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Republic of the Philippines

SUPREME COURT
Manila
THIRD DIVISION
G.R. No. 112191

February 7, 1997

FORTUNE MOTORS (PHILS.) CORPORATION and EDGAR L.
RODRIGUEZA, petitioners,
vs.
THE HONORABLE COURT OF APPEALS and FILINVEST CREDIT
CORPORATION, respondents.

DECISION
PANGANIBAN, J.:
To fund their acquisition of new vehicles (which are later retailed or resold to the general public),
car dealers normally enter into wholesale automotive financing schemes whereby vehicles are
dellivered by the manufacturer or assembler on the strength of trust receipts or drafts executed by
the car dealers, which are backed up by sureties. These trust receipts or drafts are then assigned
and/or discounted by the manufacturer to/with financing companies, which assume payment of
the vehicles but with the corresponding right to collect such payment from the car dealers and/or
the sureties. In this manner, car dealers are able to secure delivery of their stock-in-trade without
having to pay cash therefor; manufacturers get paid without any receivables/collection problems;
and financing companies earn their margins with the assurance of payment not only from the
dealers but also from the sureties. When the vehicles are eventually resold, the car dealers are
supposed to pay the financing companies — and the business goes merrily on. However, in the
event the car dealer defaults in paying the financing company, may the surety escape liability on
the legal ground that the obligations were incurred subsequent to the execution of the surety
contract?
This is the principal legal question raised in this petition for review (under Rule 45 of the Rules
of Court) seeking to set aside the Decision 1 of the Court of Appeals (Tenth
Division) 2 promulgated on September 30, 1993 in CA G.R. CV No. 09136 which affirmed in
toto the decision 3 of the Regional Trial Court of Manila — Branch 11 4 in Civil Case No. 8321994, the dispositive portion of which reads:

WHEREFORE, judgment is hereby rendered in favor of the plaintiff and against the defendants,
by ordering the latter to pay, jointly and severally, the plaintiff the following amounts:
1. The sum of P1,348,033.89, plus interest thereon at the rate of P922.53 per day starting April 1,
1985 until the said principal amount is fully paid;
2. The amount of P50,000.00 as attorney’s fees and another P50,000.00 as liquidated damages;
and
3. That the defendants, although spared from paying exemplary damages, are further ordered to
pay, in solidum, the costs of this suit.
Plaintiff therein was the financing company and the defendants the car dealer and its sureties.
The Facts
On or about August 4, 1981, Joseph L. G. Chua and Petitioner Edgar Lee Rodrigueza
(“Petitioner Rodrigueza”) each executed an undated “Surety Undertaking” 5 whereunder they
“absolutely, unconditionally and solidarily guarantee(d)” to Respondent Filinvest Credit
Corporation (“Respondent Filinvest”) and its affiliated and subsidiary companies the “full,
faithful and prompt performance, payment and discharge of any and all obligations and
agreements” of Fortune Motors (Phils.) Corporation (“Petitioner Fortune”) “under or with
respect to any and all such contracts and any and all other agreements (whether by way of
guaranty or otherwise)” of the latter with Filinvest and its affiliated and subsidiary companies
“now in force or hereafter made.”
The following year or on April 6 5, 1982, Petitioner Fortune, Respondent Filinvest and Canlubang
Automotive Resources Corporation (“CARCO”) entered into an “Automotive Wholesale
Financing Agreement” 7 (“Financing Agreement”) under which CARCO will deliver motor
vehicles to Fortune for the purpose of resale in the latter’s ordinary course of business; Fortune,
in turn, will execute trust receipts over said vehicles and accept drafts drawn by CARCO, which
will discount the same together with the trust receipts and invoices and assign them in favor of
Respondent Filinvest, which will pay the motor vehicles for Fortune. Under the same agreement,
Petitioner Fortune, as trustee of the motor vehicles, was to report and remit proceeds of any sale
for cash or on terms to Respondent Filinvest immediately without necessity of demand.
Subsequently, several motor vehicles were delivered by CARCO to Fortune, and trust receipts
covered by demand drafts and deeds of assignment were executed in favor of Respondent
Filinvest. However, when the demand drafts matured, not all the proceeds of the vehicles which
Petitioner Fortune had sold were remitted to Respondent Filinvest. Fortune likewise failed to turn
over to Filinvest several unsold motor vehicles covered by the trust receipts. Thus, Filinvest

