G.R. No.

166058

April 4, 2007

EMERITA GARON, Petitioner,

vs.
PROJECT MOVERS REALTY AND DEVELOPMENT CORPORATION and STONGHOLD INSURANCE COMPANY, INC., Respondents.
DECISION
CALLEJO, SR., J.:
This is a Petition for Review on Certiorari of the Decision 1 of the Court of Appeals (CA) dated May 7, 2004 in CA-G.R. CV No. 69962, and its
Resolution2 dated November 16, 2004. The assailed Decision affirmed with modification the Order3 dated September 19, 2000 issued by the
Regional Trial Court (RTC), Makati City, Branch 56, in Civil Case No. 99-1051.
Antecedents
On December 19, 1997, Project Movers Realty and Development Corporation (PMRDC) obtained a loan from Emerita Garon in the amount
of P6,088,783.68. The loan was covered by Promissory Note No. PMRDC-97-12-3324 to mature on December 19, 1998. The stipulated interest
rate, in accordance with the schedule5 of payment attached to the note, was 36% per annum. To secure the payment of the loan, PMRDC
undertook to assign to Garon its leasehold rights over a space at the Monumento Plaza Commercial Complex, covered by Original Certificate of
Leasehold Title (OCLT) No. 1108. The parties stipulated that failure to pay the note or any portion thereof, or any interest thereon, shall
constitute default, and the entire obligation shall become due and payable without need of demand.
On December 31, 1997, PMRDC obtained another loan from Garon in the amount of US$189,418.75, at 17% per annum, to mature on
December 31, 1998. The transaction was covered by Promissory Note No. PMRDC-D97-12-333. 6 This loan was secured by an assignment of
leasehold rights over another space of the Monumento Plaza Commercial Complex covered by OCLT No. 0161.
To secure its obligation to assign the leasehold rights to Garon, PMRDC procured a surety bond7 from Stronghold Insurance Company, Inc.
(SICI). The surety bond was subject to the following conditions:
WHEREAS, this bond is conditioned to guarantee the assignment of Leasehold Rights of the Principal at Monumento Plaza Building in favor of
the Obligee over the Certain Original Certificate of Leasehold Title No. 0161 and 0108 (sic).
WHEREAS, the liability of the surety company upon determination under this bond shall in no case exceed the penal sum of PESOS: TWELVE
MILLION SEVEN HUNDRED FIFTY-FIVE THOUSAND ONE HUNDRED THIRTY-NINE & 85/100 (P12,755,139.85) Only, Philippine Currency.
xxx
Liability of surety on this bond will expire on November 7, 1998 and said bond will be cancelled five days after its expiration, unless surety is
notified of any existing obligations thereunder.8
When PMRDC defaulted in the payment of its obligations, Garon sent a demand letter 9 dated November 3, 1998, requiring PMRDC to execute
and deliver a unilateral Deed of Assignment of its leasehold rights over the commercial spaces covered by OCLT Nos. 1108 and 0161. Garon
also sent a formal demand letter10 dated November 6, 1998 for SICI to comply with its obligation under the surety bond.
In view of PMRDCs and SICIs failure to comply with their respective obligations, Garon filed a Complaint 11 for collection before the RTC of
Makati City. The case was raffled to Branch 56, and was docketed as Civil Case No. 99-1051. The complaint contained the following prayer:
WHEREFORE, plaintiff respectfully prays that after hearing on the merits, this Court render[s] judgment in favor of plaintiff and against
defendants as follows:
1. Ordering defendant PMRDC to pay plaintiff the sums of:
1.1. PESOS: Six Million Eighty-Eight Thousand Seven Hundred Eighty-Three and 68/100 (P6,088,783.68) under PMRDC97-12-332; and
1.2. DOLLARS: One Hundred Eighty-Nine Thousand Four Hundred Eighteen and 75/100 (US$189,418.75) under PMRDC97-12-333.
2. Declaring defendant Stronghold solidarily liable, and ordering it to pay plaintiff the sum of PESOS: Twelve Million Seven Hundred
Fifty-Five Thousand One Hundred Thirty-Nine and 85/100 (P12,755,139.85) under SICI Bond No. 67831.
3. Ordering defendant PMRDC to pay:
3.1. Interest at 36% per annum and a penalty of 3% per month until full payment on the unpaid amount due under PMRDC97-12-332;
3.2. Interest at 17% per annum and a penalty of 3% per month until full payment on the unpaid amount due under PMRDC97-12-333;

3.3. Legal interest on the interest accruing at the time of the filing of the complaint conformably with Article 2212 of the New
Civil Code.
4. On the third cause of action, ordering:
4.1. defendant PMRDC to pay PESOS: Ten Thousand (P10,000.00) as attorneys fees stipulated in PMRDC-97-12-332;
4.2. defendant PMRDC to pay PESOS: Ten Thousand (P10,000.00) as attorneys fees stipulated in PMRDC-97-12-333; and
4.3. defendant Stronghold to pay Attorneys fees in the amount of P200,000.00.
4.4. defendants PMRDC and Stronghold to pay plaintiff such amounts of litigation expenses and costs of suit as may be
proven during trial.
Other reliefs just and equitable under the premises are likewise prayed for.12
In its Answer,13 SICI averred, as special and affirmative defenses, that the complaint stated no cause of action and was prematurely filed; its
obligation had been extinguished; the liability on the bond had been discharged by the act of plaintiff and by the act of law; and its liability on the
bond had prescribed.14 It likewise contended that at the time plaintiff sent the demand letter, the obligation guaranteed by the bond had not yet
matured.15 It further claimed that it was misled by plaintiff and PMRDC that the bond guaranteed its investment with the project of PMRDC at
Monumento Plaza. SICI also asserted that Garon did not exercise the diligence of a good father of a family to avoid or minimize losses since
she did not even require the surrender of the OCLTs before the promissory notes were signed and the loans released. SICI also set up a crossclaim against PMRDC for the payment of any amount it may be ordered to pay to Garon, pursuant to the Indemnity Agreement 16 executed by
the latter.17
For its part, PMRDC denied that it executed the above-stated promissory notes and alleged instead that they were merely roll-overs of PN No.
97-07-228 and 97-08-260.18 It also alleged that it had already complied with its undertaking under the promissory notes when it put up a surety
bond;19 and when Garon chose to demand from SICI, she effectively waived the right to claim from it. 20 PMRDC further denied liability on the
stipulated interest on the ground that the same is exorbitant and unconscionable. 21 As a counterclaim, PMRDC asked for moral and exemplary
damages, as well as for attorneys fees.22 As and by way of cross-claim against SICI, it likewise demanded the payment of moral damages and
attorneys fees.23
Garon filed her Reply24 and a motion25 to render summary judgment. The RTC granted the motion and ruled as follows:
WHEREFORE, premises considered, this Court hereby renders judgment in favor of plaintiff Mrs. Emerita I. Garon as follows:
1. Defendant Project Movers Realty and Development Corporation is hereby directed to pay plaintiff as follows:
On Promissory Note No. PMRDC 97-12-332:
(A) The sum of PESOS: Six Million Eighty-Eight Thousand Seven Hundred Eighty-Three and 68/100 (P6,088,783.68) under
PMRDC-97-12-332;
(B) Interest thereon at 36% per annum computed from 19 December 1997 until fully paid.
(C) A penalty of 3% per month computed from 03 November 1998 until full payment on all unpaid amounts consisting of the
principal and interest.
On Promissory Note PMRDC No. 97-12-333:
(A) The peso equivalent of the sum of DOLLARS: One Hundred Eighty-Nine Thousand Four Hundred Eighteen and 75/100
(US$189,418.75) under PMRDC-97-12-333.
(B) Interest thereon at the stipulated rate of 17% per annum computed from 31 December 1997;
(C) A penalty of 3% per month computed from 03 November 1998 until full payment on all unpaid amounts consisting of the
principal and interest.
2. Defendant Stronghold Insurance Company, Inc. is hereby held jointly and solidarily liable to plaintiff Mrs. Garon in the amount of
PESOS: TWELVE MILLION SEVEN HUNDRED FIFTY FIVE THOUSAND ONE HUNDRED THIRTY NINE AND EIGHTY FIVE
CENTAVOS (P12,755,139.85).
3. Defendants Project Movers Realty and Development Corporation and Stronghold Insurance Company, Inc. are also ordered to pay
plaintiff Mrs. Garon jointly and severally the sum of PESOS: TWO HUNDRED THOUSAND as attorneys fees plus costs of suit.
All other claims and counter-claims of the parties are hereby ordered dismissed.
SO ORDERED.26
The RTC found that the assignment of PMRDCs leasehold rights was merely an accessory obligation and not an alternative one; hence,
Garons demand on SICIs obligation on the surety bond could not be considered a waiver of her right to collect from PMRDC. On SICIs

contention that her claim was premature, the RTC ruled that the formers liability arose upon PMRDCs failure to assign the leasehold rights, not
on the maturity date of the loan. The court further held that SICIs claim of prescription is without merit because plaintiff made a demand on
November 6, 1998, while the surety bond expired on November 7, 1998.
Garon filed a Motion for Execution Pending Appeal,27 while SICI filed a Motion for Reconsideration.28 The court denied29 the motion for
reconsideration and granted30 the motion for execution pending appeal. SICI then filed a special civil action for Certiorari with Temporary
Restraining Order (TRO) and/or Writ of Preliminary Injunction 31before the CA, docketed as CA-G.R. SP No. 63334 assailing the order of the
court granting execution pending appeal. On February 23, 2001, the CA issued a TRO 32 enjoining petitioner from enforcing the writ of execution
pending appeal.
Meanwhile, on October 11, 2000 and February 16, 2001, PMRDC and SICI filed their respective Notices of Appeal 33 which the RTC approved.
However, in view of PMRDCs failure to file its appellants brief, the CA issued a Resolution 34 dismissing its appeal for having been abandoned.
The Resolution became final and executory.
1awphi1.nt

On the other hand, in its brief, SICI raised the following errors:
I. THE LOWER COURT PALPABLY COMMITTED GRAVE ERROR IN GRANTING APPELLEES MOTION FOR SUMMARY
JUDGMENT, DESPITE LACK OF VALID BASIS THEREFOR.
II. THE LOWER COURT LIKEWISE PALPABLY COMMITTED GRAVE ERROR IN RENDERING THE SUMMARY JUDGMENT
HOLDING APPELLANT STRONGHOLD LIABLE UNDER ITS SURETY BOND TO APPELLEE DESPITE LACK OF FACTUAL AND
LEGAL BASIS FOR ITS JUDGMENT.35
According to SICI, the RTC erroneously rendered summary judgment notwithstanding the genuine issues raised by the parties. 36 It claimed that
its obligations under the surety bond never became effective because of PMRDCs failure to assign its leasehold rights. It likewise insisted that
when the promissory notes matured, Garon could no longer run after it as its liability under the surety bond had already expired.
On May 7, 2004, the CA affirmed with modification the decision of the RTC.

37

The fallo reads:

WHEREFORE, foregoing considered, the appealed decision is affirmed with the modification that defendant-appellant SICI is not liable to
plaintiff-appellee.
No pronouncement as to cost.
SO ORDERED.38
In upholding the propriety of the summary judgment rendered by the RTC, the CA declared that no genuine issue was raised since the parties
admitted executing the promissory notes and surety bond, and the non-performance of the correlative obligations; the liabilities of the parties
were likewise clearly set forth in the contracts. The CA further affirmed the RTCs finding that PMRDC was not relieved of its liability despite the
enforcement of Garons right against SICI; so long as the debt has not been fully paid, SICI is still liable.
The CA found, however, that appellant cannot be held liable because its liability had long expired (on November 7, 1998) prior to the maturity
dates of the loans on December 17 and 31, 1998. Thus, at the time PMRDC defaulted, the surety bond had long expired.
Garon, now petitioner, comes before this Court on the sole ground that:
THE HONORABLE COURT OF APPEALS GRAVELY ERRED IN MODIFYING THE TRIAL COURTS DECISION AND FINDING THAT
PROMISSORY NOTES NO. PMRDC 97-12-332 AND PMRDC NO. 97-12-333 MATURED ONLY ON 17 DECEMBER 1998 AND 31
DECEMBER 1998, RESPECTIVELY.39
Petitioner avers that it was specifically stated in the promissory notes that failure to pay any of the note or interest thereon shall constitute
default, and the entire obligation shall immediately become due and payable. In view of PMRDCs default, the entire obligation became due and
demandable. Moreover, the liability of respondent SICI attached the moment PMRDC failed to assign its leasehold rights. Thus, the CAs ruling
that respondent cannot be held liable because the notes have not yet matured is utterly incorrect.
For its part, respondent SICI avers that petitioner invoked the alleged acceleration clauses of the promissory notes only before this Court. It
likewise argues that the maturity date of the loan is immaterial because the promissory notes were not guaranteed by the surety bond. As such,
respondent SICI cannot be made to answer for the payment of the loan. 40
In her Reply,41 petitioner asserts that the promissory notes, which explicitly provide for the acceleration of the maturity dates, are all part of the
record. Since respondent SICI did not deny the authenticity and due execution of the notes, the contents may be read in evidence in the
resolution of the issues. She further states that in view of the admission of respondent SICI that the leasehold rights of PMRDC were never
assigned to petitioner, the SICI should be held liable.
Thus, the issue in this case is whether respondent SICI is liable to petitioner under its surety bond.
The present controversy arose from the following contracts: (1) the contracts of loan covered by promissory notes No. PMRDC-97-12-332 42 and
PMRDC-D97-12-33343 dated December 19 and 31, 1997, between petitioner and PMRDC; and (2) the surety bond 44 dated November 7, 1997,
between PMRDC and respondent SICI.
1a\^/phi1.net

In the subject promissory notes, PMRDC undertook to pay the amount of the loan covered by the two notes, as well as to assign its leasehold
rights over two spaces in the Monumento Plaza Commercial Complex covered by OCLT Nos. 0161 and 1108, as a security for the loan.

