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Escao v. Ortigas, Jr.

526 SCRA 26 (June 29, 2007) FACTS: On April 28, 1980, Private Development Corporation of the Philippines (PDCP) entered into a loan agreement with Falcon Minerals, Inc. (Falcon) amounting to $320,000.00 subject to terms and conditions. On the same day, 3 stockholders/officers of Falcon: Ortigas Jr., George A. Scholey, and George T. Scholey executed an Assumption of Solidary Liability to assume in [their] individual capacity, solidary liability with [Falcon] for due and punctual payment of the loan contracted by Falcon with PDCP. Two (2) separate guaranties were executed to guarantee payment of the same loan by other stockholders and officers of Falcon, acting in their personal and individual capacities. One guaranty was executed by Escao, Silos, Silverio, Inductivo and Rodriguez. Two years later, an agreement developed to cede control of Falcon to Escao, Silos and Matti. 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. An Undertaking dated June 11, 1982 was executed by the concerned parties, namely: with Escao, Silos and Matti as SURETIES and Ortigas, Inductivo and Scholeys as OBLIGORS Falcon eventually availed of the sum of $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 Php 5,031,004.07 which Falcon did not pay despite demand. ISSUE: Whether the obligation to repay is solidary, as contended by respondent and the lower courts, or merely joint as argued by petitioners. HELD: 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. Note that Article 2047 itself specifically calls for the application of the provisions on joint and solidary obligations to suretyship contracts. 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). However, a significant distinction still lies between a joint and several debtor, on one hand, and a surety on the other. Solidarity signifies that the creditor can compel any one of the joint and several debtors or the surety alone to answer for the entirety of the principal debt. The difference lies in the respective faculties of the joint and several debtor and the surety to seek reimbursement for the sums they paid out to the creditor. 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. 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.

*Petitioners and Matti are jointly liable to Ortigas, Jr. in the amt. of P1.3M; Legal interest of 12% per annum on P 1.3M computed from March 14, 1994. Assailed rulings are affirmed. Costs against petitioners

JOSE C. TUPAZ v. CA G.R. No. 145578, November 18, 2005 FACTS: Petitioners Jose C. Tupaz IV and Petronila C. Tupaz were VicePresident for Operations and Vice-President/Treasurer, respectively, of El Oro Engraver Corporation (El Oro Corporation). El Oro Corporation had a contract with the Philippine Army to supply the latter with survival bolos. To finance the purchase of the raw materials for the survival bolos, petitioners, on behalf of El Oro Corporation, applied with respondent Bank of the Philippine Islands for two commercial letters of credit. The letters of credit were in favor of El Oro Corporations suppliers, Tanchaoco Manufacturing Incorporated (Tanchaoco Incorporated) and Maresco Rubber and Retreading Corporation (Maresco Corporation). Respondent bank granted petitioners application and issued letters of credit in their favor. Petitioners also signed trust receipts in favor of respondent bank. On 30 September 1981, petitioner Jose C. Tupaz IV signed, in his personal capacity, a trust receipt corresponding to Letter of Credit No. 2-00896-3 (for P564,871.05). Petitioner Jose Tupaz bound himself to sell the goods covered by the letter of credit and to remit the proceeds to respondent bank, if sold, or to return the goods, if not sold, on or before 29 December 1981. On 9 October 1981, petitioners signed, in their capacities as officers of El Oro Corporation, a trust receipt corresponding to Letter of Credit No. 200914-5 (for P294,000). Petitioners bound themselves to sell the goods covered by that letter of credit and to remit the proceeds to respondent bank, if sold, or to return the goods, if not sold, on or before 8 December 1981. After Tanchaoco Incorporated and Maresco Corporation delivered the raw materials to El Oro Corporation, respondent bank paid the former P564,871.05 and P294,000, respectively. Petitioners did not comply with their undertaking under the trust receipts. Respondent bank made several demands for payments but El Oro Corporation made partial payments only. On 27 June 1983 and 28 June 1983, respondent banks counsel and its representative respectively sent final demand letters to El Oro Corporation. El Oro Corporation replied that it could not fully pay its debt because the Armed Forces of the Philippines had delayed paying for the survival bolos. Respondent bank charged petitioners with estafa under Section 13, Presidential Decree No. 115 (Section 13) or Trust Receipts Law (PD 115).