this recourse. Chua and Rodrigueza. P50. The trial court denied the motion and scheduled the case for reception of defendants’ evidence.00 in attorney’s fees. Hence. that the Court of Appeals erred when it declared that there was no novation. that the evidence was sufficient to prove the amount of the claim. another P50.83 plus interest at the rate of P922. 1984. On two scheduled dates. 12 Petitioners argue that future debts which can be guaranteed under Article 2053 of the Civil Code refer only to “debts existing at the time of the constitution of the guaranty but the amount thereof is unknown. Hence. that the Court of Appeals erred when it declared.000. Chua and Rodrigueza to pay Filinvest.033. prompting the court to deem them to have waived their right to present evidence.348. however.10 Subsequently. instead of presenting their evidence.53 per day from April 1. defendants failed to present their evidence. filed a “Motion for Judgment on Demurrer to Evidence” 11 anchored principally on the ground that the Surety Undertakings were null and void because. As earlier mentioned.” and that a guaranty being an accessory obligation cannot exist without a principal obligation. Petitioners claim that the surety undertakings cannot be made to cover the Financing Agreement executed by Fortune. the amount was not paid. the trial court rendered its decision earlier cited ordering Fortune. On December 17.302. Filinvest and CARCO since the latter contract was not yet in existence when said surety contracts were entered into. their appeal was dismissed by the Court of Appeals (Tenth Division) which affirmed in toto the trial court’s decision. Despite said demands.through counsel. sent a demand letter 8 dated December 12.000. 1983 to Fortune for the payment of its unsettled account in the amount of P1. that the Court of Appeals erred in declaring that surety can exist even if there was no existing indebtedness at the time of its execution. Filinvest filed in the Regional Trial Court of Manila a complaint for a sum of money with preliminary attachment against Fortune. the trial court declared that there was no factual issue to be resolved except for the correct balance of defendants’ account with Filinvest as agreed upon by the parties during pre-trial. Filinvest sent similar demand letters 9 separately to Chua and Rodrigueza as sureties. 3. Defendants (petitioners herein). 1985. Issues Petitioners assign the following errors in the appealed Decision: 1. . at the time they were executed. 2. jointly and severally. 1985 until fully paid. the sum of P1.00. In an order dated September 26. Filinvest presented testimonial and documentary evidence.00 in liquidated damages and costs of suit. there was no principal obligation existing.811.

faithful and prompt performance. 1958.Petitioners further aver that the Financing Agreement would effect a novation of the surety contracts since it changed the principal terms of the surety contracts and imposed additional and onerous obligations upon the sureties. . the full. is not void just because the said bond was signed and filed before the additional credit was extended by the creditor. imputes “estoppel (by pleadings or by judicial admission)” upon petitioners when in their “Motion to Discharge Attachment. The defendants (referring to Rodrigueza and Chua) are not parties to the trust receipts agreements since they are ONLY sureties. the undersigned . In the case of NARIC vs. L11517. . . of obligor under and with respect to any and all such contracts and any and all agreements (whether by way of guaranty or otherwise) of obligor with you . it is enough (sic) to state that a guaranty may also be given as security for future debts. arising out of wholesale and/or retail transactions by or with obligor. . . . . petitioners claim that no accounting of the payments made by Petitioner Fortune to Respondent Filinvest was done by the latter. . . . absolutely. . Hence. . and solidarily guarantee to you . . The obligation of the sureties on future obligations of Fortune is apparent from a proviso under the Surety Undertakings marked Exhs. . trust receipt . . it was ruled that a bond posted to secure additional credit that the principal debtor had applied for. Lastly. (Emphasis supplied). . by which you may purchase or otherwise require from. promulgated April 10. now in force or hereafter made. .” they admitted their liability as sureties thus: Defendants Chua and Rodrigueza could not have perpetrated fraud because they are only sureties of defendant Fortune Motors . . .. the amount of which is not known (Art. . and or enter into with obligor . on the other hand. . B and C that the sureties agree with the plaintiff as follows: In consideration of your entering into an arrangement with the party (Fortune) named above. the trial court declared: As to the alleged non-existence of a principal obligation when the surety agreement was signed. if any. there could be no way by which the sureties can ascertain the correct amount of the balance. payment and discharge of any and all obligations . . . Respondent Filinvest. unconditionally. Fojas. New Civil Code). . 2053. 13 In rejecting the arguments of petitioners and in holding that they (Fortune and the sureties) were jointly and solidarily liable to Filinvest.