To secure PMRDCs obligation to assign its leasehold rights to petitioner, the former procured the surety bond from respondent SICI subject to
the following conditions:
WHEREAS, this bond is conditioned to guarantee the assignment of Leasehold Rights of the Principal at Monumento Plaza Building in favor of
the Obligee over the Certain Original Certificate of Leasehold Title No. 0161 and 0108 (sic).
WHEREAS, the liability of the surety company upon determination under this bond shall in no case exceed the penal sum of PESOS: TWELVE
MILLION SEVEN HUNDRED FIFTY FIVE THOUSAND ONE HUNDRED THIRTY NINE & 85/100 (P12,755,139.85) Only, Philippine Currency.
xxx
Liability of surety on this bond will expire on November 7, 1998 and said bond will be cancelled five days after its expiration, unless surety is
notified of any existing obligations thereunder.45
Thus, respondent SICI, in turn, undertook to guarantee the assignment of leasehold rights; and bound itself to be liable to petitioner in case of
PMRDCs failure to assign the leasehold rights in an amount not exceedingP12,755,139.85. This undertaking, however, was to expire on
November 7, 1998.
It must be stressed that the principal obligation guaranteed by the surety bond is the assignment of the leasehold rights of PMRDC to petitioner
over the subject spaces. Petitioner made a formal demand on November 3, 1998 for PMRDC to perform the obligation, but the latter defaulted.
As such, PMRDCs liability as principal arose. Consequently, respondents liability as surety likewise arose. Respondent therefore cannot claim
that its obligation arose only upon the maturity of the subject loans. To sustain this contention would mean that respondent cannot be held liable
under the surety bond, because if demand is made after the maturity dates of the loans December 19 and 31, 1998 it could again assert
that its liability had expired on November 7, 1998.
Suretyship arises upon the solidary binding of a person (deemed the surety) with the principal debtor, for the purpose of fulfilling an
obligation.46 A surety is considered in law as being the same party as the debtor in relation to whatever is adjudged as touching the obligation of
the latter, and their liabilities are interwoven as to be inseparable. 47 Although a surety contract is secondary to the principal obligation, the
liability of the surety is direct, primary and absolute, or equivalent to that of a regular party to the undertaking. 48
Notwithstanding the timeliness of the demand on respondent, the latter cannot be held liable in the instant case. Indeed, the liability of
respondent arose the moment PMRDC failed to assign its leasehold rights; and the demand on respondent was made prior to the expiration of
the surety bond. However, an examination of the terms of the surety bond clearly shows that respondent guaranteed the assignment of the
leasehold rights, not the payment of a particular sum of money owed by PMRDC to petitioner. The principal obligation therefore is the
assignment of the leasehold right, and the accessory obligation is the surety agreement.
The Court notes, however, that respondent is a stranger to the contract of loan between petitioner and PMRDC; it cannot thus be held liable for
an obligation which it did not undertake to perform or at least to guarantee. It is basic that the parties are bound by the terms of their contract
which is the law between them. The extent of a suretys liability is determined by the language of the suretyship contract or bond itself. It cannot
be extended by implication, beyond the terms of the contract. 49 Contracts have the force of law between the parties who are free to stipulate any
matter not contrary to law, morals, good customs, public order or public policy.50 If the terms of a contract are clear and leave no doubt upon the
intention of the contracting parties, the literal meaning of its stipulations shall control. 51
Since respondents undertaking under the surety bond was to guarantee the assignment of leasehold rights, the security of the principal debt,
its obligation cannot extend to the payment of the principal obligation; to do so would mean going beyond the terms of the contract.
The records show that in her demand letters dated November 3 and 6, 1998, petitioner made formal demands on both PMRDC and respondent
for the assignment of PMRDCs leasehold right. However, in her complaint in Civil Case No. 99-1051 where the present case arose, petitioner
prayed for the payment of the principal debt, not theassignment of PMRDCs leasehold rights. The pertinent portion of the complaint reads:
WHEREFORE, plaintiff respectfully prays that after hearing on the merits, this court render[s] judgment in favor of plaintiff and against
defendants as follows:
1. Ordering defendant PMRDC to pay plaintiff the sums of:
xxx
2. Declaring defendant Stronghold solidarily liable and ordering it to pay plaintiff the sum of x x x. (Emphasis supplied) 52
It thus shows that petitioner was enforcing her right to collect the debt, rather than her right to secure it through the assignment of the leasehold
right. Respondent is being made solidarily liable for the payment of such debt which obviously is beyond its undertaking under the surety bond.
In sum, respondents liability on the bond arose from the time PMRDC failed to comply with its obligation to assign its leasehold rights over the
subject properties as security for the payment of her debt covered by the promissory notes, not on the maturity of the loan. However,
respondent cannot be held liable to make such payment for the following reasons: (1) its undertaking under the surety bond was merely to
guarantee the assignment of PMRDCs leasehold rights and not the payment of the principal obligation; and (2) petitioner, in instituting the
instant case, is seeking to enforce her right to collect the principal debt rather than enforce the security.
IN LIGHT OF ALL THE FOREGOING, the instant petition is hereby DENIED. The Decision of the Court of Appeals dated May 7, 2004, and its
Resolution dated November 16, 2004, are AFFIRMED.

G.R. No. 151953

June 29, 2007

SALVADOR P. ESCAO and MARIO M. SILOS, petitioner,

vs.
RAFAEL ORTIGAS, JR., respondent.
DECISION
TINGA, J.:
The main contention raised in this petition is that petitioners are not under obligation to reimburse respondent, a claim that can be easily
debunked. The more perplexing question is whether this obligation to repay is solidary, as contended by respondent and the lower courts, or
merely joint as argued by petitioners.
On 28 April 1980, Private Development Corporation of the Philippines (PDCP)1 entered into a loan agreement with Falcon Minerals, Inc.
(Falcon) whereby PDCP agreed to make available and lend to Falcon the amount of US$320,000.00, for specific purposes and subject to
certain terms and conditions.2 On the same day, three stockholders-officers of Falcon, namely: respondent Rafael Ortigas, Jr. (Ortigas), George
A. Scholey and George T. Scholey executed an Assumption of Solidary Liability whereby they agreed "to assume in [their] individual capacity,
solidary liability with [Falcon] for the due and punctual payment" of the loan contracted by Falcon with PDCP.3 In the meantime, two separate
guaranties were executed to guarantee the payment of the same loan by other stockholders and officers of Falcon, acting in their personal and
individual capacities. One Guaranty4 was executed by petitioner Salvador Escao (Escao), while the other 5 by petitioner Mario M. Silos (Silos),
Ricardo C. Silverio (Silverio), Carlos L. Inductivo (Inductivo) and Joaquin J. Rodriguez (Rodriguez).
Two years later, an agreement developed to cede control of Falcon to Escao, Silos and Joseph M. Matti (Matti). Thus, contracts were
executed whereby Ortigas, George A. Scholey, Inductivo and the heirs of then already deceased George T. Scholey assigned their shares of
stock in Falcon to Escao, Silos and Matti.6 Part of the consideration that induced the sale of stock was a desire by Ortigas, et al., to relieve
themselves of all liability arising from their previous joint and several undertakings with Falcon, including those related to the loan with PDCP.
Thus, an Undertaking dated 11 June 1982 was executed by the concerned parties, 7 namely: with Escao, Silos and Matti identified in the
document as "SURETIES," on one hand, and Ortigas, Inductivo and the Scholeys as "OBLIGORS," on the other. The Undertaking reads in part:
3. That whether or not SURETIES are able to immediately cause PDCP and PAIC to release OBLIGORS from their said guarantees [sic],
SURETIES hereby irrevocably agree and undertake to assume all of OBLIGORs said guarantees [sic] to PDCP and PAIC under the following
terms and conditions:
a. Upon receipt by any of [the] OBLIGORS of any demand from PDCP and/or PAIC for the payment of FALCONs obligations with it, any of [the]
OBLIGORS shall immediately inform SURETIES thereof so that the latter can timely take appropriate measures;
b. Should suit be impleaded by PDCP and/or PAIC against any and/or all of OBLIGORS for collection of said loans and/or credit facilities,
SURETIES agree to defend OBLIGORS at their own expense, without prejudice to any and/or all of OBLIGORS impleading SURETIES therein
for contribution, indemnity, subrogation or other relief in respect to any of the claims of PDCP and/or PAIC; and
c. In the event that any of [the] OBLIGORS is for any reason made to pay any amount to PDCP and/or PAIC, SURETIES shall reimburse
OBLIGORS for said amount/s within seven (7) calendar days from such payment;
4. OBLIGORS hereby waive in favor of SURETIES any and all fees which may be due from FALCON arising out of, or in connection with, their
said guarantees[sic].8

Falcon eventually availed of the sum of US$178,655.59 from the credit line extended by PDCP. It would also execute a Deed of Chattel
Mortgage over its personal properties to further secure the loan. However, Falcon subsequently defaulted in its payments. After PDCP
foreclosed on the chattel mortgage, there remained a subsisting deficiency of P5,031,004.07, which Falcon did not satisfy despite demand.9
On 28 April 1989, in order to recover the indebtedness, PDCP filed a complaint for sum of money with the Regional Trial Court of Makati (RTC)
against Falcon, Ortigas, Escao, Silos, Silverio and Inductivo. The case was docketed as Civil Case No. 89-5128. For his part, Ortigas filed
together with his answer a cross-claim against his co-defendants Falcon, Escao and Silos, and also manifested his intent to file a third-party
complaint against the Scholeys and Matti.10 The cross-claim lodged against Escao and Silos was predicated on the 1982 Undertaking, wherein
they agreed to assume the liabilities of Ortigas with respect to the PDCP loan.
Escao, Ortigas and Silos each sought to seek a settlement with PDCP. The first to come to terms with PDCP was Escao, who in December of
1993, entered into a compromise agreement whereby he agreed to pay the bankP1,000,000.00. In exchange, PDCP waived or assigned in
favor of Escao one-third (1/3) of its entire claim in the complaint against all of the other defendants in the case. 11 The compromise agreement
was approved by the RTC in a Judgment12 dated 6 January 1994.
Then on 24 February 1994, Ortigas entered into his own compromise agreement 13 with PDCP, allegedly without the knowledge of Escao, Matti
and Silos. Thereby, Ortigas agreed to pay PDCP P1,300,000.00 as "full satisfaction of the PDCPs claim against Ortigas," 14 in exchange for
PDCPs release of Ortigas from any liability or claim arising from the Falcon loan agreement, and a renunciation of its claims against Ortigas.
In 1995, Silos and PDCP entered into a Partial Compromise Agreement whereby he agreed to pay P500,000.00 in exchange for PDCPs waiver
of its claims against him.15
In the meantime, after having settled with PDCP, Ortigas pursued his claims against Escao, Silos and Matti, on the basis of the 1982
Undertaking. He initiated a third-party complaint against Matti and Silos, 16 while he maintained his cross-claim against Escao. In 1995, Ortigas
filed a motion for Summary Judgment in his favor against Escao, Silos and Matti. On 5 October 1995, the RTC issued the Summary
Judgment, ordering Escao, Silos and Matti to pay Ortigas, jointly and severally, the amount of P1,300,000.00, as well as P20,000.00 in
attorneys fees.17 The trial court ratiocinated that none of the third-party defendants disputed the 1982 Undertaking, and that "the mere denials
of defendants with respect to non-compliance of Ortigas of the terms and conditions of the Undertaking, unaccompanied by any substantial fact
which would be admissible in evidence at a hearing, are not sufficient to raise genuine issues of fact necessary to defeat a motion for summary
judgment, even if such facts were raised in the pleadings."18 In an Order dated 7 March 1996, the trial court denied the motion for
reconsideration of the Summary Judgment and awarded Ortigas legal interest of 12% per annum to be computed from 28 February 1994. 19
From the Summary Judgment, recourse was had by way of appeal to the Court of Appeals. Escao and Silos appealed jointly while Matti
appealed by his lonesome. In a Decision20 dated 23 January 2002, the Court of Appeals dismissed the appeals and affirmed the Summary
Judgment. The appellate court found that the RTC did not err in rendering the summary judgment since the three appellants did not effectively
deny their execution of the 1982 Undertaking. The special defenses that were raised, "payment and excussion," were characterized by the
Court of Appeals as "appear[ing] to be merely sham in the light of the pleadings and supporting documents and affidavits." 21 Thus, it was
concluded that there was no genuine issue that would still require the rigors of trial, and that the appealed judgment was decided on the bases
of the undisputed and established facts of the case.
Hence, the present petition for review filed by Escao and Silos. 22 Two main issues are raised. First, petitioners dispute that they are liable to
Ortigas on the basis of the 1982 Undertaking, a document which they do not disavow and have in fact annexed to their petition. Second, on the
assumption that they are liable to Ortigas under the 1982 Undertaking, petitioners argue that they are jointly liable only, and not solidarily.
Further assuming that they are liable, petitioners also submit that they are not liable for interest and if at all, the proper interest rate is 6% and
not 12%.
Interestingly, petitioners do not challenge, whether in their petition or their memorandum before the Court, the appropriateness of the summary
judgment as a relief favorable to Ortigas. Under Section 3, Rule 35 of the 1997 Rules of Civil Procedure, summary judgment may avail if the
pleadings, supporting affidavits, depositions and admissions on file show that, except as to the amount of damages, there is no genuine issue
as to any material fact and that the moving party is entitled to a judgment as a matter of law. Petitioner have not attempted to demonstrate
before us that there existed a genuine issue as to any material fact that would preclude summary judgment. Thus, we affirm with ease the
common rulings of the lower courts that summary judgment is an appropriate recourse in this case.
The vital issue actually raised before us is whether petitioners were correctly held liable to Ortigas on the basis of the 1982 Undertaking in this
Summary Judgment. An examination of the document reveals several clauses that make it clear that the agreement was brought forth by the
desire of Ortigas, Inductivo and the Scholeys to be released from their liability under the loan agreement which release was, in turn, part of the
consideration for the assignment of their shares in Falcon to petitioners and Matti. The whereas clauses manifest that Ortigas had bound
himself with Falcon for the payment of the loan with PDCP, and that "amongst the consideration for OBLIGORS and/or their principals aforesaid
selling is SURETIES relieving OBLIGORS of any and all liability arising from their said joint and several undertakings with FALCON." 23 Most
crucial is the clause in Paragraph 3 of the Undertaking wherein petitioners "irrevocably agree and undertake to assume all of OBLIGORs said
guarantees [sic] to PDCP x x x under the following terms and conditions." 24
At the same time, it is clear that the assumption by petitioners of Ortigass "guarantees" [sic] to PDCP is governed by stipulated terms and
conditions as set forth in sub-paragraphs (a) to (c) of Paragraph 3. First, upon receipt by "any of OBLIGORS" of any demand from PDCP for the
payment of Falcons obligations with it, "any of OBLIGORS" was to immediately inform "SURETIES" thereof so that the latter can timely take
appropriate measures. Second, should "any and/or all of OBLIGORS" be impleaded by PDCP in a suit for collection of its loan, "SURETIES
agree[d] to defend OBLIGORS at their own expense, without prejudice to any and/or all of OBLIGORS impleading SURETIES therein for
contribution, indemnity, subrogation or other relief"25 in respect to any of the claims of PDCP. Third, if any of the "OBLIGORS is for any reason
made to pay any amount to [PDCP], SURETIES [were to] reimburse OBLIGORS for said amount/s within seven (7) calendar days from such
payment."26
Petitioners claim that, contrary to paragraph 3(c) of the Undertaking, Ortigas was not "made to pay" PDCP the amount now sought to be
reimbursed, as Ortigas voluntarily paid PDCP the amount of P1.3 Million as an amicable settlement of the claims posed by the bank against
him. However, the subject clause in paragraph 3(c) actually reads "[i]n the event that any of OBLIGORS is for any reason made to pay any