The RTC acquitted petitioners of estafa based on reasonable doubt but found them solidarily liable with El Oro Corporation for the balance of El Oro Corpoarations principal debt under the trust receipts. The CA affirmed the RTCs ruling. Hence, this petition. ISSUES: 1) Whether petitioners bound themselves personally liable for El Oro Corporations debts under the trust receipts or that any of them has bound himself personally liable for El Oro Corporations debt under any of the trust receipts; 2) If so, what is the extent of the petitioner/s liability? (pasensya na ang hirap i-phrase..hehe) HELD: 1) In the trust receipt dated 9 October 1981, petitioners signed below this clause as officers of El Oro Corporation. Thus, under petitioner Petronila Tupazs signature are the words Vice-PresTreasurer and under petitioner Jose Tupazs signature are the words Vice-Pres Operations. By so signing that trust receipt, petitioners did not bind themselves personally liable for El Oro Corporations obligation. Hence, for the trust receipt dated 9 October 1981, the SC sustained the petitioners claim that they are not personally liable for El Oro Corporations obligation. However, for the trust receipt dated 30 September 1981, the dorsal portion of which petitioner Jose Tupaz signed alone, we find that he did so in his personal capacity. Petitioner Jose Tupaz did not indicate that he was signing as El Oro Corporations Vice-President for Operations. Hence, petitioner Jose Tupaz bound himself personally liable for El Oro Corporations debts. Not being a party to the trust receipt dated 30 September 1981, petitioner Petronila Tupaz is not liable under such trust receipt. 2) Tupaz is liable as a guarantor. Respondent banks suit against petitioner Jose Tupaz stands despite the Courts finding that he is liable as guarantor only. First, excussion is not a pre-requisite to secure judgment against a guarantor. The guarantor can still demand deferment of the execution of the judgment against him until after the assets of the principal debtor shall have been exhausted. Second, the benefit of excussion may be waived. Under the trust receipt dated 30 September 1981, petitioner Jose Tupaz waived excussion when he agreed that his liability in [the] guaranty shall be DIRECT AND IMMEDIATE, without any need whatsoever on xxx [the] part [of respondent bank] to take any steps or exhaust any

legal remedies xxx. The clear import of this stipulation is that petitioner Jose Tupaz waived the benefit of excussion under his guarantee. As guarantor, petitioner Jose Tupaz is liable for El Oro Corporations principal debt and other accessory liabilities (as stipulated in the trust receipt and as provided by law) under the trust receipt dated 30 September 1981.

The RTC dismissed the complaint without prejudice to the filing of a separate action for a sum of money against the spouses Osmea and Merlyn Azarraga who, it found, are primarily liable on the instrument. The CA reversed the decision of the trial court and rendered judgment declaring herein petitioner Palmares liable to pay respondent corporation. Hence, this petition. ISSUE: Whether Palmares acted as surety and is therefore solidarily liable to pay the promissory note. HELD: Yes. It is a cardinal rule in the interpretation of contracts that if the terms of a contract are clear and leave no doubt upon the intention of the contracting parties, the literal meaning of its stipulation shall control. In the case at bar, petitioner expressly bound herself to be jointly and severally or solidarily liable with the principal maker of the note. The terms of the contract are clear, explicit and unequivocal that petitioner's liability is that of a surety. Quintessentially, the undertaking to pay upon default of the principal debtor does not automatically remove it from the ambit of a contract of suretyship. The second and third paragraphs of the promissory note do not contain any other condition for the enforcement of respondent corporation's right against petitioner. It has not been shown, either in the contract or the pleadings, that respondent corporation agreed to proceed against herein petitioner only if and when the defaulting principal has become insolvent. A contract of suretyship, to repeat, is that wherein one lends his credit by joining in the principal debtor's obligation, so as to render himself directly and primarily responsible with him, and without reference to the solvency of the principal. JUST A NOTE: (SURETY v. GUARANTOR)
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; a guaranty, an undertaking that the debtor shall pay. Stated differently, a surety promises to pay the principal's 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. A guarantor, on the other hand, does not contract that the principal will pay, but simply that he is able to do so. In other words, a surety undertakes directly for the payment and is so responsible at once if the principal debtor makes default, while a guarantor contracts to pay if, by the use of due diligence, the debt cannot be made out of the principal debtor.

ESTRELLA PALMARES v. COURT OF APPEALS and M.B. LENDING CORPORATION G.R. No. 126490 March 31, 1998 FACTS: Pursuant to a promissory note dated March 13, 1990, private respondent M.B. Lending Corporation extended a loan to the spouses Osmea and Merlyn Azarraga, together with petitioner Estrella Palmares, in the amount of P30,000.00 payable on or before May 12, 1990, with compounded interest at the rate of 6% per annum to be computed every 30 days from the date 1 thereof. On four occasions after the execution of the promissory note and even after the loan matured, petitioner and the Azarraga spouses were able to pay a total of P16,300.00, thereby leaving a balance of P13,700.00. No payments were made after the last payment on September 26, 1991. Consequently, on the basis of petitioner's solidary liability under the promissory note, respondent corporation filed a complaint against petitioner Palmares as the lone party-defendant, to the exclusion of the principal debtors, allegedly by reason of the insolvency of the latter. In her Amended Answer with Counterclaim, petitioner alleged that sometime in August 1990, immediately after the loan matured, she offered to settle the obligation with respondent corporation but the latter informed her that they would try to collect from the spouses Azarraga and that she need not worry about it; that there has already been a partial payment in the amount of P17,010.00; that the interest of 6% per month compounded at the same rate per month, as well as the penalty charges of 3% per month, are usurious and unconscionable; and that while she agrees to be liable on the note but only upon default of the principal debtor, respondent corporation acted in bad faith in suing her alone without including the Azarragas when they were the only ones who benefited from the proceeds of the loan.