IV. it is enough to state that a statement was carefully prepared showing a balance of the principal obligation plus interest totalling P1. Likewise. if Chua and Rodrigueza did not intend to guarantee all of Fortune’s future obligation with Filinvest. Vol. there was absolute silence on the part of defendants as to the correctness of the previous statement of account made as of December 16. the sight drafts. whereas the trust receipts. Rule 130. 14 The Court of Appeals. M). 1985 (Exh.On the matter of novation. Commentaries on Jurisprudence of the Civil Code of the Philippines. let alone have taken any exception thereto. as of December 1983 (Exhs. further explained: . . if Chua and Rodrigueza truly believed that the surety undertakings they executed should not cover Fortune’s obligations under the AWFA. 1973 Edition. For another. which took into consideration payments by defendants made after the filing of the case. at any rate. payment and discharge of any and all obligations and agreements” of Fortune “under or with respect to any and all such contracts and any and all other agreements (whether by way of guaranty or otherwise)” of the latter with Filinvest in force at the time of the execution of the “Surety Undertakings” or made thereafter. this total amount of obligation was P1. 1985. but more important.302. which does not require the consent of the debtors. is that defendants received demand letters from the plaintiff stating that. then they should have expressly stated in their respective surety undertakings exactly what said surety agreements guaranteed or to which obligations of Fortune the same were intended to apply. I). On the evidence adduced by the plaintiff to show the status of defendants’ accounts. it is the principal or mother contract that is to be followed. ‘K’ and ‘L’) urging them to pay . There is such a thing as evidence by silence (Sec. 23. faithful and prompt performance. as well as the Deeds of assignment were only collaterals or accidental modifications which do not extinguish the original contract by way of novation. When the changes refer to secondary agreements and not to the object or principal conditions of the contract. and yet defendants were not heard to have responded to said demand letters. The fact of knowledge is enough. and not a novation of contract. cited in plaintiff’s Memorandum of September 6.811.033. the mother or the principal contract was the Financing Agreement. J. p. then why did they not inform Filinvest of such fact when the latter sent them the aforementioned demand letters (Exhs. there is no novation.00.348. Revised Rules of Court). such changes will produce modifications of incidental facts. but will not extinguish the original obligation (Tolentino. This accounting has not been traversed nor contradicted by defendants although they had the opportunity to do so. Besides. unconditionally and solidarily guarantee” to Filinvest the “full. In the case at bar. This proposition holds true even if the subsequent agreement would provide for more onerous terms for. Indeed. the surety undertakings in question unequivocally state that Chua and Rodrigueza “absolutely. this has already been ruled upon when this Court denied defendants’ Motion to dismiss on the argument that what happened was really an assignment of credit. 3). 1983 (referring to Exh. K and L). page 367.89 as of March 31. . however. affirming the above decision of the trial court. as explained by the plaintiff.

Then. Chua and Rodrigueza elected or chose not to answer said demand letters. considering that appellant Chua is the corporate president of Fortune and a signatory to the AWFA. It is highly plausible that the reason why the ‘Surety Undertakings’ were not terminated was because the execution of the same was part of the consideration why Filinvest and CARCO agreed to enter into the AWFA with Fortune. executed a continuing suretyship agreement in favor of Atok Finance as creditor.000. . as sureties. In the first place. First Issue: Surety May Secure Future Obligations The case at bench falls on all fours with Atok Finance Corporation vs. namely. faithful and prompt payment and discharge of any and all indebtedness of [Sanyu Chemical] .871. 15 The Court’s Ruling We affirm the decisions of the trial and appellate courts. The argument cannot hold water. 18 In Atok Finance. . Due to nonpayment upon maturity. Arro.00 to Atok Finance in consideration of receipt of the amount of P105. quite uncharacteristic of persons who have just been asked to pay an obligation to which they believe they are not liable. the “Surety Undertakings” did not provide that after a period of time the same will lose its force and effect.378. spouses Daniel and Nenita Arrieta. then why did they not simply terminate the ‘Surety Undertakings’ by serving ten (10) days written notice to Filinvest as expressly allowed in said surety agreements. and Sanyu Trading along with individual private stockholders of Sanyu Chemical. to the Creditor. Instead. In the second place. Sanyu Chemical as principal. the full. trust receipts and demand drafts. if Chua and Rodrigueza did not want to guarantee the obligations of Fortune under the AWFA. Atok . Leopoldo Halili and Pablito Bermundo. Later. additional trade receivables with a total face value of P100.Fortune’s liability under the AWFA.45 were also assigned. he should have simply had it stated in the AWFA or in a separate document that the “Surety Undertakings” do not cover Fortune’s obligations in the aforementioned AWFA.00.” Subsequently. Court of Appeals 16 which reiterated our rulings in National Rice and Corn Corporation (NARIC) vs. Appellants argue that it was unfair for Filinvest to have executed the AWFA only after two (2) years from the date of the “Surety undertakings” because Chua and Rodrigueza were thereby made to wait for said number of years just to know what kind of obligation they had to guarantee. Court of Appeals 17 and Rizal Commercial Banking Corporation vs. Sanyu Chemical assigned its trade receivables outstanding with a total face value of P125. Under the agreement. Sanyu Trading and the individual private stockholders and officers of Sanyu Chemical “jointly and severally unconditionally guarantee(d) to Atok Finance Corporation (hereinafter called Creditor). trust receipts or demand drafts. too.