amount to PDCP x x x"27 As pointed out by Ortigas, the phrase "for any reason" reasonably includes any extra-judicial settlement of obligation
such as what Ortigas had undertaken to pay to PDCP, as it is indeed obvious that the phrase was incorporated in the clause to render the
eventual payment adverted to therein unlimited and unqualified.
The interpretation posed by petitioners would have held water had the Undertaking made clear that the right of Ortigas to seek reimbursement
accrued only after he had delivered payment to PDCP as a consequence of a final and executory judgment. On the contrary, the clear intent of
the Undertaking was for petitioners and Matti to relieve the burden on Ortigas and his fellow "OBLIGORS" as soon as possible, and not only
after Ortigas had been subjected to a final and executory adverse judgment.
Paragraph 1 of the Undertaking enjoins petitioners to "exert all efforts to cause PDCP x x x to within a reasonable time release all the
OBLIGORS x x x from their guarantees [sic] to PDCP x x x"28 In the event that Ortigas and his fellow "OBLIGORS" could not be released from
their guaranties, paragraph 2 commits petitioners and Matti to cause the Board of Directors of Falcon to make a call on its stockholders for the
payment of their unpaid subscriptions and to pledge or assign such payments to Ortigas, et al., as security for whatever amounts the latter may
be held liable under their guaranties. In addition, paragraph 1 also makes clear that nothing in the Undertaking "shall prevent OBLIGORS, or
any one of them, from themselves negotiating with PDCP x x x for the release of their said guarantees [sic]." 29
There is no argument to support petitioners position on the import of the phrase "made to pay" in the Undertaking, other than an unduly literalist
reading that is clearly inconsistent with the thrust of the document. Under the Civil Code, the various stipulations of a contract shall be
interpreted together, attributing to the doubtful ones that sense which may result from all of them taken jointly.30 Likewise applicable is the
provision that if some stipulation of any contract should admit of several meanings, it shall be understood as bearing
that import which is most adequate to render it effectual.31 As a means to effect the general intent of the document to relieve Ortigas from
liability to PDCP, it is his interpretation, not that of petitioners, that holds sway with this Court.
Neither do petitioners impress us of the non-fulfillment of any of the other conditions set in paragraph 3, as they claim. Following the general
assertion in the petition that Ortigas violated the terms of the Undertaking, petitioners add that Ortigas "paid PDCP BANK the amount of P1.3
million without petitioners ESCANO and SILOSs knowledge and consent."32 Paragraph 3(a) of the Undertaking does impose a requirement that
any of the "OBLIGORS" shall immediately inform "SURETIES" if they received any demand for payment of FALCONs obligations to PDCP, but
that requirement is reasoned "so that the [SURETIES] can timely take appropriate measures" 33 presumably to settle the obligation without
having to burden the "OBLIGORS." This notice requirement in paragraph 3(a) is markedly way off from the suggestion of petitioners that
Ortigas, after already having been impleaded as a defendant in the collection suit, was obliged under the 1982 Undertaking to notify them
before settling with PDCP.
The other arguments petitioners have offered to escape liability to Ortigas are similarly weak.
Petitioners impugn Ortigas for having settled with PDCP in the first place. They note that Ortigas had, in his answer, denied any liability to
PDCP and had alleged that he signed the Assumption of Solidary Liability not in his personal capacity, but as an officer of Falcon. However,
such position, according to petitioners, could not be justified since Ortigas later voluntarily paid PDCP the amount of P1.3 Million. Such
circumstances, according to petitioners, amounted to estoppel on the part of Ortigas.
Even as we entertain this argument at depth, its premises are still erroneous. The Partial Compromise Agreement between PDCP and Ortigas
expressly stipulated that Ortigass offer to pay PDCP was conditioned "without [Ortigass] admitting liability to plaintiff PDCP Banks complaint,
and to terminate and dismiss the said case as against Ortigas solely." 34 Petitioners profess it is "unthinkable" for Ortigas to have voluntarily paid
PDCP without admitting his liability,35 yet such contention based on assumption cannot supersede the literal terms of the Partial Compromise
Agreement.
Petitioners further observe that Ortigas made the payment to PDCP after he had already assigned his obligation to petitioners through the 1982
Undertaking. Yet the fact is PDCP did pursue a judicial claim against Ortigas notwithstanding the Undertaking he executed with petitioners. Not
being a party to such Undertaking, PDCP was not precluded by a contract from pursuing its claim against Ortigas based on the original
Assumption of Solidary Liability.
At the same time, the Undertaking did not preclude Ortigas from relieving his distress through a settlement with the creditor bank. Indeed,
paragraph 1 of the Undertaking expressly states that "nothing herein shall prevent OBLIGORS, or any one of them, from themselves
negotiating with PDCP x x x for the release of their said guarantees [sic]."36 Simply put, the Undertaking did not bar Ortigas from pursuing his
own settlement with PDCP. Neither did the Undertaking bar Ortigas from recovering from petitioners whatever amount he may have paid PDCP
through his own settlement. The stipulation that if Ortigas was "for any reason made to pay any amount to PDCP[,] x x x SURETIES shall
reimburse OBLIGORS for said amount/s within seven (7) calendar days from such payment" 37 makes it clear that petitioners remain liable to
reimburse Ortigas for the sums he paid PDCP.
We now turn to the set of arguments posed by petitioners, in the alternative, that is, on the assumption that they are indeed liable.
Petitioners submit that they could only be held jointly, not solidarily, liable to Ortigas, claiming that the Undertaking did not provide for express
solidarity. They cite Article 1207 of the New Civil Code, which states in part that "[t]here is a solidary liability only when the obligation expressly
so states, or when the law or the nature of the obligation requires solidarity."
Ortigas in turn argues that petitioners, as well as Matti, are jointly and severally liable for the Undertaking, as the language used in the
agreement "clearly shows that it is a surety agreement"38 between the obligors (Ortigas group) and the sureties (Escao group). Ortigas points
out that the Undertaking uses the word "SURETIES" although the document, in describing the parties. It is further contended that the principal
objective of the parties in executing the Undertaking cannot be attained unless petitioners are solidarily liable "because the total loan obligation
can not be paid or settled to free or release the OBLIGORS if one or any of the SURETIES default from their obligation in the Undertaking." 39
In case, there is a concurrence of two or more creditors or of two or more debtors in one and the same obligation, Article 1207 of the Civil Code
states that among them, "[t]here is a solidary liability only when the obligation expressly so states, or when the law or the nature of the

obligation requires solidarity." Article 1210 supplies further caution against the broad interpretation of solidarity by providing: "The indivisibility of
an obligation does not necessarily give rise to solidarity. Nor does solidarity of itself imply indivisibility."
These Civil Code provisions establish that in case of concurrence of two or more creditors or of two or more debtors in one and the same
obligation, and in the absence of express and indubitable terms characterizing the obligation as solidary, the presumption is that the obligation
is only joint. It thus becomes incumbent upon the party alleging that the obligation is indeed solidary in character to prove such fact with a
preponderance of evidence.
The Undertaking does not contain any express stipulation that the petitioners agreed "to bind themselves jointly and severally" in their
obligations to the Ortigas group, or any such terms to that effect. Hence, such obligation established in the Undertaking is presumed only to be
joint. Ortigas, as the party alleging that the obligation is in fact solidary, bears the burden to overcome the presumption of jointness of
obligations. We rule and so hold that he failed to discharge such burden.
Ortigas places primary reliance on the fact that the petitioners and Matti identified themselves in the Undertaking as "SURETIES", a term
repeated no less than thirteen (13) times in the document. Ortigas claims that such manner of identification sufficiently establishes that the
obligation of petitioners to him was joint and solidary in nature.
The term "surety" has a specific meaning under our Civil Code. Article 2047 provides the statutory definition of a surety agreement, thus:
Art. 2047. By guaranty a person, called the guarantor, binds himself to the creditor to fulfill the obligation of the principal debtor in case the latter
should fail to do so.
If a person binds himself solidarily with the principal debtor, the provisions of Section 4, Chapter 3, Title I of this Book shall be observed. In such
case the contract is called a suretyship. [Emphasis supplied] 40
As provided in Article 2047 in a surety agreement the surety undertakes to be bound solidarily with the principal debtor. Thus, a surety
agreement is an ancillary contract as it presupposes the existence of a principal contract. It appears that Ortigass argument rests solely on the
solidary nature of the obligation of the surety under Article 2047. In tandem with the nomenclature "SURETIES" accorded to petitioners and
Matti in the Undertaking, however, this argument can only be viable if the obligations established in the
Undertaking do partake of the nature of a suretyship as defined under Article 2047 in the first place. That clearly is not the case here,
notwithstanding the use of the nomenclature "SURETIES" in the Undertaking.
Again, as indicated by Article 2047, a suretyship requires a principal debtor to whom the surety is solidarily bound by way of an ancillary
obligation of segregate identity from the obligation between the principal debtor and the creditor. The suretyship does bind the surety to the
creditor, inasmuch as the latter is vested with the right to proceed against the former to collect the credit in lieu of proceeding against the
principal debtor for the same obligation.41 At the same time, there is also a legal tie created between the surety and the principal debtor to which
the creditor is not privy or party to. The moment the surety fully answers to the creditor for the obligation created by the principal debtor, such
obligation is extinguished.42 At the same time, the surety may seek reimbursement from the principal debtor for the amount paid, for the surety
does in fact "become subrogated to all the rights and remedies of the creditor." 43
Note that Article 2047 itself specifically calls for the application of the provisions on joint and solidary obligations to suretyship contracts. 44 Article
1217 of the Civil Code thus comes into play, recognizing the right of reimbursement from a co-debtor (the principal debtor, in case of suretyship)
in favor of the one who paid (i.e., the surety). 45However, a significant distinction still lies between a joint and several debtor, on one hand, and a
surety on the other. Solidarity signifies that the creditor can compel any one of the joint and several debtors or the surety alone to answer for the
entirety of the principal debt. The difference lies in the respective faculties of the joint and several debtor and the surety to seek reimbursement
for the sums they paid out to the creditor.
Dr. Tolentino explains the differences between a solidary co-debtor and a surety:
A guarantor who binds himself in solidum with the principal debtor under the provisions of the second paragraph does not become a solidary
co-debtor to all intents and purposes. There is a difference between a solidary co-debtor and a fiador in solidum (surety). The latter, outside of
the liability he assumes to pay the debt before the property of the principal debtor has been exhausted, retains all the other rights, actions and
benefits which pertain to him by reason of the fiansa; while a solidary co-debtor has no other rights than those bestowed upon him in Section 4,
Chapter 3, Title I, Book IV of the Civil Code.
The second paragraph of [Article 2047] is practically equivalent to the contract of suretyship. The civil law suretyship is, accordingly, nearly
synonymous with the common law guaranty; and the civil law relationship existing between the co-debtors liable in solidum is similar to the
common law suretyship.46
In the case of joint and several debtors, Article 1217 makes plain that the solidary debtor who effected the payment to the creditor "may claim
from his co-debtors only the share which corresponds to each, with the interest for the payment already made." Such solidary debtor will not be
able to recover from the co-debtors the full amount already paid to the creditor, because the right to recovery extends only to the proportional
share of the other co-debtors, and not as to the particular proportional share of the solidary debtor who already paid. In contrast, even as the
surety is solidarily bound with the principal debtor to the creditor, the surety who does pay the creditor has the right to recover the full amount
paid, and not just any proportional share, from the principal debtor or debtors. Such right to full reimbursement falls within the other rights,
actions and benefits which pertain to the surety by reason of the subsidiary obligation assumed by the surety.
What is the source of this right to full reimbursement by the surety? We find the right under Article 2066 of the Civil Code, which assures that
"[t]he guarantor who pays for a debtor must be indemnified by the latter," such indemnity comprising of, among others, "the total amount of the
debt."47 Further, Article 2067 of the Civil Code likewise establishes that "[t]he guarantor who pays is subrogated by virtue thereof to all the rights
which the creditor had against the debtor."48

