaranty.This case then affords us the opportunity to make an
extended exposition on the ramifications of these two specialized
contracts, for such guidance as may be taken therefrom in similar
local controversies in the future.The basis of petitioner Palmares
liability under the promissory note is expressed in this
wise:ATTENTION TO CO-MAKERS:PLEASE READ WELLI,Mrs. Estrella
Palmares, as the Co-maker of the above-quoted loan, have fully
understood the contents of this Promissory Note for Short-Term
Loan:That as Co-maker, I am fully aware that I shall be jointly and
severally or solidarily liable with the above principal maker of
this note;That in fact, I hereby agree that M.B. LENDING
CORPORATION may demand payment of the above loan from me in case
the principal maker,Mrs. Merlyn Azarragadefaults in the payment of
the note subject to the same conditions
above-contained.[8]Petitioner contends that the provisions of the
second and third paragraph are conflicting in that while the second
paragraph seems to define her liability as that of a surety which
is joint and solidary with the principal maker, on the other hand,
under the third paragraph her liability is actually that of a mere
guarantor because she bound herself to fulfill the obligation only
in case the principal debtor should fail to do so, which is the
essence of a contract of guaranty.More simply stated, although the
second paragraph says that she is liable as a surety, the third
paragraph defines the nature of her liability as that of a
guarantor.According to petitioner, these are two conflicting
provisions in the promissory note and the rule is that clauses in
the contract should be interpreted in relation to one another and
not by parts.In other words, the second paragraph should not be
taken in isolation, but should be read in relation to the third
paragraph.In an attempt to reconcile the supposed conflict between
the two provisions, petitioner avers that she could be held liable
only as a guarantor for several reasons.First, the words jointly
and severally or solidarily liable used in the second paragraph are
technical and legal terms which are not fully appreciated by an
ordinary layman like herein petitioner, a 65-year old housewife who
is likely to enter into such transactions without fully realizing
the nature and extent of her liability.On the contrary, the
wordings used in the third paragraph are easier to
comprehend.Second, the law looks upon the contract of suretyship
with a jealous eye and the rule is that the obligation of the
surety cannot be extended by implication beyond specified limits,
taking into consideration the peculiar nature of a surety agreement
which holds the surety liable despite the absence of any direct
consideration received from either the principal obligor or the
creditor.Third, the promissory note is a contract of adhesion since
it was prepared by respondent M.B. Lending Corporation.The note was
brought to petitioner partially filled up, the contents thereof
were never explained to her, and her only participation was to sign
thereon.Thus, any apparent ambiguity in the contract should be
strictly construed against private respondent pursuant to Art. 1377
of the Civil Code.[9]Petitioner accordingly concludes that her
liability should be deemed restricted by the clause in the third
paragraph of the promissory note to be that of a
guarantor.Moreover, petitioner submits that she cannot as yet be
compelled to pay the loan because the principal debtors cannot be
considered in default in the absence of a judicial or extrajudicial
demand.It is true that the complaint alleges the fact of demand,
but the purported demand letters were never attached to the
pleadings filed by private respondent before the trial court.And,
while petitioner may have admitted in her Amended Answer that she
received a demand letter from respondent corporation sometime in
1990, the same did not effectively put her or the principal debtors
in default for the simple reason that the latter subsequently made
a partial payment on the loan in September, 1991, a fact which was
never controverted by herein private respondent.Finally, it is
argued that the Court of Appeals gravely erred in awarding the
amount ofP2,745,483.39 in favor of private respondent when, in
truth and in fact, the outstanding balance of the loan is
onlyP13,700.00.Where the interest charged on the loan is
exorbitant, iniquitous or unconscionable, and the obligation has
been partially complied with, the court may equitably reduce the
penalty[10]on grounds of substantial justice.More importantly,
respondent corporation never refuted petitioners allegation that
immediately after the loan matured, she informed said respondent of
her desire to settle the obligation.The court should, therefore,
mitigate the damages to be paid since petitioner has shown a
sincere desire for a compromise.[11]After a judicious evaluation of
the arguments of the parties, we are constrained to dismiss the
petition for lack of merit, but to except therefrom the issue anent
the propriety of the monetary award adjudged to herein respondent
corporation.At the outset, let it here be stressed that even
assumingarguendothat the promissory note executed between the
parties is a contract of adhesion, it has been the consistent
holding of the Court that contracts of adhesion are not invalidper
seand that on numerous occasions the binding effects thereof have
been upheld.The peculiar nature of such contracts necessitate a
close scrutiny of the factual milieu to which the provisions are
intended to apply.Hence, just as consistently and unhesitatingly,
but without categorically invalidating such contracts, the Court
has construed obscurities and ambiguities in the restrictive
provisions of contracts of adhesion strictly albeit not
unreasonably against the drafter thereof when justified in light of
the operative facts and surrounding circumstances.[12]The factual