Of course. aforesaid amount to Atok. . being an accessory contract. Bermundo and Halili to collect the sum of P120. there was a pre-existing obligation which served as the principal obligation between the parties. Sanyu Chemical had no pre-existing obligation due to Atok Finance. the ‘future debts’ alluded to in Article 2053 refer to debts already existing at the time of the constitution of the agreement but the amount thereof is unknown. We further said: . a surety is not bound under any particular principal obligation until that principal obligation is born.00 plus penalty charges due and payable. 19 we again had occasion to discourse on continuing guaranty/suretyship thus: . A continuing guaranty is one which is not limited to a single transaction. the principal places itself in a position to enter into the projected series of transactions with its creditor. Court of Appeals.” We ruled then that the appellate court was in serious error. the then Intermediate Appellate Court reversed the trial court and dismissed the complaint on the ground that there was “no proof that when the suretyship agreement was entered into. citing the RCBC and NARIC cases. 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. with such suretyship agreement. commonly requires the projected principal debtor to execute a continuing surety agreement along with its sureties. . covering a series of transactions. A bank or financing company which anticipates entering into a series of credit transactions with a particular company. but which contemplates a future course of dealing. at the time of its execution. . On appeal. there would be no need to execute a separate surety contract or bond for each financing or credit accommodation extended to the principal debtor. The trial court rendered a decision in favor of Atok Finance and ordered defendants to pay. The individual private respondents contended that the continuing suretyship agreement. generally for an . . jointly and severally.Finance commenced action against Sanyu Chemical. the Arrieta spouses. In Dino vs. Comprehensive or continuing surety agreements are in fact quite commonplace in present day financial and commercial practice.240. 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. unlike in the case at bar where the obligation was acquired two years after the agreement. Furthermore. was null and void since. The distinction which said court sought to make with respect to Article 2053 (that “future debts” referred to therein relate to “debts already existing at the time of the constitution of the agreement but the amount [of which] is unknown” and not to debts not yet incurred and existing at that time) has previously been rejected. By executing such an agreement.

they signed the blank promissory notes. and contemplates a succession of liabilities. especially if the right to recall the guaranty is expressly reserved.” or “on such time” that the principal debtor may require.” “any indebtedness. The facts of the instant case bring us to no other conclusion than that the surety undertakings executed by Chua and Rodrigueza were continuing guaranties or suretyships covering all future obligations of Fortune Motors (Phils. As stated in the petition: Before the execution of the new agreement. This is evident from the written contract itself which contained the words “absolutely. However. Chua and Rodrigueza to have the cars delivered to petitioner.indefinite time or until revoked. Rodrigueza and Joseph Chua were required to sign blank surety agreements. Fortune.” Moreover. Chua being the corporate president of Fortune and even a signatory to the Financial Agreement with Filinvest. unconditionally and solidarily guarantee(d)” to Respondent Filinvest and its affiliated and subsidiary companies the “full. 21 (emphasis supplied) It is obvious from the foregoing that Rodrigueza and Chua were fully aware of the business of Fortune.” or the guaranty of “any transaction” or money to be furnished the principal debtor “at any time. Petitioner Rodrigueza and Joseph Chua knew exactly where they stood at the time they executed their respective surety undertakings in favor of Fortune. a continuing guaranty is one which covers all transactions. Their undertaking by way of the surety contracts was critical in enabling . the guarantor becomes liable. have been construed to indicate a continuing guaranty. 20 We have no reason to depart from our uniform ruling in the above-cited cases. 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. faithful and prompt performance. as they accrue. until the expiration or termination thereof. without informing them how much amount they would be liable as sureties. of guaranty. Hence.” “any deficiency. including those arising in the future. it has been held that the use of particular words and expressions such as payment of “any debt. where the contract of guaranty states that the same is to secure advances to be made ‘from time to time’ the guaranty will be construed to be a continuing one. an automobile dealer. In other jurisdictions. for which.” or “any sum. payment and discharge of any and all obligations and agreements” of Petitioner Fortune “under or with respect to any and all such contracts and any and all other agreements (whether by way of guaranty or otherwise)” of the latter with Filinvest and its affiliated and subsidiary companies “now in force or hereafter made.) Corporation with Filinvest Credit Corporation. Edgar L. Otherwise stated. which are within the description or contemplation of the contract. 22 Both sureties knew the purpose of the surety undertaking which they signed and they must have had an estimate of the amount involved at that time. because of the desire of petitioners. It is prospective in its operation and is generally intended to provide security with respect to future transactions within certain limits.