Articles 2066 and 2067 explicitly pertain to guarantors, and one might argue that the provisions should not extend to sureties, especially in light
of the qualifier in Article 2047 that the provisions on joint and several obligations should apply to sureties. We reject that argument, and instead
adopt Dr. Tolentinos observation that "[t]he reference in the second paragraph of [Article 2047] to the provisions of Section 4, Chapter 3, Title I,
Book IV, on solidary or several obligations, however, does not mean that suretyship is withdrawn from the applicable provisions governing
guaranty."49 For if that were not the implication, there would be no material difference between the surety as defined under Article 2047 and the
joint and several debtors, for both classes of obligors would be governed by exactly the same rules and limitations.
Accordingly, the rights to indemnification and subrogation as established and granted to the guarantor by Articles 2066 and 2067 extend as well
to sureties as defined under Article 2047. These rights granted to the surety who pays materially differ from those granted under Article 1217 to
the solidary debtor who pays, since the "indemnification" that pertains to the latter extends "only [to] the share which corresponds to each [codebtor]." It is for this reason that the Court cannot accord the conclusion that because petitioners are identified in the Undertaking as
"SURETIES," they are consequently joint and severally liable to Ortigas.
In order for the conclusion espoused by Ortigas to hold, in light of the general presumption favoring joint liability, the Court would have to be
satisfied that among the petitioners and Matti, there is one or some of them who stand as the principal debtor to Ortigas and another as surety
who has the right to full reimbursement from the principal debtor or debtors. No suggestion is made by the parties that such is the case, and
certainly the Undertaking is not revelatory of such intention. If the Court were to give full fruition to the use of the term "sureties" as conclusive
indication of the existence of a surety agreement that in turn gives rise to a solidary obligation to pay Ortigas, the necessary implication would
be to lay down a corresponding set of rights and obligations as between the "SURETIES" which petitioners and Matti did not clearly intend.
It is not impossible that as between Escao, Silos and Matti, there was an agreement whereby in the event that Ortigas were to seek
reimbursement from them per the terms of the Undertaking, one of them was to act as surety and to pay Ortigas in full, subject to his right to full
reimbursement from the other two obligors. In such case, there would have been, in fact, a surety agreement which evinces a solidary
obligation in favor of Ortigas. Yet if there was indeed such an agreement, it does not appear on the record. More consequentially, no such
intention is reflected in the Undertaking itself, the very document that creates the conditional obligation that petitioners and Matti reimburse
Ortigas should he be made to pay PDCP. The mere utilization of the term "SURETIES" could not work to such effect, especially as it does not
appear who exactly is the principal debtor whose obligation is "assured" or "guaranteed" by the surety.
Ortigas further argues that the nature of the Undertaking requires "solidary obligation of the Sureties," since the Undertaking expressly seeks to
"reliev[e] obligors of any and all liability arising from their said joint and several undertaking with [F]alcon," and for the "sureties" to "irrevocably
agree and undertake to assume all of obligors said guarantees to PDCP." 50 We do not doubt that a finding of solidary liability among the
petitioners works to the benefit of Ortigas in the facilitation of these goals, yet the Undertaking itself contains no stipulation or clause that
establishes petitioners obligation to Ortigas as solidary. Moreover, the aims adverted to by Ortigas do not by themselves establish that the
nature of the obligation requires solidarity. Even if the liability of petitioners and Matti were adjudged as merely joint, the full relief and
reimbursement of Ortigas arising from his payment to PDCP would still be accomplished through the complete execution of such a judgment.
Petitioners further claim that they are not liable for attorneys fees since the Undertaking contained no such stipulation for attorneys fees, and
that the situation did not fall under the instances under Article 2208 of the Civil Code where attorneys fees are recoverable in the absence of
stipulation.
We disagree. As Ortigas points out, the acts or omissions of the petitioners led to his being impleaded in the suit filed by PDCP. The
Undertaking was precisely executed as a means to obtain the release of Ortigas and the Scholeys from their previous obligations as sureties of
Falcon, especially considering that they were already divesting their shares in the corporation. Specific provisions in the Undertaking obligate
petitioners to work for the release of Ortigas from his surety agreements with Falcon. Specific provisions likewise mandate the immediate
repayment of Ortigas should he still be made to pay PDCP by reason of the guaranty agreements from which he was ostensibly to be released
through the efforts of petitioners. None of these provisions were complied with by petitioners, and Article 2208(2) precisely allows for the
recovery of attorneys fees "[w]hen the defendants act or omission has compelled the plaintiff to litigate with third persons or to incur expenses
to protect his interest."
Finally, petitioners claim that they should not be liable for interest since the Undertaking does not contain any stipulation for interest, and
assuming that they are liable, that the rate of interest should not be 12% per annum, as adjudged by the RTC.
The seminal ruling in Eastern Shipping Lines, Inc. v. Court of Appeals 51 set forth the rules with respect to the manner of computing legal interest:
I. When an obligation, regardless of its source, i.e., law, contracts, quasi-contracts, delicts or quasi-delicts is breached, the contravenor can be
held liable for damages. The provisions under Title XVIII on "Damages" of the Civil Code govern in determining the measure of recoverable
damages.
II. With regard particularly to an award of interest in the concept of actual and compensatory damages, the rate of interest, as well as the
accrual thereof, is imposed, as follows:
1. When the obligation is breached, and it consists in the payment of a sum of money, i.e., a loan or forbearance of money, the interest due
should be that which may have been stipulated in writing. Furthermore, the interest due shall itself earn legal interest from the time it is judicially
demanded. In the absence of stipulation, the rate of interest shall be 12% per annum to be computed from default, i.e., from judicial or
extrajudicial demand under and subject to the provisions of Article 1169 of the Civil Code.
2. When an obligation, not constituting a loan or forbearance of money, is breached, an interest on the amount of damages awarded may be
imposed at the discretion of the court at the rate of 6% per annum. No interest, however, shall be adjudged on unliquidated claims or damages
except when or until the demand can be established with reasonable certainty. Accordingly, where the demand is established with reasonable
certainty, the interest shall begin to run from the time the claim is made judicially or extrajudicially (Art. 1169, Civil Code) but when such
certainty cannot be so reasonably established at the time the demand is made, the interest shall begin to run only from the date the judgment of
the court is made (at which time quantification of damages may be deemed to have been reasonably ascertained). The actual base for the
computation of legal interest shall, in any case, be on the amount finally adjudged.

3. When the judgment of the court awarding a sum of money becomes final and executory, the rate of legal interest, whether the case falls
under paragraph 1 or paragraph 2, above, shall be 12% per annum from such finality until its satisfaction, this interim period being deemed to
be by then an equivalent to a forbearance of credit.52
Since what was the constituted in the Undertaking consisted of a payment in a sum of money, the rate of interest thereon shall be 12% per
annum to be computed from default, i.e., from judicial or extrajudicial demand. The interest rate imposed by the RTC is thus proper. However,
the computation should be reckoned from judicial or extrajudicial demand. Per records, there is no indication that Ortigas made any extrajudicial
demand to petitioners and Matti after he paid PDCP, but on 14 March 1994, Ortigas made a judicial demand when he filed a Third-Party
Complaint praying that petitioners and Matti be made to reimburse him for the payments made to PDCP. It is the filing of this Third Party
Complaint on 14 March 1994 that should be considered as the date of judicial demand from which the computation of interest should be
reckoned.53 Since the RTC held that interest should be computed from 28 February 1994, the appropriate redefinition should be made.
WHEREFORE, the Petition is GRANTED in PART. The Order of the Regional Trial Court dated 5 October 1995 is modified by declaring that
petitioners and Joseph M. Matti are only jointly liable, not jointly and severally, to respondent Rafael Ortigas, Jr. in the amount of P1,300,000.00.
The Order of the Regional Trial Court dated 7 March 1996 is MODIFIED in that the legal interest of 12% per annum on the amount
of P1,300,000.00 is to be computed from 14 March 1994, the date of judicial demand, and not from 28 February 1994 as directed in the Order
of the lower court. The assailed rulings are affirmed in all other respects. Costs against petitioners

G.R. No. 172041

December 18, 2008

GATEWAY ELECTRONICS CORPORATION and GERONIMO B. DELOS REYES, JR., petitioners,

vs.
ASIANBANK CORPORATION, respondent.
DECISION
VELASCO, JR., J.:
This petition for review under Rule 45 seeks to nullify and set aside the Decision1 dated October 28, 2005 of the Court of Appeals (CA) in CAG.R. CV No. 80734 and its Resolution2 of March 17, 2006 denying petitioners motion for reconsideration.
The Facts

Petitioner Gateway Electronics Corporation (Gateway) is a domestic corporation that used to be engaged in the semi-conductor business.
During the period material, petitioner Geronimo B. delos Reyes, Jr. was its president and one Andrew delos Reyes its executive vice-president.
On July 23, 1996, Geronimo and Andrew executed separate but almost identical deeds of suretyship for Gateway in favor of respondent
Asianbank Corporation (Asianbank), pertinently providing:
I/We Geronimo B. de los Reyes, Jr. x x x warrant to the ASIANBANK CORPORATION, x x x due and punctual payment by the
following individuals/companies/firms, hereinafter called the DEBTOR(S), of such amounts whether due or not, as indicated opposite
their respective names, to wit:

NAME OF DEBTOR(S)

GATEWAY ELECTRONICS
CORPORATION

*P10,000,000.00
*DOMESTIC BILLS
[PURCHASED LINE]

AMOUNT OF OBLIGATION

*US$3,000,000.00
*OMNIBUS CREDIT LINE

owing to the said ASIANBANK CORPORATION, hereafter called the CREDITOR, as evidenced by all notes, drafts, overdrafts and
other [credit] obligations of every kind and nature contracted/incurred by said DEBTOR(S) in favor of said CREDITOR.
In case of default by any and/or all of the DEBTOR(S) to pay the whole part of said indebt
nbsp
nbsp
nbsp
nbsp
erein secured at maturity, I/WE BR
vs.
and severally agree and engage to the CREDITOR, its successors and assigns, the prompt payment, x x x of such notes, drafts,
overdrafts and other credit obligations on which the DEBTOR(S) may now be indebted or may hereafter become indebted to the
CREDITOR, together with all interests, penalty and other bank charges as may accrue thereon x x x.
I/WE further warrant the due and faithful performance by the DEBTOR(S) of all obligations to be performed under any contracts
evidencing indebtedness/obligations and any supplements, amendments, changes or modifications made thereto, including but not
limited to, the due and punctual payment by the said DEBTOR(S).
MY/OUR liability on this Deed of Suretyship shall be solidary, direct and immediate and not contingent upon the pursuit by the
CREDITOR x x x of whatever remedies it or they may have against the DEBTOR(S) or the securities or liens it or they may possess;
and I/WE hereby agree to be and remain bound upon this suretyship, x x x and notwithstanding also that all obligations of the
DEBTOR(S) to you outstanding and unpaid at any time may exceed the aggregate principal sum hereinabove stated. 3
Later developments saw Asianbank extending to Gateway several export packing loans in the total aggregate amount of USD 1,700,883.48.
This loan package was later consolidated with Dollar Promissory Note (PN) No. FCD-0599-2749 4 for the amount of USD 1,700,883.48 and
secured by a chattel mortgage over Gateways equipment for USD 2 million.
Gateway initially made payments on its loan obligations, but eventually defaulted. Upon Gateways request, Asianbank extended the maturity
dates of the loan several times. These extensions bore the conformity of three of Gateways officers, among them Andrew.
On July 15 and 30, 1999, Gateway issued two Philippine Commercial International Bank checks for the amounts of USD 40,000 and USD
20,000, respectively, as payment for its arrearages and interests for the periods June 30 and July 30, 1999; but both checks were dishonored
for insufficiency of funds. Asianbanks demands for payment made upon Gateway and its sureties went unheeded. As of November 23, 1999,
Gateways obligation to Asianbank, inclusive of principal, interest, and penalties, totaled USD 2,235,452.17.
Thus, on December 15, 1999, Asianbank filed with the Regional Trial Court (RTC) in Makati City a complaint for a sum of money against
Gateway, Geronimo, and Andrew. The complaint, as later amended, was eventually raffled to Branch 60 of the court and docketed as Civil Case
No. 99-2102 entitled Asian Bank Corporation v. Gateway Electronics Corporation, Geronimo B. De Los Reyes, Jr. and Andrew S. De Los
Reyes.
In its answer to the amended complaint, Gateway traced the cause of its financial difficulties, described the steps it had taken to address its
mounting problem, and faulted Asianbank for trying to undermine its efforts toward recovery.
Andrew also filed an answer alleging, among other things, that the deed of suretyship he executed covering the PhP 10 million-Domestic Bills
Purchased Line and the USD 3 million-Omnibus Credit Line did not include PN No. FCD-0599-2749, the payment of which was extended
several times without his consent.
Geronimo, on the other hand, alleged that the subject deed of suretyship, assuming the authenticity of his signature on it, was signed without
his wifes consent and should, thus, be considered as a mere continuing offer. Like Andrew, Geronimo argued that he ought to be relieved of his
liability under the surety agreement inasmuch as he too never consented to the repeated loan maturity date extensions given by Asianbank to
Gateway.
After due hearing, the RTC rendered judgment dated October 7, 20035 in favor of Gateway, the dispositive portion of which states:
WHEREFORE then, in view of the foregoing, judgment is rendered holding defendants Gateway Electronics Corporation, Geronimo
De Los Reyes and Andrew De Los Reyes jointly and severally liable to pay the plaintiff the following:
a) The sum of $2,235,452.17 United States Currency with interest to be added on at the prevailing market rate over a given
thirty day London Interbank Offered Rate (LIBOR) plus a spread of 5.5358 percent or ten and [45,455/100,000] percent per
annum for the first 35 days and every thirty days beginning November 23, 1999 until fully paid;
b) a penalty charge after November 23, 1999 of two percent (2%) per month until fully paid;