scenario obtaining in the case before us warrants a liberal
application of the rule in favor of respondent corporation.The
Civil Code pertinently provides:Art. 2047.By guaranty, a person
called the guarantor binds himself to the creditor to fulfill the
obligation of the principal debtor in case the latter should fail
to do so.If a person binds himself solidarily with the principal
debtor, the provisions of Section 4,Chapter 3, Title I of this Book
shall be observed.In such case the contract is called a
suretyship.It is a cardinal rule in the interpretation of contracts
that if the terms of a contract are clear and leave no doubt upon
the intention of the contracting parties, the literal meaning of
its stipulation shall control.[13]In the case at bar, petitioner
expressly bound herself to be jointly and severally or solidarily
liable with the principal maker of the note.The terms of the
contract are clear, explicit and unequivocal that petitioners
liability is that of a surety.Her pretension that the terms jointly
and severally or solidarily liable contained in the second
paragraph of her contract are technical and legal terms which could
not be easily understood by an ordinary layman like her is
diametrically opposed to her manifestation in the contract that she
fully understood the contents of the promissory note and that she
is fully aware of her solidary liability with the principal
maker.Petitioner admits that she voluntarily affixed her signature
thereto; ergo, she cannot now be heard to claim otherwise.Any
reference to the existence of fraud is unavailing.Fraud must be
established by clear and convincing evidence, mere preponderance of
evidence not even being adequate.Petitioners attempt to prove fraud
must, therefore, fail as it was evidenced only by her own
uncorroborated and, expectedly, self-serving allegations.[14]Having
entered into the contract with full knowledge of its terms and
conditions, petitioner is estopped to assert that she did so under
a misapprehension or in ignorance of their legal effect, or as to
the legal effect of the undertaking.[15]The rule that ignorance of
the contents of an instrument does not ordinarily affect the
liability of one who signs it also applies to contracts of
suretyship.And the mistake of a surety as to the legal effect of
her obligation is ordinarily no reason for relieving her of
liability.[16]Petitioner would like to make capital of the fact
that although she obligated herself to be jointly and severally
liable with the principal maker, her liability is deemed restricted
by the provisions of the third paragraph of her contract wherein
she agreed that M.B. Lending Corporation may demand payment of the
above loan from me in case the principal maker, Mrs. Merlyn
Azarraga defaults in the payment of the note, which makes her
contract one of guaranty and not suretyship.The purported
discordance is more apparent than real.A surety is an insurer of
the debt, whereas a guarantor is an insurer of the solvency of the
debtor.[17]A suretyship is an undertaking that the debt shall be
paid; a guaranty, an undertaking that the debtor shall
pay.[18]Stated differently, a surety promises to pay the principals
debt if the principal will not pay, while a guarantor agrees that
the creditor, after proceeding against the principal, may proceed
against the guarantor if the principal is unable to pay.[19]A
surety binds himself to perform if the principal does not, without
regard to his ability to do so.A guarantor, on the other hand, does
not contract that the principal will pay, but simply that he is
able to do so.[20]In other words, a surety undertakes directly for
the payment and is so responsible at once if the principal debtor
makes default, while a guarantor contracts to pay if, by the use of
due diligence, the debt cannot be made out of the principal
debtor.[21]Quintessentially, the undertaking to pay upon default of
the principal debtor does not automatically remove it from the
ambit of a contract of suretyship.The second and third paragraphs
of the aforequoted portion of the promissory note do not contain
any other condition for the enforcement of respondent corporations
right against petitioner.It has not been shown, either in the
contract or the pleadings, that respondent corporation agreed to
proceed against herein petitioneronly if and whenthe defaulting
principal has become insolvent.A contract of suretyship, to repeat,
is that wherein one lends his credit by joining in the principal
debtors obligation, so as to render himself directly and primarily
responsible with him, and without reference to the solvency of the
principal.[22]In a desperate effort to exonerate herself from
liability, petitioner erroneously invokes the rule onstrictissimi
juris, which holds that when the meaning of a contract of indemnity
or guaranty has once been judicially determined under the rule of
reasonable construction applicable to all written contracts, then
the liability of the surety, under his contract, as thus
interpreted and construed, is not to be extended beyond its strict
meaning.[23]The rule, however, will apply only after it has been
definitely ascertained that the contract is one of suretyship and
not a contract of guaranty.It cannot be used as an aid in
determiningwhethera partys undertaking is that of a surety or a
guarantor.Prescinding from these jurisprudential authorities, there
can be no doubt that the stipulation contained in the third
paragraph of the controverted suretyship contract merely elucidated
on and made more specific the obligation of petitioner as generally
defined in the second paragraph thereof.Resultantly, the theory
advanced by petitioner, that she is merely a guarantor because her
liability attaches only upon default of the principal debtor, must
necessarily fail for being incongruent with the judicial
pronouncements adverted to above.It is a well-entrenched rule that
in order to judge the intention of the contracting parties, their