petitioners cannot now impugn the validity of the surety contracts on the ground that there was no preexisting obligation to be guaranteed at the time said surety contracts were executed. which relied on their signed word. or by their acts which are too clear and unequivocal to be mistaken. the obligation of the sureties referred to absolutely. . unconditionally and solidarily guaranteeing the full. If they cannot. must appear by express agreement of the parties. novation must be explicitly stated and declared in unequivocal terms. whether totally or partially. Filinvest relied upon the surety contracts when it demanded payment from the sureties of the unsettled liabilities of Fortune.Fortune to acquire credit facility from Filinvest and to procure cars for resale. After benefiting therefrom. The will to novate. faithful and prompt performance. They cannot resort to equity to escape liability for their voluntary acts. each one having its independent existence. A refusal to enforce said surety contracts would virtually sanction the perpetration of fraud or injustice. There were to qualifications. First. The test of incompatibility is whether the two obligations can stand together. The Financing Agreement. the old and new obligations must be incompatible on every point. therefore. relied on the surety contracts when it agreed to be the assignee of CARCO with respect to the liabilities of Fortune with CARCO. This is a clear case of estoppel by deed. thus changing the principal terms thereof and effecting a novation. Respondent Filinvest. We have ruled previously that there are only two ways to effect novation and thereby extinguish an obligation. on the other hand. The allegation of novation by petitioners is. merely detailed the obligations of Fortune to CARCO (succeeded by Filinvest as assignee). conditions or reservations stated therein as to the extent of the suretyship. Novation is never presumed. for its part. 23 Second Issue: No Novation Neither do we find merit in the averment of petitioners that the Financing Agreement contained onerous obligations not contemplated in the surety undertakings. By the acts of petitioners. which was the business of Fortune. payment and discharge of all obligations of Petitioner Fortune with respect to any and all contracts and other agreements with Respondent Filinvest in force at that time or thereafter made. Filinvest was made to believe that it can collect from Chua and/or Rodrigueza in case of Fortune’s default. 25 Under the surety undertakings however. Second. they are incompatible and the latter obligation novates the first. 24 Novation must be established either by the express terms of the new agreement or by the acts of the parties clearly demonstrating the intent to dissolve the old obligation as a consideration for the emergence of the new one. and to heap injustice to Filinvest.

JJ. the findings of the trial court and the Court of Appeals with respect to the assigned error are based on substantial evidence which were not refuted with contrary proof by petitioners.26 Third Issue: Amount of Claim Substantiated The contest on the correct amount of the liability of petitioners is a purely factual issue. there is no necessity to depart from the above judicial dictum. Then. the petition is DENIED and the assailed Decision of the Court of Appeals concurring with the decision of the trial court is hereby AFFIRMED. Neither did the sureties object to the Financing Agreement nor try to avoid liability thereunder at the time of its execution.. Chua and Rodrigueza elected or chose not to answer said demand letters. considering that appellant Chua is the corporate president of Fortune and a signatory to the AWFA. . the parties have not performed any explicit and unequivocal act to manifest their agreement or intention to novate their contract. then why did they not inform Filinvest of such fact when the latter sent them the aforementioned demand letters (Exhs. WHEREFORE. There is no incompatibility of obligations to speak of in the two contracts. Melo and Francisco. too. Costs against petitioners. . For another. . trust receipts or demand drafts. It is an oft repeated maxim that the jurisdiction of this Court in cases brought before it from the Court of Appeals under Rule 45 of the Rules of Court is limited to reviewing or revising errors of law. As aptly discussed by the Court of Appeals: .misplaced. SO ORDERED. he should have simply had it stated in the AWFA or in a separate document that the ‘Surety Undertakings’ do not cover Fortune’s obligations in the aforementioned AWFA. quite uncharacteristic of persons who have just been asked to pay an obligation to which they are not liable. concur. Factual findings of the Court of Appeals are conclusive on the parties and carry even more weight when said court affirms the factual findings of the trial court. It is not the function of this Court to analyze or weigh evidence all over again unless there is a showing that the findings of the lower court are totally devoid of support or are glaringly erroneous as to constitute serious abuse of discretion. Instead. They can stand together without conflict. if Chua and Rodrigueza truly believed that the surety undertakings they executed should not cover Fortune’s obligations under the AWFA (Financing Agreement). Hence. 27 In the case at bar. premises considered. Furthermore. “K” and “L”) urging them to pay Fortune’s liability under the AWFA.