c) attorneys fees of twenty percent (20%) of the total amount due and unpaid; and
d) costs of the suit.
SO ORDERED.
Thereafter, Gateway, Geronimo, and Andrew appealed to the CA, their recourse docketed as CA-G.R. CV No. 80734. Following the filing of its
and Geronimos joint appellants brief, Gateway filed on November 10, 2004 a petition for voluntary insolvency 6 with the RTC in Imus, Cavite,
Branch 22, docketed as SEC Case No. 037-04, in which Asianbank was listed in the attached Schedule of Obligations as one of the creditors.
On March 16, 2005, Metrobank, as successor-in-interest of Asianbank, via a Notice of Creditors Claim, prayed that it be allowed to participate
in the Gatewayss creditors meeting.
In its Decision dated October 28, 2005, the CA affirmed the decision of the Makati City RTC. In time, Gateway and Geronimo interposed a
motion for reconsideration. This was followed by a Supplemental Motion for Reconsideration dated January 20, 2006, stating that in SEC Case
No. 037-04, the RTC in Imus, Cavite had issued an Order dated December 2, 2004, declaring Gateway insolvent and directing all its creditors
to appear before the court on a certain date for the purpose of choosing among themselves the assignee of Gateways estate which the courts
sheriff has meanwhile placed in custodia legis.7 Gateway and Geronimo thus prayed that the assailed decision of the Makati City RTC be set
aside, the insolvency court having acquired exclusive jurisdiction over the properties of Gateway by virtue of Section 60 of Act No. 1956, without
prejudice to Asianbank pursuing its claim in the insolvency proceedings.
In its March 17, 2006 Resolution, however, the CA denied the motion for reconsideration and its supplement.
Hence, Gateway and Geronimo filed this petition anchored on the following grounds:
I
The [CA] erred in disregarding the established rule that an action commenced by a creditor against a judicially declared insolvent for
the recovery of his claim should be dismissed and referred to the insolvency court. Where, therefore, as in this case, petitioner GEC
[referring to Gateway] has been declared insolvent x x x, respondent Asianbanks claim for the payment of GECs loans should be
ventilated before the insolvency court x x x.
II
The [CA] erred in admitting as evidence the Deed of Surety purportedly signed by petitioner GBR [referring to Geronimo] despite the
unexplained failure of respondent Asianbank to present the originals of the Deed of Surety during the trial.
III
The [CA] erred in holding that the repeated extensions granted by respondent Asianbank to GEC without notice to and the express
consent of petitioner GBR did not discharge petitioner GBR from his liabilities as surety GEC in that:
A. An extension granted to the debtor by the creditor without the consent of the guarantor extinguishes the guaranty.
B. The [CA] interpreted the supposed Deed of Surety of petitioner GBR as "too comprehensive and all encompassing as to amount to
absurdity."
C. The repeated extensions granted by Asianbank to GEC prevented petitioner GBR from exercising his right of subrogation under
Article 2080 of the Civil Code. As such, petitioner GBR should be released from his obligations as surety of GEC.
IV
It is a well-settled rule that when a bank deviates from normal banking practice in a transaction and sustains injury as a result thereof,
the bank is deemed to have assumed the risk and no right of payment accrues to the latter against any party to the transaction. By
repeatedly extending the period for the payment of GECs obligations and granting GEC other loans after the suretyship agreement
despite GECs default and in failing to foreclose the chattel mortgage constituted as security for GECs loan contrary to normal
banking practices, Asianbank failed to exercise reasonable caution for its own protection and assumed the risk of non-payment
through its own acts, and thus has no right to proceed against petitioner GBR as surety for the payment of GECs loans.
V
In Agcaoili v. GSIS, this Honorable Court had occasion to state that in determining the precise relief to give, the court will "balance the
equities" or the respective interests of the parties and take into account the relative hardship that one relief or another may occasion
to them. Upon a balancing of interests of both petitioner GBR and respondent Asianbank, greater and irreparable harm and injury
would be suffered by petitioner GBR than respondent Asianbank if the assailed Decision and Resolution of the [CA] would be upheld x
x x. This Honorable Court x x x should thus exercise its equity jurisdiction in the instant case to the end that it may render complete
justice to both parties and declare petitioner GBR as released and discharged from any liability in respect of respondent Asianbanks
claims.8
The Ruling of the Court
Gateway May Be Discharged from Liability But Not Geronimo
Gateway, having been declared insolvent, argues that jurisdiction over all claims against all of its properties and assets properly pertains to the
insolvency court. Accordingly, Gateway adds, citing Sec. 60 of Act No. 1956, 9 as amended, or the Insolvency Law, any pending action against
its properties and assets must be dismissed, the claimant relegated to the insolvency proceedings for the claimants relief.
The contention, as formulated, is in a qualified sense meritorious. Under Sec. 18 of Act No. 1956, as couched, the issuance of an order
declaring the petitioner insolvent after the insolvency court finds the corresponding petition for insolvency to be meritorious shall stay all

pending civil actions against the petitioners property. For reference, said Sec. 18, setting forth the effects and contents of a voluntary
insolvency order,10 pertinently provides:
Section 18. Upon receiving and filing said petition, schedule, and inventory, the court x x x shall make an order declaring the petitioner
insolvent, and directing the sheriff of the province or city in which the petition is filed to take possession of, and safely keep, until the
appointment of a receiver or assignee, all the deeds, vouchers, books of account, papers, notes, bonds, bills, and securities of the
debtor and all his real and personal property, estate and effects x x x. Said order shall further forbid the payment to the creditor of any
debts due to him and the delivery to the debtor, or to any person for him, of any property belonging to him, and the transfer of any
property by him, and shall further appoint a time and place for a meeting of the creditors to choose an assignee of the estate. Said
order shall [be published] x x x. Upon the granting of said order, all civil proceedings pending against the said insolvent shall
be stayed. When a receiver is appointed, or an assignee chosen, as provided in this Act, the sheriff shall thereupon deliver to such
receiver or assignee, as the case may be all the property, assets, and belongings of the insolvent which have come into his
possession x x x. (Emphasis supplied.)
Complementing Sec. 18 which appropriately comes into play "upon the granting of [the] order" of insolvency is the succeeding Sec. 60 which
properly applies to the period "after the commencement of proceedings in insolvency." The two provisions may be harmonized as follows: Upon
the filing of the petition for insolvency, pending civil actions against the property of the petitioner are not ipso facto stayed, but the insolvent may
apply with the court in which the actions are pending for a stay of the actions against the insolvents property. If the court grants such
application, pending civil actions against the petitioners property shall be stayed; otherwise, they shall continue. Once an order of insolvency
nevertheless issues, all civil proceedings against the petitioners property are, by statutory command, automatically stayed. Sec. 60 is
reproduced below:
SECTION 60. Creditors proving claims cannot sue; Stay of action.No creditor, proving his debt or claim, shall be allowed to maintain
any suit therefor against the debtor, but shall be deemed to have waived all right of action and suit against him, and all proceedings
already commenced, or any unsatisfied judgment already obtained thereon, shall be deemed to be discharged and surrendered
thereby; and after the debtors discharge, upon proper application and proof to the court having jurisdiction, all such proceedings shall
be, dismissed, and such unsatisfied judgments satisfied of record: Provided, x x x. A creditor proving his debt or claim shall not be
held to have waived his right of action or suit against the debtor when a discharge has have been refused or the proceedings have
been determined to the without a discharge. No creditor whose debt is provable under this Act shall be allowed, after the
commencement of proceedings in insolvency, to prosecute to final judgment any action therefor against the debtor until the
question of the debtors discharge shall have been determined, and any such suit proceeding shall, upon the application of
the debtor or of any creditor, or the assignee, be stayed to await the determination of the court on the question of discharge:
Provided, That if the amount due the creditor is in dispute, the suit, by leave of the court in insolvency, may proceed to
judgment for purpose of ascertaining the amount due, which amount, when adjudged, may be allowed in the insolvency
proceedings, but execution shall be stayed aforesaid. (Emphasis supplied.)
Applying the aforequoted provisions, it can rightfully be said that the issuance of the insolvency order of December 2, 2004 had the effect of
automatically staying the civil action for a sum of money filed by Asianbank against Gateway. In net effect, the proceedings before the CA in
CA-G.R. CV No. 80734, but only insofar as the claim against Gateway was concerned, was, or ought to have been, suspended after December
2, 2004, Asianbank having been duly notified of and in fact was a participant in the insolvency proceedings. The Court of course takes stock of
the proviso in Sec. 60 of Act No. 1956 which in a way provided the CA with a justifying tool to continue and to proceed to judgment in CA-G.R.
CV No. 80734, but only for the purpose of ascertaining the amount due from Gateway. At any event, on the postulate that jurisdiction over the
properties of the insolvent-declared Gateway lies with the insolvency court, execution of the CA insolvency judgment against Gateway can only
be pursued before the insolvency court. Asianbank, no less, tends to agree to this conclusion when it stated: "[E]ven it if is assumed that the
declaration of insolvency of petitioner Gateway can be taken cognizance of, such fact does relieve petitioner Geronimo and/or Andrew delos
Reyes from performing their obligations based on the Deeds of Suretyship x x x."11
Geronimo, however, is a different story.
Asianbank argues that the stay of the collection suit against Gateway is without bearing on the liability of Geronimo as a surety, adding that
claims against a surety may proceed independently from that against the principal debtor. Pursuing the point, Asianbank avers that Geronimo
may not invoke the insolvency of Gateway as a defense to evade liability.
Geronimo counters with the argument that his liability as a surety cannot be separated from Gateways liability. As surety, he continues, he is
entitled to avail himself of all the defenses pertaining to Gateway, including its insolvency, suggesting that if Gateway is eventually released
from what it owes Asianbank, he, too, should also be so relieved.
Geronimos above contention is untenable.
Suretyship is covered by Article 2047 of the Civil Code, which states:
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.
The Courts disquisition in Palmares v. Court of Appeals on suretyship is instructive, thus:
A surety is an insurer of the debt, whereas a guarantor is an insurer of the solvency of the debtor. A suretyship is an undertaking that
the debt shall be paid x x x. 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. A surety binds himself to perform if the principal does not, without regard to his ability to do so. x x x In other words, a surety
undertakes directly for the payment and is so responsible at once if the principal debtor makes default x x x.
xxxx
A creditors right to proceed against the surety exists independently of his right to proceed against the principal. 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. Since, generally, it is not necessary for the 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 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. Perforce, x x x 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.12
Clearly, Asianbanks right to collect payment for the full amount from Geronimo, as surety, exists independently of its right against Gateway as
principal debtor;13 it could thus proceed against one of them or file separate actions against them to recover the principal debt covered by the
deed on suretyship, subject to the rule prohibiting double recovery from the same cause. 14 This legal postulate becomes all the more cogent in
case of an insolvency situation where, as here, the insolvency court is bereft of jurisdiction over the sureties of the principal debtor. As
Asianbank aptly points out, a suit against the surety, insofar as the suretys solidary liability is concerned, is not affected by an insolvency
proceeding instituted by or against the principal debtor. The same principle holds true with respect to the surety of a corporation in distress
which is subject of a rehabilitation proceeding before the Securities and Exchange Commission (SEC). As we held in Commercial Banking
Corporation v. CA, a surety of the distressed corporation can be sued separately to enforce his liability as such, notwithstanding an SEC order
declaring the former under a state of suspension of payment. 15
Geronimo also states that, as things stand, his liability, as compared to that of Gateway, is contextually more onerous and burdensome,
precluded as he is from seeking recourse against the insolvent corporation. From this premise, Geronimo claims that since Gateway cannot,
owing to the order of insolvency, be made to pay its obligation, he, too, being just a surety, cannot also be made to pay, obviously having in
mind Art. 2054 of the Civil Code, as follows:
A guarantor may bind himself for less, but not for more than the principal debtor, both as regards the amount and the onerous nature
of the conditions.
Should he have bound himself for more, his obligations shall be reduced to the limits of that of the debtor.
The Court is not convinced. The above article enunciates the rule that the obligation of a guarantor may be less, but cannot be more than the
obligation of the principal debtor. The rule, however, cannot plausibly be stretched to mean that a guarantor or surety is freed from liability as
such guarantor or surety in the event the principal debtor becomes insolvent or is unable to pay the obligation. This interpretation would defeat
the very essence of a suretyship contract which, by definition, refers to an agreement whereunder one person, the surety, engages to be
answerable for the debt, default, or miscarriage of another known as the principal. 16 Geronimos position that a surety cannot be made to pay
when the principal is unable to pay is clearly specious and must be rejected.
The CA Did Not Err in Admitting
the Deed of Suretyship as Evidence
Going to the next ground, Geronimo maintains that the CA erred in admitting the Deed of Suretyship purportedly signed by him, given that
Asianbank failed to present its original copy.
This contention is bereft of merit.
As may be noted, paragraph 6 of Asianbanks complaint alleged the following:
6. The loan was secured by the Deeds of Suretyship dated July 23, 1996 that were executed by defendants Geronimo B. De Los
Reyes, Jr. and Andrew S. De Los Reyes. Attached as Annexes "B" and "C," respectively, are photocopies of the Deeds of Suretyship
executed by defendants Geronimo B. De Los Reyes, Jr. and Andrew S. De Los Reyes. Subsequently, a chattel mortgage over
defendant Gateways equipment for $2 million, United States currency, was executed. 17
Geronimo traversed in his answer the foregoing allegation in the following wise: "2.5. Paragraph 6 is denied, subject to the special and
affirmative defenses and allegations hereinafter set forth."
The ensuing special and affirmative defenses were raised in Gateways answer:
15. Granting even that [Geronimo] signed the Deed of Suretyship, his wife x x x had not given her consent thereto. Accordingly, the
security created by the suretyship shall be construed only as a continuing offer on the part of [Geronimo] and plaintiff and may only be
perfected as a binding contract upon acceptance by Mrs. Delos Reyes. x x x
17. Moreover, assuming, gratia argumenti, that [Geronimo] may be bound by the suretyship agreement, there is no showing that he
has consented to the repeated extensions made by plaintiff in favor of GEC or to a waiver of notice of such extensions. It should be
pointed out that Mr. Geronimo delos Reyes executed the suretyship agreement in his personal capacity and not in his capacity as
Chairman of the Board of GEC. His consent, insofar as the continuing application of the suretyship agreement to GECs obligations in
view of the repeated extension extended by plaintiff [is concerned], is therefore necessary. Obviously, plaintiff cannot now hold him
liable as a surety to GECs obligations.18
The Rules of Court prescribes, under its Secs. 7 and 8, Rule 8, the procedure should a suit or defense is predicated on a written document,
thus:
Sec. 7. Action or defense based on document.Whenever an action or defense is based upon a written instrument or document, the
substance of such instrument or document shall be set forth in the pleading, and the original or a copy thereof shall be attached to
the pleading as an exhibit, which shall be deemed to be a part of the pleading, or said copy may with like effect be set forth in the
pleading.
Sec. 8. How to contest such documents.When an action or defense is founded upon a written instrument, copied in or attached to
the corresponding pleading as provided in the preceding section, the genuineness and due execution of the instrument shall be
deemed admitted unless the adverse party, under oath, specifically denies them, and sets forth what he claims to be the
facts; but the requirement of an oath does not apply when the adverse party does not appear to be a party to the instrument or when
compliance with an order for an inspection of the original instrument is refused. (Emphasis supplied.)
Given the above perspective, Asianbank, by attaching a photocopy of the Deed of Suretyship to its underlying complaint, hewed to the
requirements of the above twin provisions. Asianbank, thus, effectively alleged the due execution and genuineness of the said deed. From that