contemporaneous and subsequent acts shall also be principally
considered.[24]Several attendant factors in that genre lend support
to our finding that petitioner is a surety.For one, when petitioner
was informed about the failure of the principal debtor to pay the
loan, she immediately offered to settle the account with respondent
corporation.Obviously, in her mind, she knew that she was directly
and primarily liable upon default of her principal.For another, and
this is most revealing, petitioner presented the receipts of the
payments already made, from the time of initial payment up to the
last, which were all issued in her name and of the Azarraga
spouses.[25]This can only be construed to mean that the payments
made by the principal debtors were considered by respondent
corporation as creditable directly upon the account and inuring to
the benefit of petitioner.The concomitant and simultaneous
compliance of petitioners obligation with that of her principals
only goes to show that, from the very start, petitioner considered
herself equally bound by the contract of the principal makers.In
this regard, we need only to reiterate the rule that a surety is
bound equally and absolutely with the principal,[26]and as such is
deemed an original promisor and debtor from the beginning.[27]This
is because in suretyship there is but one contract, and the surety
is bound by the same agreement which binds the principal.[28]In
essence, the contract of a surety starts with the
agreement,[29]which is precisely the situation obtaining in this
case before the Court.It will further be observed that petitioners
undertaking as co-maker immediately follows the terms and
conditions stipulated between respondent corporation, as creditor,
and the principal obligors.A surety is usually bound with his
principal by the same instrument, executed at the same time and
upon the same consideration; he is an original debtor, and his
liability is immediate and direct.[30]Thus, it has been held that
where a written agreement on the same sheet of paper with and
immediately following the principal contract between the buyer and
seller is executed simultaneously therewith, providing that the
signers of the agreement agreed to the terms of the principal
contract, the signers were sureties jointly liable with the
buyer.[31]A surety usually enters into the same obligation as that
of his principal, and the signatures of both usually appear upon
the same instrument, and the same consideration usually supports
the obligation for both the principal and the surety.[32]There is
no merit in petitioners contention that the complaint was
prematurely filed because the principal debtors cannot as yet be
considered in default, there having been no judicial or
extrajudicial demand made by respondent corporation.Petitioner has
agreed that respondent corporation may demand payment of the loan
from her in case the principal maker defaults, subject to the same
conditions expressed in the promissory note.Significantly,
paragraph (G) of the note states that should I fail to pay in
accordance with the above schedule of payment, I hereby waive my
right to notice and demand.Hence, demand by the creditor is no
longer necessary in order that delay may exist since the contract
itself already expressly so declares.[33]As a surety, petitioner is
equally bound by such waiver.Even if it were otherwise, demand on
the sureties is not necessary before bringing suit against them,
since the commencement of the suit is a sufficient demand.[34]On
this point, it may be worth mentioning that a surety is not even
entitled, as a matter of right, to be given notice of the
principals default.Inasmuch as the creditor owes no duty of active
diligence to take care of the interest of the surety, his mere
failure to voluntarily give information to the surety of the
default of the principal cannot have the effect of discharging the
surety.The surety is bound to take notice of the principals default
and to perform the obligation.He cannot complain that the creditor
has not notified him in the absence of a special agreement to that
effect in the contract of suretyship.[35]The alleged failure of
respondent corporation to prove the fact of demand on the principal
debtors, by not attaching copies thereof to its pleadings, is
likewise immaterial.In the absence of a statutory or contractual
requirement, it is not necessary that payment or performance of his
obligation be first demanded of the principal, especially where
demand would have been useless; nor is it a requisite, before
proceeding against the sureties, that the principal be called on to
account.[36]The underlying principle therefor is that a suretyship
is a direct contract to pay the debt of another.A surety is liable
as much as his principal is liable, and absolutely liable as soon
as default is made, without any demand upon the principal
whatsoever or any notice of default.[37]As an original promisor and
debtor from the beginning, he is held ordinarily to know every
default of his principal.[38]Petitioner questions the propriety of
the filing of a complaint solely against her to the exclusion of
the principal debtors who allegedly were the only ones who
benefited from the proceeds of the loan.What petitioner is trying
to imply is that the creditor, herein respondent corporation,
should have proceeded first against the principal before suing on
her obligation as surety.We disagree.A creditors right to proceed
against the surety exists independently of his right to proceed
against the principal.[39]Under Article 1216 of the Civil Code, the
creditor may proceed against any one of the solidary debtors or
some or all of them simultaneously.The rule, therefore, is that if
the obligation is joint and several, the creditor has the right to
proceed even against the surety alone.[40]Since, generally, it is
not necessary for a creditor to proceed against a principal in