Renato J. in CA-GR CV No.J. Jr. vs. DE CASTILLO. Philippine Machinery Parts Manufacturing Co. VICTORIA M. CASTILLO. Zepeda for petitioners. as it is hereby REVERSED. BORMAHECO.M. ABAÑEZ. MARIETTA C. and Davide. petitioners. JJ. 15412. RIVERA. Edmundo T. DECISION REGALADO. Martin M. Parts Manufacturing Co.. dated August 3. In lieu thereof. BERTILLA C.. COURT OF APPEALS. vs.R. C. UMALI. concur. 89561 September 13. No. et al.. viewed in the light of the entire record. INC. respondents. Inc.. JALBUENA and SANTIAGO M. Republic of the Philippines SUPREME COURT Manila SECOND DIVISION G. Inc... et al. Inc. . MAURICIA M.: This is a petition to review the decision of respondent Court of Appeals. entitled “Buenaflor M. INC.” 1 the dispositive portion whereof provides: WHEREFORE. a judgment is hereby rendered1) Dismissing the complaint. De Guzman for respondent BORMAHECO. RADA. and PHILIPPINE MACHINERY PARTS MANUFACTURING CO. with cost against plaintiffs.. VDA. 1990 BUENAFLOR C. LEOVINA C.Narvasa. the judgment appealed from must be. J. Castillo Umali.. Robles for P. 1989.

000. with assessed value of P5. C-1 -to C3 c) That the above-enumerated four (4) parcels of land were the subject of the Deed of ExtraJudicial Partition executed by the heirs of Felipe Castillo (per Exhibit D) and by virtue thereof the titles thereto has (sic) been cancelled and in lieu thereof. T-12113 (Exhibit E ). 4053. with assessed value of P6. Marietta and Leovina.130. Insurance Corporation of the Philippines (ICP). .. B-1 to B-3 C. T-31762 and Tax Dec.00.00 b) To defendant-appellant Bormaheco: (i) expenses of litigation in the amount of P5. T-13113 (Exhibit F). T13117 (Exhibit H ) d) That mentioned parcels of land were submitted as guaranty in the Agreement of CounterGuaranty with Chattel-Real Estate Mortgage executed on 24 October 1970 between Insurance Corporation of the Philippines and Slobec Realty Corporation represented by Santiago Rivera (Exhibit 1). SO ORDERED. The original complaint for annulment of title filed in the court a quo by herein petitioners included as party defendants the Philippine Machinery Parts Manufacturing Co.00 and (ii) attorney’s fees of P15. TCT No. Inc. Bertilla. T 32227 and Tax Dec. TCT No.00 and (ii) attorney’s fees of P15. 14132. Bormaheco. b) The four (4) parcels of land described in paragraph 3 of the Complaint were originally covered by TCT No. this time impleading Santiago M. 14134 with assessed value of P3. the previous administratrix of the said proceedings prior to 1970 (per exhibits A-1 and A-2) which case was filed in Court way back in 1964.00. (PM Parts).100. and TCT No. Victoria. TCT No. (Bormaheco) and Santiago M. 14133.00. TCT No.2) Ordering plaintiffs-appellees to vacate the subject properties.00. No. T-42104 and Tax Dec. CFI of Quezon (per Exhibit A) which intestate proceedings was instituted by Mauricia Meer Vda.000. namely: Buenaflor.150.000.00 (per Exhibits A-2 and B. pending before Branch IX.000. de Castillo and of her children. all surnamed Castillo has (sic) been issued. 14135. Inc. Castillo is the judicial administratrix of the estate of Felipe Castillo in Special Proceeding No. Rivera (Rivera). namely: TCT No. new titles in the name of Mauricia Meer Vda. No. A Second Amended Complaint was filed. No. the parties entered into the following stipulation of facts: As between all parties: Plaintiff Buenaflor M. T-13116 (Exhibit G ) and TCT No. T-42103 with Tax Dec. with assessed value of P3. During the pre-trial conference.. Rivera as party plaintiff.580. and 3) Ordering plaintiffs-appellees to pay upon defendants’ counterclaims: a) To defendant-appellant PM Parts: (i) damages consisting of the value of the fruits in the subject parcels of land of which they were deprived in the sum of P26. de Castillo. No.