point, Geronimo, if he intended to contest the surety deed, should have specifically denied the due execution and genuineness of the deed in
the manner provided by Sec. 10, Rule 8 of the Rules of Court, thus:
Sec. 10. Specific denial.A defendant must specify each material allegation of fact the truth of which he does not admit and,
whenever practicable, shall set forth the substance of the matters upon which he relies to support his denial. Where a
defendant desires to deny only a part of an averment, he shall specify so much of it as is true and material and shall deny only the
remainder. Where a defendant is without knowledge or information sufficient to form a belief as to the truth of a material averment
made in the complaint, he shall so state, and this shall have the effect of a denial. (Emphasis supplied.)
In the instant case, Geronimo should have categorically stated that he did not execute the Deed of Suretyship and that the signature appearing
on it was not his or was falsified. His Answer does not, however, contain any such statement. Necessarily then, Geronimo had not specifically
denied, and, thus, is deemed to have admitted, the genuineness and due execution of the deed in question. In this regard, Sec. 11, Rule 8 of
the Rules of Court states:
Sec. 11. Allegations not specifically denied deemed admitted.Material averment in the complaint, other than those as to the amount
of unliquidated damages, shall be deemed admitted when not specifically denied. x x x
Owing to Geronimos virtual admission of the genuineness and due execution of the deed of suretyship, Asianbank, contrary to the view of
Gateway and Geronimo, need not present the original of the deed during the hearings of the case. Sec. 4, Rule 129 of the Rules says so:
Sec. 4. Judicial admissions.An admission, verbal or written, made by the party in the course of the proceedings in the same
case, does not require proof. The admission may be contradicted only by showing that it was made through palpable mistake or that
no such admission was made. (Emphasis supplied.)
Geronimo Is Liable for PN No. FCD-0599-2749
under His Deed of Suretyship
This brings us to the third ground which involves the issue of the coverage of the suretyship. Preliminarily, an overview on the process of taking
out loans should first be made. Generally, especially for large loans, banks first approve a line or facility out of which a client may avail itself of
loans in the form of promissory notes without need of further processing and/or approval every time a draw down is made. In the instant case,
Asianbank approved in favor of Gateway the PhP 10 million-Domestic Bills Purchased Line and the USD 3 million-Omnibus Credit Line.
Asianbank approved these credit lines which were covered by a chattel mortgage as well as the deeds of suretyship, such that loans extended
from these lines would already be secured and pre-approved. In other words, these facilities are not financial obligations yet. Asianbank did not
yet lend out any money to Gateway with the approval of these lines. The loan transaction occurred or the principal obligation, as secured by a
surety agreement, was born after the execution of loan documents, such as PN No. FCD-0599-2749.
Geronimo now excepts from the ruling that the deed of suretyship he executed covered PN No. FCD-0599-2749 which embodied several export
packing loans issued by Asianbank to Gateway. He claims that the deed only secured the PhP 10 million-Domestic Bills Purchased Line and
the USD 3 million-Omnibus Credit Line. Geronimo describes as absurd the notion that a deed of suretyship would secure a loan obligation
contracted three (3) years after the execution of the surety deed.
Geronimos thesis that the deed in question cannot be accorded prospective application is erroneous. To be sure, the provisions of the subject
deed of suretyship indicate a continuing suretyship. In Fortune Motors (Phils.) v. Court of Appeals,19 the Court, citing cases, defined and upheld
the validity of a continuing suretyship in this wise:
"x x x Of course, a surety is not bound under any particular principal obligation until that principal obligation is born. But there is no
theoretical or doctrinal difficulty inherent in saying that the suretyship agreement itself is valid and binding even before the principal
obligation intended to be secured thereby is born, any more than there would be in saying that obligations which are subject to a
condition precedent are valid and binding before the occurrence of the condition precedent.
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, commonly 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."20
In Dio vs. Court of Appeals,21 we again had occasion to discourse on continuing guaranty/suretyship thus:
"x x x 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. 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. 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 x x x.
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." (Emphasis
supplied.)
By its nature, a continuing suretyship covers current and future loans, provided that, with respect to future loan transactions, they are, to borrow
from Dio, as cited above, "within the description or contemplation of the contract of guaranty." The Deed of Suretyship Geronimo signed
envisaged a continuing suretyship when, by the express terms of the deed, he warranted payment of the PhP 10 million-Domestic Bills
Purchased Line and the USD 3 million-Omnibus Credit Line, as evidenced by:
x x x notes, drafts, overdrafts and other credit obligations on which the DEBTOR(S) may now be indebted or may hereafter become
indebted to the CREDITOR, together with all interests, penalty and other bank charges as may accrue thereon and all expenses
which may be incurred by the latter in collecting any or all such instruments. 22

Evidently, under the deed of suretyship, Geronimo undertook to secure all obligations obtained under the Domestic Bills Purchased Line and
Omnibus Credit Line, without any specification as to the period of the loan.
Geronimos application of Garcia v. Court of Appeals, a case covering two separate loans, denominated as SWAP Loan and Export Loan, is
quite misplaced. There, the Court ruled that the continuing suretyship only covered the SWAP Loan as it was only this loan that was referred to
in the continuing suretyship. The Court wrote in Garcia:
Particular attention must be paid to the statement appearing on the face of the Indemnity [Suretyship] Agreement x x x "evidenced by
those certain loan documents dated April 20, 1982" x x x. From this statement, it is clear that the Indemnity Agreement refers only
to the loan document of April 20, 1982 which is the SWAP loan. It did not include the EXPORT loan. Hence, petitioner cannot be held
answerable for the EXPORT loan.23 (Emphasis supplied.)
The Indemnity Agreement in Garcia specifically identified loan documents evidencing obligations of the debtor that the agreement was intended
to secure. In the present case, however, the suretyship Geronimo assumed did not limit itself to a specific loan document to the exclusion of
another. The suretyship document merely mentioned the Domestic Bills Purchased Line and Omnibus Credit Line as evidenced by "all notes,
drafts x x x contracted/incurred by [Gateway] in favor of [Asianbank]." 24 As explained earlier, such credit facilities are not loans by themselves.
Thus, the Deed of Suretyship was intended to secure future loans for which these facilities were opened in the first place.
Lest it be overlooked, both the trial and appellate courts found the Omnibus Credit Line referred to in the Deed of Suretyship as covering the
export packing credit loans Asianbank extended to Gateway. We agree with this factual determination. By the very use of the term "omnibus,"
and in practice, an omnibus credit line refers to a credit facility whence a borrower may avail of various kinds of credit loans. Defined as such,
an omnibus line is broad enough to refer to or cover an export packing credit loan.
Geronimos allegation that an export packing credit loan is separate and distinct from an omnibus credit line is but a bare and self-serving
assertion bereft of any factual or legal basis. One who alleges something must prove it: a mere allegation is not evidence. 25 Geronimo has not
discharged his burden of proof. His contention cannot be given any weight.
As a final and major ground for his release as surety, Geronimo alleges that Asianbank repeatedly extended the maturity dates of the
obligations of Gateway without his knowledge and consent. Pressing this point, he avers that, contrary to the findings of the CA, he did not
waive his right to notice of extensions of Gateways obligations.
Such contention is unacceptable as it glosses over the fact that the waiver to be notified of extensions is embedded in surety document itself,
built in the ensuing provision:
In case of default by any and/or all of the DEBTOR(S) to pay the whole part of said indebtedness herein secured at maturity, I/WE
jointly and severally, agree and engage to the CREDITOR, its successors and assigns, the prompt payment, without demand or
notice from said CREDITOR of such notes, drafts, overdrafts and other credit obligations on which the DEBTOR(S) may now
be indebted or may hereafter become indebted to the CREDITOR, together with all interests, penalty and other bank charges as
may accrue thereon and all expenses which may be incurred by the latter in collecting any or all such instruments. 26 (Emphasis
supplied.)
In light of the above provision, Geronimo verily waived his right to notice of the maturity of notes, drafts, overdraft, and other credit obligations
for which Gateway shall become indebted. This waiver necessarily includes new agreements resulting from the novation of previous
agreements due to changes in their maturity dates.
Additionally, Geronimos lament about losing his right to subrogation is erroneous. He argues that by virtue of the order of insolvency issued by
the insolvency court, title and right to possession to all the properties and assets of Gateway were vested upon Gateways assignee in
accordance with Sec. 32 of the Insolvency Law.
The transfer of Gateways property to the insolvency assignee, if this be the case, does not negate Geronimos right of subrogation, for such
right may be had or exercised in the insolvency proceedings. The possibility that he may only recover a portion of the amount he is liable to pay
is the risk he assumed as a surety of Gateway. Such loss does not, however, render ineffectual, let alone invalidate, his suretyship.
Geronimos other arguments to escape liability are puerile and really partake more of a plea for liberality. They need not detain us long. In gist,
Geronimo argues: first, that he is a gratuitous surety of Gateway; second, Asianbank deviated from normal banking practice, such as when it
extended the period for payment of Gateways obligation and when it opted not to foreclose the chattel mortgage constituted as guarantee of
Gateways loan obligation; and third, implementing the appealed CAs decision would cause him great harm and injury.
Anent the first argument, suffice it to state that Geronimo was then the president of Gateway and, as such, was benefited, albeit perhaps
indirectly, by the loan thus granted by Asianbank. And as we said in Security Pacific Assurance Corporation, the surety is liable for the debt of
another although the surety possesses no direct or personal interest over the obligation nor does the surety receive any benefit from it. 27
Whether or not Asianbank really deviated from normal banking practice by extending the period for Gateway to comply with its loan obligation or
by not going after the chattel mortgage adverted to is really of no moment. Banks are primarily in the business of extending loans and earn
income from their lending operations by way of service and interest charges. This is why Asianbank opted to give Gateway ample opportunity to
pay its obligations instead of foreclosing the chattel mortgage and in the process holding on to assets of which the bank has really no direct
use.
The following excerpts from Palmares are in point:
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 x x x. 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.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, or that he need not trouble himself. The consequences of the delay, such as the
subsequent insolvency of the principal, or the fact that the remedies against the principal may be lost by lapse of time, are immaterial. 28

The Courts Equity Jurisdiction

Finds No Application to the Instant Case
Geronimo urges the Court to release and discharge him from any liability arising from Asianbanks claims if what he terms as "complete justice"
is to be served. He cites, as supporting reference, Agcaoili v. GSIS,29 presenting in the same breath the following arguments: first, the Deed of
Suretyship is a gratuitous contract from which he did not benefit; second, Asianbank assured him that the deed would not be enforced against
him; third, the enforcement of the judgment of the CA would reduce Geronimo and his family to a life of penury; and fourth, Geronimo would be
unable to exercise his right of subrogation, Gateway having already been declared as insolvent.
The first and last arguments have already been addressed and found to be without merit. The second argument is a matter of defense which
has remained unproved and even belied by Asianbank by its filing of the complaint. We see no need to further belabor any of them.
As regards the third allegation, suffice it to state that the predicament Geronimo finds himself in is his very own doing. His misfortune is but the
result of the implementation of a bona fide contract he freely executed, the terms of which he is presumed to have thoroughly examined. He
was not at all compelled to act as surety; he had a choice. It may be more offensive to public policy or good customs if he be allowed to go back
on his undertaking under the surety contract. The Court cannot be a party to the contracts impairment and relieve a surety from the effects of
an unwise but nonetheless a valid surety contract.
WHEREFORE, the instant petition is hereby DENIED. The appealed Decision dated October 28, 2005 of the CA and its March 17, 2006
Resolution in CA-G.R. CV No. 80734 are hereby AFFIRMED with the modification that any claim of Asianbank or its successor-in-interest
against Gateway, if any, arising from the judgment in this suit shall be pursued before the RTC, Branch 22 in Imus, Cavite as the insolvency
court.
Costs against petitioners.