order to hold the surety liable, where, by the terms of the
contract, the obligation of the surety is the same as that of the
principal, then as soon as the principal is in default, the surety
is likewise in default, and may be sued immediately and before any
proceedings are had against the principal.[41]Perforce, in
accordance with the rule that, in the absence of statute or
agreement otherwise, a surety is primarily liable, and with the
rule that his proper remedy is to pay the debt and pursue the
principal for reimbursement, the surety cannot at law, unless
permitted by statute and in the absence of any agreement limiting
the application of the security, require the creditor or obligee,
before proceeding against the surety, to resort to and exhaust his
remedies against the principal, particularly where both principal
and surety are equally bound.[42]We agree with respondent
corporation that its mere failure to immediately sue petitioner on
her obligation does not release her from liability.Where a creditor
refrains from proceeding against the principal, the surety is not
exonerated.In other words, mere want of diligence or forbearance
does not affect the creditors rights vis--vis the surety, unless
the surety requires him by appropriate notice to sue on the
obligation.Such gratuitous indulgence of the principal does not
discharge the surety whether given at the principals request or
without it, and whether it is yielded by the creditor through
sympathy or from an inclination to favor the principal, or is only
the result of passiveness.The neglect of the creditor to sue the
principal at the time the debt falls due does not discharge the
surety, even if such delay continues until the principal becomes
insolvent.[43]And, in the absence of proof of resultant injury, a
surety is not discharged by the creditors mere statement that the
creditor will not look to the surety,[44]or that he need not
trouble himself.[45]The consequences of the delay, such as the
subsequent insolvency of the principal,[46]or the fact that the
remedies against the principal may be lost by lapse of time, are
immaterial.[47]Theraison dtrefor the rule is that there is nothing
to prevent the creditor from proceeding against the principal at
any time.[48]At any rate, if the surety is dissatisfied with the
degree of activity displayed by the creditor in the pursuit of his
principal, he may pay the debt himself and become subrogated to all
the rights and remedies of the creditor.[49]It may not be amiss to
add that leniency shown to a debtor in default, by delay permitted
by the creditor without change in the time when the debt might be
demanded, does not constitute an extension of the time of payment,
which would release the surety.[50]In order to constitute an
extension discharging the surety, it should appear that the
extension was for a definite period, pursuant to an enforceable
agreement between the principal and the creditor, and that it was
made without the consent of the surety or with a reservation of
rights with respect to him.The contract must be one which precludes
the creditor from, or at least hinders him in, enforcing the
principal contract within the period during which he could
otherwise have enforced it, and which precludes the surety from
paying the debt.[51]None of these elements are present in the
instant case.Verily, the mere fact that respondent corporation gave
the principal debtors an extended period of time within which to
comply with their obligation did not effectively absolve herein
petitioner from the consequences of her undertaking.Besides, the
burden is on the surety, herein petitioner, to show that she has
been discharged by some act of the creditor,[52]herein respondent
corporation, failing in which we cannot grant the relief prayed
for.As a final issue, petitioner claims that assuming that her
liability is solidary, the interests and penalty charges on the
outstanding balance of the loan cannot be imposed for being illegal
and unconscionable.Petitioner additionally theorizes that
respondent corporation intentionally delayed the collection of the
loan in order that the interests and penalty charges would
accumulate.The statement, likewise traversed by said respondent, is
misleading.In an affidavit[53]executed by petitioner, which was
attached to her petition, she stated, among others, that:8.During
the latter part of 1990, Iwas surprised to learn that Merlyn
Azarragas loan has been released and that she has not paid the same
upon its maturity.I received a telephone call from Mr. Augusto
Banusing of MB Lending informing me of this fact and of my
liability arising from the promissory note which I
signed.9.IrequestedMr. Banusing to try to collect first from Merlyn
and Osmea Azarraga.At the same time, I offered to pay MB Lending
the outstanding balance of the principal obligation should he fail
to collect from Merlyn and Osmea Azarraga.Mr. Banusing advised me
not to worry because he will try to collect first from Merlyn and
Osmea Azarraga.10.A year thereafter, I received a telephone call
from the secretary of Mr. Banusing who reminded that the loan of
Merlyn and Osmea Azarraga, together with interest and penalties
thereon, has not been paid.Since I had no available funds at that
time, I offered to pay MB Lending by delivering to them a parcel of
land which I own.Mr. Banusings secretary, however, refused my offer
for the reason that they are not interested in real estate.11.In
March 1992, I received a copy of the summons and of the complaint
filed against me by MB Lending before the RTC-Iloilo.After learning
that a complaint was filed against me, I instructed Sheila Gatia to
go to MB Lending and reiterate my first offer to pay the
outstanding balance of the principal obligation of Merlyn Azarraga
in the amount ofP30,000.00.12.Ms. Gatia talked to the secretary of
Mr. Banusing who referred her to Atty. Venus, counsel of MB
Lending.13.Atty. Venus informed Ms. Gatia that he will consult Mr.