Inc. TCT No. m) That in August 1976. Modesto N. de Guzman was retained by Insurance Corporation of the Philippines specifically for foreclosure purposes only. namely: TCT No. and also he is one of the Board of Directors of PM Parts. on or about October 2. TCT No. de Castillo sent her letter to Modesto N. De Guzman was the legal counsel of Bormaheco. on the other hand. Martin M.. later President thereof. PM Parts notified Mrs. Inc. and who also is the legal counsel of Insurance Corporation of the Philippines and PM Parts. Buenaflor Castillo. one (1) unit Caterpillar Tractor D-7 with Serial No. Inc.00 per harvest. represented by Santiago Rivera. on November 25. and that Atty. Mauricia Meer about its ownership and the assignment of Mr. T13115. T-24848 (Exhibit). the Insurance Corporation of the Philippines sold to PM Parts the immovables in question (per Exhibit 6 for PM Parts) and by reason thereof. per TCT No. Navoa of the City of Manila on October 24. Marietta Castillo and Leovina Castillo. T-23705 (Exhibit M). Inc. Cervantes was the Vice-President of Bormaheco. succeeded in transferring unto itself the titles over the lots in dispute. 1970. that Modesto N. President. TCT No. namely: per TCT No.e) That based on the Certificate of Sale issued by the Sheriff of the Province of Quezon in favor of Insurance Corporation of the Philippines it was able to transfer to itself the titles over the lots in question. to Slobec Realty & Development. Inc. i) Defendant Bormaheco. T-24847 (Exhibit R ). Atty.. November and December 1970 and January 1971. Inc. T-24846 (Exhibit Q ). Petronilo Roque as caretaker of the subject property.000. Menandro Umali for purposes of repair. T-13114. was delivered to Bormaheco. Inc. Inc. h) That from at least the months of October. T-13116 and T-13117 of the Register of Deeds of Lucena City. 281114 evidenced by a contract marked Exhibit J and Exhibit I for Bormaheco. l) That the tractor sold by defendant Bormaheco. 14010 issued by co-defendant ICP was likewise secured by an Agreement with Counter-Guaranty with Real Estate Mortgage executed by Slobec Realty & Development. 1970 sold to Slobec Realty and Development. Cervantes served later on as President of PM Parts. by Mr. T 23706 (Exhibit N ). . f) That on 10 April 1975. j) That the Surety Bond No. Bertilla Castillo. T-24849 (Exhibit T ). g) On 26 August l976. Cervantes stating that she and her children refused to comply with his demands (Exhibit V-2). Mauricia Meer Vda. later Executive Vice-President thereof. T23707 (Exhibit 0) and TCT No. Inc.. as mortgagors in favor of ICP which document was executed and ratified before notary public Alberto R.. T 23708 (Exhibit P). n) That plaintiff and other heirs are to harvest fruits of the property (daranghita) which is worth no less than P1. Mauricia Castillo Meer. Victoria Castillo. TCT No.1973. k) That the property mortgaged consisted of four (4) parcels of land situated in Lucena City and covered by TCT Nos.