G.R. No. 166662

June 27, 2008

AUTOCORP GROUP and PETER Y. RODRIGUEZ, petitioner,

vs.
INTRA STRATA ASSURANCE CORPORATION and BUREAU OF CUSTOMS, respondents.
DECISION
CHICO-NAZARIO, J.:

This is a Petition for Review on Certiorari from the Decision1 of the Court of Appeals dated 30 June 2004 in CA-G.R. CV No. 62564 which
affirmed with modification the Decision2 of the Regional Trial Court (RTC) of Makati City, Branch 150 in Civil Case No. 95-1584 dated 16
September 1998.
The factual and procedural antecedents of this case are as follows:
On 19 August 1990, petitioner Autocorp Group, represented by its President, petitioner Peter Y. Rodriguez, secured an ordinary re-export bond,
Instrata Bond No. 5770, from private respondent Intra Strata Assurance Corporation (ISAC) in favor of public respondent Bureau of Customs
(BOC), in the amount of P327,040.00, to guarantee the re-export of one unit of Hyundai Excel 4-door 1.5 LS and/or to pay the taxes and duties
thereon.
On 21 December 1990, petitioners obtained another ordinary re-export bond, Instrata Bond No. 7154, from ISAC in favor of the BOC, in the
amount of P447,671.00, which was eventually increased to P707,609.00 per Bond Endorsement No. BE-0912/91 dated 10 January 1991, to
guarantee the re-export of one unit of Hyundai Sonata 2.4 GLS and/or to pay the taxes and duties thereon.
Petitioners executed and signed two Indemnity Agreements with identical stipulations in favor of ISAC, agreeing to act as surety of the subject
bonds. Petitioner Rodriguez signed the Indemnity Agreements both as President of the Autocorp Group and in his personal capacity. Petitioners
thus agreed to the following provisions:
INDEMNITY: - The undersigned agree at all times to jointly and severally indemnify the COMPANY and keep it indemnified and hold
and save it harmless from and against any and all damages, losses, costs, stamps, taxes, penalties, charges and expenses of
whatsoever kind and nature including counsel or attorneys fee which the COMPANY shall or may at any time sustain or incur in
consequence of having become surety upon the bond herein above referred to or any extension, renewal, substitution or alteration
thereof, made at the instance of the undersigned or any of them, or any other bond executed on behalf of the undersigned or any of
them, and to pay; reimburse and make good to the COMPANY, its successors and assigns, alls sums and amounts of money which it
or its representatives shall pay or cause to be paid, or become liable to pay on accounts of the undersigned or any of them, of
whatsoever kind and nature, including 25% of the amount involved in the litigation or other matters growing out of or connected
therewith, for and as attorneys fees, but in no case less than P300.00 and which shall be payable whether or not the case be
extrajudicially settled, it being understood that demand made upon anyone of the undersigned herein is admitted as demand made on
all of the signatories hereof. It is hereby further agreed that in case of any extension or renewal of the bond, we equally bind ourselves
to the COMPANY under the same terms and conditions as therein provided without the necessity of executing another indemnity
agreement for the purpose and that we may be granted under this indemnity agreement.
MATURITY OF OUR OBLIGATIONS AS CONTRACTED HEREWITH AND ACCRUAL OF ACTION: - Notwithstanding of (sic) the next
preceding paragraph where the obligation involves a liquidated amount for the payment of which the COMPANY has become legally
liable under the terms of the obligation and its suretyship undertaking, or by the demand of the obligee or otherwise and the latter has
merely allowed the COMPANYs aforesaid liability irrespective of whether or not payment has actually been made by the COMPANY,
the COMPANY for the protection of its interest may forthwith proceed against the undersigned or either of them by court action or
otherwise to enforce payment, even prior to making payment to the obligee which may hereafter be done by the COMPANY.
INTEREST IN CASE OF DELAY: - In the event of delay in payment of the said sum or sums by the undersigned they will pay interest
at the rate of 12% per annum or same, which interest, if not paid, will be liquidated and accumulated to the capital quarterly, and shall
earn the same interest as the capital; all this without prejudice to the COMPANYs right to demand judicially or extrajudicially the full
payment of its claims.
INCONTESTABILITY OF PAYMENT MADE BY THE COMPANY: - Any payment or disbursement made by the COMPANY on account
of the above-mentioned Bond, its renewals, extensions or substitutions, replacement or novation in the belief either that the
COMPANY was obligated to make such payment or that said payment was necessary in order to avoid greater losses or obligations
for which the COMPANY might be liable by virtue of the terms of the above-mentioned Bond, its renewal, extensions or substitutions,
shall be final and will not be disputed by the undersigned, who bind themselves to jointly and severally indemnify the COMPANY of
any such payments, as stated in the preceding clauses:
WAIVER OF VENUE OF ACTION: - We hereby agree that any question which may arise between the COMPANY and the
undersigned by reason of this document and which has to be submitted for decision to a court of justice shall be brought before the
court of competent jurisdiction in Makati, Rizal, waiving for this purpose any other venue.
WAIVER: - The undersigned hereby waive all the rights[,] privileges and benefits that they have or may have under Articles 2077,
2078, 2079, 2080 and 2081, of the Civil Code of the Philippines.
The undersigned, by this instrument, grant a special power of attorney in favor of all or any of the other undersigned so that any of the
undersigned may represent all the others in all transactions related to this Bond, its renewals, extensions, or any other agreements in
connection with this Counter-Guaranty, without the necessity of the knowledge or consent of the others who hereby promise to accept
as valid each and every act done or executed by any of the attorneys-in-fact by virtue of the special power of attorney.
OUR LIABILITY HEREUNDER: - It shall not be necessary for the COMPANY to bring suit against the principal upon his default or to
exhaust the property of the principal, but the liability hereunder of the undersigned indemnitors shall be jointly and severally, a primary
one, the same as that of the principal, and shall be exigible immediately upon the occurrence of such default.
CANCELLATION OF BOND BY THE COMPANY: - The COMPANY may at any time cancel the above-mentioned Bond, its renewals,
extensions or substitutions, subject to any liability which might have accrued prior to the date of cancellation refunding the
proportionate amount of the premium unearned on the date of cancellation.

RENEWALS, ALTERATIONS AND SUBSTITUTIONS: - The undersigned hereby empower and authorize the COMPANY to grant or
consent to the granting of any extension, continuation, increase, modification, change, alteration and/or renewal of the original bond
herein referred to, and to execute or consent to the execution of any substitution for said Bond with the same or different, conditions
and parties, and the undersigned hereby hold themselves jointly and severally liable to the COMPANY for the original Bond herein
above-mentioned or for any extension, continuation, increase, modification, change, alteration, renewal or substitution thereof without
the necessary of any new indemnity agreement being executed until the full amount including principal, interest, premiums, costs, and
other expenses due to the COMPANY thereunder is fully paid up.
SEVERABILITY OF PROVISIONS: - It is hereby agreed that should any provision or provisions of this agreement be declared by
competent public authority to be invalid or otherwise unenforceable, all remaining provisions herein contained shall remain in full force
and effect.
NOTIFICATION: - The undersigned hereby accept due notice of that the COMPANY has accepted this guaranty, executed by the
undersigned in favor of the COMPANY.3
In sum, ISAC issued the subject bonds to guarantee compliance by petitioners with their undertaking with the BOC to re-export the imported
vehicles within the given period and pay the taxes and/or duties due thereon. In turn, petitioners agreed, as surety, to indemnify ISAC for the
liability the latter may incur on the said bonds.
Petitioner Autocorp Group failed to re-export the items guaranteed by the bonds and/or liquidate the entries or cancel the bonds, and pay the
taxes and duties pertaining to the said items despite repeated demands made by the BOC, as well as by ISAC. By reason thereof, the BOC
considered the two bonds, with a total face value ofP1,034,649.00, forfeited.
Failing to secure from petitioners the payment of the face value of the two bonds, despite several demands sent to each of them as surety
under the Indemnity Agreements, ISAC filed with the RTC on 24 October 1995 an action against petitioners to recover the sum
of P1,034,649.00, plus 25% thereof or P258,662.25 as attorneys fees. ISAC impleaded the BOC "as a necessary party plaintiff in order that the
reward of money or judgment shall be adjudged unto the said necessary plaintiff." 4 The case was docketed as Civil Case No. 95-1584.
Petitioners filed a Motion to Dismiss on 11 December 1995 on the grounds that (1) the Complaint states no cause of action; and (2) the BOC is
an improper party.
The RTC, in an Order5 dated 27 February 1996, denied petitioners Motion to Dismiss. Petitioners thus filed their Answer to the Complaint,
claiming that they sought permission from the BOC for an extension of time to re-export the items covered by the bonds; that the BOC has yet
to issue an assessment for petitioners alleged default; and that the claim of ISAC for payment is premature as the subject bonds are not yet
due and demandable.
During the pre-trial conference, petitioners admitted the genuineness and due execution of Instrata Bonds No. 5770 and No. 7154, but
specifically denied those of the corresponding Indemnity Agreements. The parties agreed to limit the issue to "whether or not these bonds are
now due and demandable."
On 16 September 1998, the RTC rendered its Decision ordering petitioners to pay ISAC and/or the BOC the face value of the subject bonds in
the total amount of P1,034,649.00, and to pay ISAC P258,662.25 as attorneys fees, thus:
WHEREFORE, judgment is hereby rendered in favor of the [herein private respondent ISAC] and as against the [herein petitioners]
who are ordered to pay the [private respondent] Intra Strata Assurance Corporation and/or the Bureau of Customs the amount
of P1,034,649.00 which is the equivalent amount of the subject bonds as well as to pay the plaintiff corporation the sum
of P258,662.25 as and for attorneys fees.6
Petitioners Motion for Reconsideration was denied by the RTC in a Resolution dated 15 January 1999. 7
Petitioners appealed to the Court of Appeals. On 30 June 2004, the Court of Appeals rendered its Decision affirming the RTC Decision, only
modifying the amount of the attorneys fees awarded:
WHEREFORE, the appealed 16 September 1998 Decision is MODIFIED to reduce the award of attorneys fees to One Hundred
Three Thousand Four Hundred Sixty Four Pesos & Ninety Centavos (P103,464.90). The rest is affirmed in toto. Costs against [herein
petitioners].8
In a Resolution dated 5 January 2005, the Court of Appeals refused to reconsider its Decision.
Petitioners thus filed the instant Petition for Review on Certiorari, assigning the following errors allegedly committed by the Court of Appeals:
I. THE HONORABLE COURT OF APPEALS GRAVELY ERRED IN RENDERING JUDGMENT AGAINST PETITIONERS BASED ON
A PREMATURE ACTION AND/OR RULING IN FAVOR OF RESPONDENTS WHO HAVE NO CAUSE OF ACTION AGAINST
PETITIONERS.
II. THE HONORABLE COURT OF APPEALS GRAVELY ERRED IN AFFIRMING THE DECISION OF BRANCH 150, REGIONAL
TRIAL COURT OF MAKATI CITY BASED ON MISAPPREHENSION OF FACTS, UNSUPPORTED BY EVIDENCE ON RECORD &
CONTRARY TO LAW.
III. THE HONORABLE COURT OF APPEALS GRAVELY ERRED IN NOT GIVING MERIT TO THE ISSUE RAISED BY PETITIONERS
THAT THE BUREAU OF CUSTOMS IS IMPROPERLY IMPLEADED BY INTRA STRATA.