Banusing if my offer to pay the outstanding balance of the
principal obligation loan (sic) of Merlyn and Osmea Azarraga is
acceptable.Later, Atty. Venus informed Ms. Gatia that my offer is
not acceptable to Mr. Banusing.The purported offer to pay made by
petitioner can not be deemed sufficient and substantial in order to
effectively discharge her from liability.There are a number of
circumstances which conjointly inveigh against her aforesaid
theory.1. Respondent corporation cannot be faulted for not
immediately demanding payment from petitioner.It was petitioner who
initially requested that the creditor try to collect from her
principal first, and she offered to pay only in case the creditor
fails to collect.The delay, if any, was occasioned by the fact that
respondent corporation merely acquiesced to the request of
petitioner.At any rate, there was here no actual offer of payment
to speak of but only a commitment to pay if the principal does not
pay.2. Petitionermade a second attempt to settle the obligation by
offering a parcel of land which she owned.Respondent corporation
was acting well within its rights when it refused to accept the
offer.The debtor of a thing cannot compel the creditor to receive a
different one, although the latter may be of the same value, or
more valuable than that which is due.[54]The obligee is entitled to
demand fulfillment of the obligation or performance as stipulated.A
change of the object of the obligation would constitute novation
requiring the express consent of the
parties.[55]3.Afterthecomplaint was filedagainsther, petitioner
reiterated her offer to pay the outstanding balance of the
obligation in the amount ofP30,000.00 but the same was likewise
rejected.Again, respondent corporation cannot be blamed for
refusing the amount being offered because it fell way below the
amount it had computed, based on the stipulated interests and
penalty charges, as owing and due from herein petitioner.A debt
shall not be understood to have been paid unless the thing or
service in which the obligation consists has been completely
delivered or rendered, as the case may be.[56]In other words, the
prestation must be fulfilled completely.A person entering into a
contract has a right to insist on its performance in all
particulars.[57]Petitioner cannot compel respondent corporation to
accept the amount she is willing to pay because the moment the
latter accepts the performance, knowing its incompleteness or
irregularity, and without expressing any protest or objection, then
the obligation shall be deemed fully complied with.[58]Precisely,
this is what respondent corporation wanted to avoid when it
continually refused to settle with petitioner at less than what was
actually due under their contract.This notwithstanding, however, we
find and so hold that the penalty charge of 3% per month and
attorneys fees equivalent to 25% of the total amount due are highly
inequitable and unreasonable.It must be remembered that from the
principal loan ofP30,000.00, the amount ofP16,300.00 had already
been paid even before the filing of the present case.Article 1229
of the Civil Code provides that the court shall equitably reduce
the penalty when the principal obligation has been partly or
irregularly complied with by the debtor.And, even if there has been
no performance, the penalty may also be reduced if it is iniquitous
or leonine.In a case previously decided by this Court which
likewise involved private respondent M.B. Lending Corporation, and
which is substantially on all fours with the one at bar, we decided
to eliminate altogether the penalty interest for being excessive
and unwarranted under the following rationalization:Upon the matter
of penalty interest, we agree with the Court of Appeals that the
economic impact of the penalty interest of three percent (3%) per
month on total amount due but unpaid should be equitably
reduced.The purpose for which the penalty interest is intended -
that is, to punish the obligor - will have been sufficiently served
by the effects of compounded interest.Under the exceptional
circumstances in the case at bar, e.g., the original amount loaned
was onlyP15,000.00; partial payment ofP8,600.00 was made on due
date; and the heavy (albeit still lawful) regular compensatory
interest, the penalty interest stipulated in the parties promissory
note is iniquitous and unconscionable and may be equitably reduced
further by eliminating such penalty interest
altogether.[59]Accordingly, the penalty interest of 3% per month
being imposed on petitioner should similarly be eliminated.Finally,
with respect to the award of attorneys fees, this Court has
previously ruled that even with an agreement thereon between the
parties, the court may nevertheless reduce such attorneys fees
fixed in the contract when the amount thereof appears to be
unconscionable or unreasonable.[60]To that end, it is not even
necessary to show, as in other contracts, that it is contrary to
morals or public policy.[61]The grant of attorneys fees equivalent
to 25% of the total amount due is, in our opinion, unreasonable and
immoderate, considering the minimal unpaid amount involved and the
extent of the work involved in this simple action for collection of
a sum of money.We, therefore, hold that the amount ofP10,000.00 as
and for attorneys fee would be sufficient in this
case.[62]WHEREFORE, the judgment appealed from is hereby AFFIRMED,
subject to the MODIFICATION that the penalty interest of 3% per
month is hereby deleted and the award of attorneys fees is reduced
toP10,000.00.SO ORDERED.
(4) E. ZOBEL, INC.,petitioner, vs.THE COURT OF APPEALS,
CONSOLIDATED BANK AND TRUST CORPORATION, and SPOUSES RAUL and ELEA
R. CLAVERIA,respondents.
[G.R. No. 113931.May 6, 1998]
D E C I S I O N
MARTINEZ,J.:This petition for review on certiorari seeks the
reversal of the decision[1]of the Court of Appeals dated July 13,
1993 which affirmed the Order of the Regional Trial Court of
Manila, Branch 51, denying petitioner's Motion to Dismiss the
complaint, as well as the Resolution[2]dated February 15, 1994
denying the motion for reconsideration thereto.The facts are as
follows:Respondent spouses Raul and Elea Claveria, doing business
under the name "Agro Brokers," applied for a loan with respondent
Consolidated Bank and Trust Corporation (now SOLIDBANK) in the
amount of Two Million Eight Hundred Seventy Five Thousand Pesos
(P2, 875,000.00) to finance the purchase of two (2) maritime barges
and one tugboat[3]which would be used in their molasses business.
The loan was granted subject to the condition that respondent
spouses execute a chattel mortgage over the three (3) vessels to be
acquired and that a continuing guarantee be executed by Ayala
International Philippines, Inc., now herein petitioner E. Zobel,
Inc. in favor of SOLIDBANK. The respondent spouses agreed to the
arrangement. Consequently, a chattel mortgage and a Continuing
Guaranty[4]were executed.Respondent spouses defaulted in the
payment of the entire obligation upon maturity. Hence, on January
31,1991, SOLIDBANK filed a complaint for sum of money with a prayer
for a writ of preliminary attachment, against respondents spouses
and petitioner. The case was docketed as Civil Case No. 91-55909 in
the Regional Trial Court of Manila.Petitioner moved to dismiss the
complaint on the ground that its liability as guarantor of the loan
was extinguished pursuant to Article 2080 of the Civil Code of the
Philippines. It argued that it has lost its right to be subrogated
to the first chattel mortgage in view of SOLIDBANK's failure to
register the chattel mortgage with the appropriate government
agency.SOLIDBANK opposed the motion contending that Article 2080 is
not applicable because petitioner is not a guarantor but a
surety.On February 18, 1993, the trial court issued an Order,
portions of which reads:"After a careful consideration of the
matter on hand, the Court finds the ground of the motion to dismiss
without merit. The document referred to as 'Continuing
Guaranty'dated August 21,1985 (Exh. 7) states as follows:'For and
in consideration of any existing indebtedness to you of Agro
Brokers, a single proprietorship owned by Mr. Raul Claveria for the
payment of which the undersigned is now obligated to you as surety
and in order to induce you, in your discretion, at any other
manner, to, or at the request or for the account of the borrower, x
x x '"The provisions of the document are clear, plain and
explicit."Clearly therefore, defendant E. Zobel, Inc. signed as
surety. Even though the title of the document is 'Continuing
Guaranty', the Court's interpretation is not limited to the title
alone but to the contents and intention of the parties more
specifically if the language is clear and positive. The obligation
of the defendant Zobel being that of a surety, Art. 2080 New Civil
Code will not apply as it is only for those acting as guarantor.In
fact, in the letter of January 31, 1986 of the defendants (spouses
and Zobel) to the plaintiff it is requesting that the chattel
mortgage on the vessels and tugboat be waived and/or rescinded by
the bank inasmuch as the said loan is covered by the Continuing
Guaranty by Zobel in favor of the plaintiff thus thwarting the
claim of the defendant now that the chattel mortgage is an
essential condition of the guaranty. In its letter, it said that
because of the Continuing Guaranty in favor of the plaintiff the
chattel mortgage is rendered unnecessary and redundant."With regard
to the claim that the failure of the plaintiff to register the
chattel mortgage with the proper government agency, i.e. with the
Office of the Collector of Customs or with the Register of Deeds
makes the obligation a guaranty, the same merits a scant
consideration and could not be taken by this Court as the basis of
the extinguishment of the obligation of the defendant corporation
to the plaintiff as surety. The chattel mortgage is an additional
security and should not be considered as payment of the debt in
case of failure of payment. The same is true with the failure to
register, extinction of the liability would not lie."WHEREFORE, the
Motion to Dismiss is hereby denied and defendant E. Zobel, Inc., is
ordered to file its answer to the complaint within ten (10) days
from receipt of a copy of this Order."[5]Petitioner moved for
reconsideration but was denied on April 26,1993.[6]Thereafter,
petitioner questioned said Orders before the respondent Court of
Appeals, through a petition for certiorari, alleging that the trial
court committed grave abuse of discretion in denying the motion to
dismiss.On July 13,1993, the Court of Appeals rendered the assailed
decision the dispositive portion of which reads:"WHEREFORE, finding
that respondent Judge has not committed any grave abuse of
discretion in issuing the herein assailed orders, We hereby DISMISS
the petition."A motion for reconsideration filed by petitioner was
denied for lack of merit on February 15,1994.Petitioner now comes
to usviathis petition arguing that the respondent Court of Appeals
erred in its finding: (1) that Article 2080 of the New Civil Code
which provides: "The guarantors, even though they be solidary, are
released from their obligation whenever by some act of the creditor
they cannot be subrogated to the rights, mortgages, and preferences
of the latter," is not applicable to petitioner; (2) that
petitioner's obligation to respondent SOLIDBANK under the
continuing guaranty is that of a surety; and (3) that the failure
of respondent SOLIDBANK to register the chattel mortgage did not
extinguish petitioner's liability to respondent SOLIDBANK.We shall
first resolve the issue ofwhether or not petitioner under the
"Continuing Guaranty" obligated itself to SOLIDBANK as a guarantor
or a surety.A contract of surety is anaccessory promise by which a
person binds himself for another already bound, and agrees with the
creditor to satisfy the obligation if the debtor does not.[7]A
contract of guaranty, on the other hand, is a collateral
undertaking to pay the debt of another in case the latter does not
pay the debt.[8]Strictly speaking, guaranty and surety are
nearlyrelated, and many of the principles are common to both.