IV. THE HONORABLE COURT OF APPEALS GRAVELY ERRED [IN] AFFIRMING THE PORTION OF THE DECISION HOLDING
PETITIONER PETER Y. RODRIGUEZ AS JOINTLY LIABLE WHEN AMENDMENTS WERE INTRODUCED, WITHOUT HIS
CONSENT AND APPROVAL.9
The present Petition is without merit.
Absence of actual forfeiture of the subject bonds
Petitioners contend that their obligation to ISAC is not yet due and demandable. They cannot be made liable by ISAC in the absence of an
actual forfeiture of the subject bonds by the BOC and/or an explicit pronouncement by the same bureau that ISAC is already liable on the said
bonds. In this case, there is yet no actual forfeiture of the bonds, but merely a recommendation of forfeiture, for no writ of execution has been
issued against such bonds.10Hence, Civil Case No. 95-1584 was prematurely filed by ISAC. Petitioners further argue that:
Secondly, it bears emphasis that as borne by the records, not only is there no writ of forfeiture against Surety Bond No. 7154, there is
likewise no evidence adduced on record to prove that respondent Intra Strata has made legal demand against Surety Bond No.
5770 neither is there a showing that respondent BOC initiated a demand or issued notice for its forfeiture and/or confiscation. 11
The Court of Appeals, in its assailed Decision, already directly addressed petitioners arguments by ruling that an actual forfeiture of the subject
bonds is not necessary for petitioners to be liable thereon to ISAC as surety under the Indemnity Agreements.
According to the relevant provision of the Indemnity Agreements executed between petitioner and ISAC, which reads:
[W]here the obligation involves a liquidated amount for the payment of which [ISAC] has become legally liable under the terms of the
obligation and its suretyship undertaking or by the demand of the [BOC] or otherwise and the latter has merely allowed the [ISACs]
aforesaid liability, irrespective of whether or not payment has actually been made by the [ISAC], the [ISAC] for the protection of its
interest may forthwith proceed against [petitioners Autocorp Group and Rodriguez] or either of them by court action or otherwise to
enforce payment, even prior to making payment to the [BOC] which may hereafter be done by [ISAC][,] 12
petitioners obligation to indemnify ISAC became due and demandable the moment the bonds issued by ISAC became answerable for
petitioners non-compliance with its undertaking with the BOC. Stated differently, petitioners became liable to indemnify ISAC at the same time
the bonds issued by ISAC were placed at the risk of forfeiture by the BOC for non-compliance by petitioners with its undertaking.
The subject bonds, Instrata Bonds No. 5770 and No. 7154, became due and demandable upon the failure of petitioner Autocorp Group to
comply with a condition set forth in its undertaking with the BOC, specifically to re-export the imported vehicles within the period of six months
from their date of entry. Since it issued the subject bonds, ISAC then also became liable to the BOC. At this point, the Indemnity Agreements
already give ISAC the right to proceed against petitioners via court action or otherwise.
The Indemnity Agreements, therefore, give ISAC the right to recover from petitioners the face value of the subject bonds plus attorneys fees at
the time ISAC becomes liable on the said bonds to the BOC, regardless of whether the BOC had actually forfeited the bonds, demanded
payment thereof and/or received such payment. It must be pointed out that the Indemnity Agreements explicitly provide that petitioners shall be
liable to indemnify ISAC "whether or not payment has actually been made by the [ISAC]" and ISAC may proceed against petitioners by court
action or otherwise "even prior to making payment to the [BOC] which may hereafter be done by [ISAC]."
Even when the BOC already admitted that it not only made a demand upon ISAC for the payment of the bond but even filed a complaint against
ISAC for such payment,13 such demand and complaint are not necessary to hold petitioners liable to ISAC for the amount of such bonds.
Petitioners attempts to prove that there was no actual forfeiture of the subject bonds are completely irrelevant to the case at bar.
It is worthy to note that petitioners did not impugn the validity of the stipulation in the Indemnity Agreements allowing ISAC to proceed against
petitioners the moment the subject bonds become due and demandable, even prior to actual forfeiture or payment thereof. Even if they did so,
the Court would be constrained to uphold the validity of such a stipulation for it is but a slightly expanded contractual expression of Article 2071
of the Civil Code which provides, inter alia, that the guarantor may proceed against the principal debtor the moment the debt becomes due and
demandable. Article 2071 of the Civil Code provides:
Art. 2071. The guarantor, even before having paid, may proceed against the principal debtor:
(1) When he is sued for the payment;
(2) In case of insolvency of the principal debtor;
(3) When the debtor has bound himself to relieve him from the guaranty within a specified period, and this period has expired;
(4) When the debt has become demandable, by reason of the expiration of the period for payment;
(5) After the lapse of ten years, when the principal obligation has no fixed period for its maturity, unless it be of such nature that it
cannot be extinguished except within a period longer than ten years;
(6) If there are reasonable grounds to fear that the principal debtor intends to abscond;
(7) If the principal debtor is in imminent danger of becoming insolvent.
In all these cases, the action of the guarantor is to obtain release from the guaranty, or to demand a security that shall protect him
from any proceedings by the creditor and from the danger of insolvency of the debtor. (Emphases ours.)

Petitioners also invoke the alleged lack of demand on the part of ISAC on petitioners as regards Instrata Bond No. 5770 before it instituted Civil
Case No. 95-1584. Even if proven true, such a fact does not carry much weight considering that demand, whether judicial or extrajudicial, is not
required before an obligation becomes due and demandable. A demand is only necessary in order to put an obligor in a due and demandable
obligation in delay,14 which in turn is for the purpose of making the obligor liable for interests or damages for the period of delay.15 Thus, unless
stipulated otherwise, an extrajudicial demand is not required before a judicial demand, i.e., filing a civil case for collection, can be resorted to.
Inclusion of the Bureau of Customs as a party to the case
ISAC included the BOC "as a necessary party plaintiff in order that the reward of money or judgment shall be adjudged unto the said necessary
plaintiff."16
Petitioners assail this inclusion of the BOC as a party in Civil Case No. 95-1584 on the ground that it was not properly represented by the
Solicitor General. Petitioners also contend that the inclusion of the BOC as a party in Civil Case No. 95-1584 "is highly improper and should not
be countenanced as the net result would be tantamount to collusion between Intra Strata and the Bureau of Customs which would deny and
deprive petitioners their personal defenses against the BOC."17
In its assailed Decision, the Court of Appeals did not find merit in petitioners arguments on the matter, holding that when the BOC forfeited the
subject bonds issued by ISAC, subrogation took place so that whatever right the BOC had against petitioners were eventually transferred to
ISAC. As ISAC merely steps into the shoes of the BOC, whatever defenses petitioners may have against the BOC would still be available
against ISAC.
The Court likewise cannot sustain petitioners position.
The misjoinder of parties does not warrant the dismissal of the action. Section 11, Rule 3 of the Rules of Court explicitly states:
SEC. 11. Misjoinder and non-joinder of parties.Neither misjoinder nor non-joinder of parties is ground for dismissal of an
action. Parties may be dropped or added by order of the court on motion of any party or on its own initiative at any stage of the action
and on such terms as are just. Any claim against a misjoined party may be severed and proceeded with separately.
Consequently, the purported misjoinder of the BOC as a party cannot result in the dismissal of Civil Case No. 95-1584. If indeed the BOC was
improperly impleaded as a party in Civil Case No. 95-1584, at most, it may be dropped by order of the court, on motion of any party or on its
own initiative, at any stage of the action and on such terms as are just.
Should the BOC then be dropped as a party to Civil Case No. 95-1584?
ISAC alleged in its Complaint18 that the BOC is being joined as a necessary party in Civil Case No. 95-1584.
A necessary party is defined in Section 8, Rule 3 of the Rules of Court as follows:
SEC. 8. Necessary party.A necessary party is one who is not indispensable but who ought to be joined as a party if complete relief
is to be accorded as to those already parties, or for a complete determination or settlement of the claim subject of the action.
The subject matter of Civil Case No. 95-1584 is the liability of Autocorp Group to the BOC, which ISAC is also bound to pay as the guarantor
who issued the bonds therefor. Clearly, there would be no complete settlement of the subject matter of the case at bar the liability of Autocorp
Group to the BOC should Autocorp Group be merely ordered to pay its obligations with the BOC to ISAC. BOC is, therefore, a necessary
party in the case at bar, and should not be dropped as a party to the present case.
It can only be conceded that there was an irregularity in the manner the BOC was joined as a necessary party in Civil Case No. 95-1584. As the
BOC, through the Solicitor General, was not the one who initiated Civil Case No. 95-1584, and neither was its consent obtained for the filing of
the same, it may be considered an unwilling co-plaintiff of ISAC in said action. The proper way to implead the BOC as a necessary party to Civil
Case No. 95-1584 should have been in accordance with Section 10, Rule 3 of the Rules of Court, viz:
SEC. 10. Unwilling co-plaintiff. If the consent of any party who should be joined as plaintiff can not be obtained, he may be made a
defendant and the reason therefor shall be stated in the complaint.
Nonetheless, the irregularity in the inclusion of the BOC as a party to Civil Case No. 95-1584 would not in any way affect the disposition thereof.
As the Court already found that the BOC is a necessary party to Civil Case No. 95-1584, it would be a graver injustice to drop it as a party.
Petitioners argument that the inclusion of the BOC as a party to this case would deprive them of their personal defenses against the BOC is
utterly baseless.
First, as ruled by the Court of Appeals, petitioners defenses against the BOC are completely available against ISAC, since the right of the latter
to seek indemnity from petitioner depends on the right of the BOC to proceed against the bonds.
The Court, however, deems it essential to qualify that ISACs right to seek indemnity from petitioners does not constitute subrogation under the
Civil Code, considering that there has been no payment yet by ISAC to the BOC. There are indeed cases in the aforementioned Article 2071 of
the Civil Code wherein the guarantor or surety, even before having paid, may proceed against the principal debtor, but in all these cases, Article
2071 of the Civil Code merely grants the guarantor or surety an action "to obtain release from the guaranty, or to demand a security that shall
protect him from any proceedings by the creditor and from the danger of insolvency of the debtor." The benefit of subrogation, an extinctive
subjective novation by a change of creditor, which "transfers to the person subrogated, the credit and all the rights thereto appertaining, either
against the debtor or against third persons,"19 is granted by the Article 2067 of the Civil Code only to the "guarantor (or surety) who pays." 20

ISAC cannot be said to have stepped into the shoes of the BOC, because the BOC still retains said rights until it is paid. ISACs right to file Civil
Case No. 95-1584 is based on the express provision of the Indemnity Agreements making petitioners liable to ISAC at the very moment ISACs
bonds become due and demandable for the liability of Autocorp Group to the BOC, without need for actual payment by ISAC to the BOC. But it
is still correct to say that all the defenses available to petitioners against the BOC can likewise be invoked against ISAC because the latters
contractual right to proceed against petitioners only arises when the Autocorp Group becomes liable to the BOC for non-compliance with its
undertakings. Indeed, the arguments and evidence petitioners can present against the BOC to prove that Autocorp Groups liability to the BOC
is not yet due and demandable would also establish that petitioners liability to ISAC under the Indemnity Agreements has not yet arisen.
Second, making the BOC a necessary party to Civil Case No. 95-1584 actually allows petitioners to simultaneously invoke its defenses against
both the BOC and ISAC. Instead of depriving petitioners of their personal defenses against the BOC, Civil Case No. 95-1584 actually gave
them the opportunity to kill two birds with one stone: to disprove its liability to the BOC and, thus, negate its liability to ISAC.
Liability of petitioner Rodriguez
Petitioner Rodriguez posits that he is merely a guarantor, and that his liability arises only when the person with whom he guarantees the credit,
Autocorp Group in this case, fails to pay the obligation. Petitioner Rodriguez invokes Article 2079 of the Civil Code on Extinguishment of
Guaranty, which states:
Art. 2079. An extension granted to the debtor by the creditor without the consent of the guarantor extinguishes the guaranty. The mere
failure on the part of the creditor to demand payment after the debt has become due does not of itself constitute any extension of time
referred to herein.
Petitioner Rodriguez argues that there was an amendment as to the effectivity of the bonds, and this constitutes a modification of the
agreement without his consent, thereby exonerating him from any liability.
We must take note at this point that petitioners have not presented any evidence of this alleged amendment as to the effectivity of the
bonds.21 Be that as it may, even if there was indeed such an amendment, such would not cause the exoneration of petitioner Rodriguez from
liability on the bonds.
The Court of Appeals, in its assailed Decision, held that the use of the term guarantee in a contract does not ipso facto mean that the contract is
one of guaranty. It thus ruled that both petitioners assumed liability as a regular party and obligated themselves as original promissors, i.e.,
sureties, as shown in the following provisions of the Indemnity Agreement:
INDEMNITY: - The undersigned [Autocorp Group and Rodriguez] agree at all times to jointly and severally
indemnify the COMPANY [ISAC] and keep it indemnified and hold and save it harmless from and against any and all damages,
losses, costs, stamps, taxes, penalties, charges and expenses of whatsoever kind and nature including counsel or attorneys fee
which the COMPANY [ISAC] shall or may at any time sustain or incur in consequence of having become surety upon the bond herein
above referred to x x x
xxxx
OUR LIABILITY HEREUNDER: - It shall not be necessary for the COMPANY [ISAC] to bring suit against the principal [Autocorp
Group] upon his default or to exhaust the property of the principal [Autocorp Group], but the liability hereunder of the undersigned
indemnitors [Rodriguez] shall be jointly and severally, a primary one, the same as that of the principal [Autocorp Group], and
shall be exigible immediately upon the occurrence of such default. (Emphases supplied.)
The Court of Appeals concluded that since petitioner Rodriguez was a surety, Article 2079 of the Civil Code does not apply. The appellate court
further noted that both petitioners authorized ISAC to consent to the granting of an extension of the subject bonds.
The Court of Appeals committed a slight error on this point. The provisions of the Civil Code on Guarantee, other than the benefit of excussion,
are applicable and available to the surety.22 The Court finds no reason why the provisions of Article 2079 would not apply to a surety.
This, however, would not cause a reversal of the Decision of the Court of Appeals. The Court of Appeals was correct that even
granting arguendo that there was a modification as to the effectivity of the bonds, petitioners would still not be absolved from liability since they
had authorized ISAC to consent to the granting of any extension, modification, alteration and/or renewal of the subject bonds, as expressly set
out in the Indemnity Agreements:
RENEWALS, ALTERATIONS AND SUBSTITUTIONS: - The undersigned [Autocorp Group and Rodriguez] hereby empower and
authorize the COMPANY [ISAC] to grant or consent to the granting of any extension, continuation, increase, modification,
change, alteration and/or renewal of the original bond herein referred to, and to execute or consent to the execution of any
substitution for said Bond with the same or different, conditions and parties, and the undersigned [Autocorp Group and Rodriguez]
hereby hold themselves jointly and severally liable to the COMPANY [ISAC] for the original Bond herein above-mentioned or
for any extension, continuation, increase, modification, change, alteration, renewal or substitution thereof without the
necessary of any new indemnity agreement being executed until the full amount including principal, interest, premiums, costs, and
other expenses due to the COMPANY [ISAC] thereunder is fully paid up. 23 (Emphases supplied.)
The foregoing provision in the Indemnity Agreements clearly authorized ISAC to consent to the granting of any extension, modification,
alteration and/or renewal of the subject bonds.
There is nothing illegal in such a provision. In Philippine American General Insurance Co., Inc. v. Mutuc,24 the Court held that an agreement
whereby the sureties bound themselves to be liable in case of an extension or renewal of the bond, without the necessity of executing another
indemnity agreement for the purpose and without the necessity of being notified of such extension or renewal, is valid; and that there is nothing
in it that militates against the law, good customs, good morals, public order or public policy.

WHEREFORE, the instant Petition for Review on Certiorari is DENIED. The Decision of the Court of Appeals dated 30 June 2004 in CA-G.R.
CV No. 62564 which affirmed with modification the Decision of the Regional Trial Court of Makati City, in Civil Case No. 95-1584 dated 16
September 1998 is AFFIRMED in toto. Costs against petitioners.