However, under our civil law,theymay be distinguished thus: A
surety is usually bound with his principal by the same instrument,
executed at the same time, and on the same consideration. He is an
original promissor and debtor from the beginning, and is held,
ordinarily, to know every default of his principal. Usually, he
will not be discharged, either by the mere indulgence of the
creditor to the principal, or by want of notice of the default of
the principal, no matter how much he may be injured thereby. On the
other hand, the contract of guaranty is the guarantor's own
separate undertaking, in which the principal does not join. It is
usually entered into before or after that of the principal, and is
often supported on a separate consideration from that supporting
the contract of the principal. The original contract of his
principal is not his contract, and he is not bound to take notice
of its non-performance. He is often discharged by the mere
indulgence of the creditor to the principal, and is usually not
liable unless notified of the default of the principal.[9]Simply
put, a surety is distinguished from a guaranty in that a guarantor
is the insurer of the solvency of the debtor and thus binds himself
to pay if the principal isunable to paywhile a surety is the
insurer of the debt, and he obligates himself to pay if the
principaldoes not pay.[10]Based on the aforementioned definitions,
it appears that the contract executed by petitioner in favor of
SOLIDBANK,albeit denominated as a "Continuing Guaranty," is a
contract of surety. The terms of the contract categorically
obligates petitioner as "surety" to induce SOLIDBANK to extend
credit to respondent spouses. This can be seen in the following
stipulations."For and in consideration of any existing indebtedness
to you of AGRO BROKERS, a single proprietorship owned by MR. RAUL
P. CLAVERIA, of legal age, married and with business address x x x
(hereinafter called the Borrower), for the payment of which
theundersigned is now obligated to you as surety and in order to
induce you,in your discretion, at any time or from time to time
hereafter, to make loans or advances or to extend credit in any
other manner to, or at the request or for the account of the
Borrower, either with or without purchase or discount, or to make
any loans or advances evidenced or secured byany notes, bills
receivable, drafts, acceptances, checks or other instruments or
evidences of indebtedness x x upon which the Borroweris or may
become liable as maker, endorser, acceptor, or otherwise,the
undersigned agrees to guarantee, and does hereby guarantee, the
punctual payment, at maturity or upon demand, to you of any and all
such instruments,loans, advances, credits and/or other obligations
herein before referred to, and also any and all other indebtedness
of every kind which is now or may hereafter become due or owing to
you by the Borrower,together with any and all expenses which may be
incurred by you in collecting all or any such instruments or other
indebtednessor obligations hereinbeforereferred to, and or in
enforcing any rights hereunder, and also to make or cause any and
all such payments to be made strictly in accordance with the terms
and provisions of any agreement (g), express or implied, which has
(have) been or may hereafter be made or entered into by the
Borrower in reference thereto, regardless of any law, regulation or
decree, now or hereafter in effect which might in any manner affect
any of the terms or provisions of any such agreements(s) or your
right 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;x x x " (Italics Ours)One need not look too deeply at
the contract to determine the nature of the undertaking and the
intention of the parties. The contract clearly disclose that
petitioner assumed liability to SOLIDBANK, as a regular party to
the undertaking and obligated itself as an original promissor. It
bound itself jointly and severally to the obligation with the
respondent spouses. In fact, SOLIDBANK need not resort to all other
legal remedies or exhaust respondent spouses' properties before it
can hold petitioner liable for the obligation. This can be gleaned
from a reading of the stipulations in the contract, to wit:'x x xIf
default be made in the payment of any of the instruments,
indebtedness or other obligation hereby guaranteedby the
undersigned, or if the Borrower, or the undersigned should die,
dissolve, fail in business, or become insolvent, x x x ,or if any
funds or other property of the Borrower, or of the undersigned
which may be or come into your possession or control or that of any
third party acting in your behalf as aforesaid should be attached
of distrained, or should be or become subject to any mandatory
order of court or other legal process, then, or any time after the
happening of any such event any or all of the instruments of
indebtedness or other obligations hereby guaranteed shall, at your
option become (for the purpose of this guaranty) due and payable by
the undersigned forthwith without demand of notice,and full power
and authority are hereby given you, in your discretion, to sell,
assign and deliver all or any part of the property upon which you
may then have a lien hereunder at any broker's board, or at public
or private sale at your option, either for cash or for credit or
for future delivery without assumption by you of credit risk, and
without either the demand, advertisement or notice of any kind, all
of which are hereby expressly waived. At any sale hereunder, you
may, at your option, purchase the whole or any part of the property
so sold, free from any right of redemption on the part of the
undersigned, all such rights being also hereby waived and
released.In case of any sale and other disposition of any of the
property aforesaid, after deducting all costs and expenses of every
kind for care, safekeeping, collection, sale, delivery or
otherwise, you may apply the residue of the proceeds of the sale
and other disposition thereof, to the payment or reduction, either
in whole or in part, of any one or more of the obligations or
liabilities hereunder of the undersigned whether or not except for
disagreement such liabilities or obligations would then bedue,
making proper allowance or interest on the obligations and
liabilities not otherwise then due, and returning the overplus, if
any, to the undersigned; all without prejudice to your rights as
against the undersigned with respect to anyand all amounts which
may be or remain unpaid on any of the obligations or liabilities
aforesaid at any time (s)"xxxxxxxxx'Should the Borrower at this or
at any future time furnish, or should be heretofore have furnished,
another surety or sureties to guarantee the payment of his
obligations to you, the undersigned hereby expressly waives all
benefits to which the undersigned might be entitled under the
provisions of Article 1837 of the Civil Code (beneficio division),
the liability of the undersigned under any and all circumstances
being joint and several;" (Italics Ours)The use of the term
"guarantee" does notipso factomean that the contract is one of
guaranty. Authorities recognize that the word "guarantee"is
frequently employed in business transactions to describe not the
security of the debt but an intention to be bound by a primary or
independent obligation.[11]As aptly observed by the trial court,
the interpretation of a contract is not limited to the title alone
but to the contents and intention of the parties.Having thus
established that petitioner is a surety, Article 2080 of the Civil
Code, relied upon by petitioner, finds no application to the case
at bar. InBicol Savings and Loan Association vs. Guinhawa,[12]we
have ruled that Article 2080 of the New Civil Code does not apply
where the liability is as a surety, not as a guarantor.But even
assuming that Article 2080 is applicable, SOLIDBANK'sfailure to
register the chattel mortgage did not release petitioner from the
obligation. In the Continuing Guaranty executed in favor of
SOLIDBANK, petitioner bound itself to the contract irrespective of
the existence of any collateral. It even released SOLIDBANK from
any fault or negligence that may impair the contract.The pertinent
portions of the contract so provides:"x x x the undersigned
(petitioner)who hereby agrees to be and remain bound upon this
guaranty, irrespective of the existence, value or condition of any
collateral,and notwithstanding any such change, exchange,
settlement, compromise, surrender, release, sale, application,
renewal or extension, and notwithstanding also that all obligations
of the Borrower to you outstanding and unpaid at any time (s) may
exceed the aggregate principal sum herein above prescribed.'This is
a Continuing Guaranty andshall remain in full force and effect
until written notice shall have been received by you that it has
been revoked by the undersigned, but any such notice shall not be
released the undersigned from any liability as to any instruments,
loans, advances or other obligations hereby guaranteed, which may
be held by you, or in which you may have any interest, at the time
of the receipt of such notice.No act or omission of any kind on
your part in the premises shall in any event affect or impair this
guaranty,nor shall same be affected by any change which may arise
by reason of the death of the undersigned, of any partner (s) of
the undersigned, or ofthe Borrower, or of the accession to any such
partnership of any one or more new partners." (Italics supplied)In
fine, we find the petition to be without merit as no reversible
error was committed by respondent Court of Appeals in rendering the
assailed decision.WHEREFORE,the decision of the respondent Court of
Appeals is hereby AFFIRMED. Costs against the petitioner.SO
ORDERED.
(5) INTERNATIONAL FINANCEG.R. No. 160324CORPORATION, Petitioner,
Present: Panganiban,J., Chairman, - versus - Sandoval-Gutierrez,*
Corona,Carpio Morales, and Garcia,JJ IMPERIAL TEXTILE MILLS,
Promulgated:INC.,** Respondent. November 15, 2005x -- -- -- -- --
-- -- -- -- -- -- -- -- -- -- -- -- -- -- -- -- -- -- -- -- -- --
-- xDECISIONPANGANIBAN,J.:
The terms of a contract govern the rights and obligations of the
contracting parties. When the obligor undertakes to be jointly and
severally liable, it means that the obligation is solidary.If
solidary liability was instituted to guarantee a principal
obligation, the law deems the contract to be one of suretyship. The
creditor in the present Petition was able to show convincingly
that, although denominated as a Guarantee Agreement, the Contract
was actually a surety. Notwithstanding the use of the words
guarantee and guarantor, the subject Contract was indeed a surety,
because its terms were clear and left no doubt as to the intention
of the parties.The CaseBefore us is a Petition for Review[1]under
Rule 45 of the Rules of Court, assailing the February 28, 2002
Decision[2]and September 30, 2003 Resolution[3]of the Court of
Appeals (CA) in CA-GR CV No. 58471. The challenged Decision
disposed as follows:WHEREFORE, the appeal isPARTIALLY GRANTED. The
decision of the trial court isMODIFIEDto read as follows:1.
Philippine Polyamide Industrial Corporation isORDEREDto pay
[Petitioner] International Finance Corporation, the following
amounts:(a) US$2,833,967.00 with accrued interests as provided in
the Loan Agreement;(b) Interest of 12% per annum on accrued
interest, which shall be counted from the date of filing of the
instant action up to the actual payment;(c)P73,340.00 as attorneys
fees;(d) Costs of suit.2. The guarantor Imperial Textile Mills,
Inc. together with Grandtex isHELDsecondarily liable to pay the
amount herein adjudged to [Petitioner] International Finance
Corporation.[