000. Cervantes a Chattel Mortgage concerning one unit model CAT D7 Caterpillar Crawler Tractor as described therein as security for the payment in favor of the mortgagee of the amount of P180. u) That the Caterpillar Crawler Tractor Model CAT D-7 which was received by Slobec Realty Development Corporation was actually reconditioned and repainted. it appears in the notarial register of the notary public who notarized them that those two documents were executed on 11 December 1970. “ 2 We cull the following antecedents from the decision of respondent Court of Appeals: Plaintiff Santiago Rivera is the nephew of plaintiff Mauricia Meer Vda. Inc. received from Bormaheco. r) That on 23 January 1971. 1971.) and delivery receipt No. Rizal. Inc. as counsel of Insurance Corporation of the Philippines purchased at public auction for said corporation the four (4) parcels of land subject of this case (per Exhibit L).00 (per Exhibit J) which document was superseded by the Sales Agreement dated January 23. formerly VicePresident and now President of Bormaheco. represented by Santiago Rivera. de Castillo. and which document was presented to the Register of Deeds on 1 October 1973. Inc s) That on 28 September 1973. The Castillo family are the owners of a parcel of land located in Lucena City which was given as security for .. Rizal. sent his letter dated 9 August 1976 to Mauricia Meer Vda. 10368 (per Exhibits 10 and 10-A for Bormaheco. Inc. p) On 18 December 1970.1971 (Exhibit 16). Slobec Realty Development Corporation. The certified xerox copy of the notarial register of Notary Public Guillermo Aragones issued by the Bureau of Records Management is hereto submitted as Exhibit BB That said chattel mortgage was superseded by another document dated January 23. Inc.. represented by its Vice-President Modesto N.As between plaintiffs and defendant Bormaheco. Inc o) That on 25 November 1970. Same Rivera.. de Castillo (Exhibit V).000. 33234 (Exhibits 9 and 9-A. in representation of the Slobec Realty & Development Corporation executed in favor of Bormaheco. 1971 (Exhibit 15). Inc. at Makati.00 (per Exhibit K) that Id document was superseded by another chattel mortgage dated January 23. t) Although it appears that the realties in issue has (sic) been sold by Insurance Corporation of the Philippines in favor of PM Parts on 10 April 1975. de Guzman. Atty. the Bormaheco. and in the document entitled Sales Agreement (per Exhibit J) that it was executed on 18 December 1970. one (1) tractor Caterpillar Model D-7 pursuant to Invoice No. demanding that she and her children should vacate the premises. Cervantes. q) Although it appears on the document entitled Chattel Mortgage (per Exhibit K) that it was executed on 25 November 1970. represented by its VicePresident Modesto Cervantes and Slobec Realty Corporation represented by Santiago Rivera executed the sales agreement concerning the sale of one (1) unit Model CAT D7 Caterpillar Crawler Tractor as described therein for the amount of P230. at Makati. Martin M. Bormaheco. Modesto N.

In this agreement. Santiago Rivera. 13116 and 13117 all of the Register of Deeds for Lucena City. executed a Sales Agreement over one unit of Caterpillar Tractor D-7 with Serial No.1970 (Exh.00 immediately after the execution of the agreement and to pay the additional amount of P400. Bormaheco. J. 127. For their failure to pay the amortization.. and proposed to purchase from Bormaheco two (2) tractors Model D-7 and D-8 Subsequently.212. 113). As further security of the aforementioned unpaid balance. Record) was executed by and between Slobec Realty and Development. p. a Memorandum of Agreement (Exh. K. The Idea was accepted by the Castillo family and to carry out the project. On the occasion of the execution on January 23. and Slobec Realty and Development. 111. Rivera.000. p. Modesto Cervantes. foreclosure of the said property was about to be initiated. 24. 33234 (Exhs.000. U p. Victoria Castillo. Inc. On January 23. Inc. with ICP (Insurance Corporation of the Phil. (u)]. 1971. four parcels of land covered by TCTs in the name of the aforementioned mortgagors.) as surety and Slobec as principal. 1971. This tractor was known by Rivera to be a reconditioned and repainted one [Stipulation of Facts. Meanwhile. 10 and 10A.000. Record) executed by Rivera as president of Slobec and Mauricia Meer Vda. for violation of the terms and conditions of the Counter-Guaranty Agreement (Exh. who proposed to them the conversion into subdivision of the four (4) parcels of land adjacent to the mortgaged property to raise the necessary fund. On the same date. a Surety Bond.. of the Sales Agreement Exhibit ’16′. 10368 (Exhs. the price was P230. in favor of Bormaheco. approached Mr. 22.00 was to constitute a down payment. a Sales Agreement was executed on December 28. The aforesaid surety bond was in turn secured by an Agreement of Counter-Guaranty with Real Estate Mortgage (Exhibit I.00 payable in eighteen monthly installments. p. President of defendant Bormaheco. ICP guaranteed the obligation of Slobec with Bormaheco in the amount of P180. p. as evidenced by the contract marked Exhibit ’16′. Slobec. T-23707 and T- . Record) and Delivery Receipt No. T-23705. Record) over the said equipment as security for the payment of the aforesaid balance of P180. T 23706. TCT Nos.000. a Certificate of Sale was issued by the Provincial Sheriff of Lucena City and Transfer Certificates of Title over the subject parcels of land were issued by the Register of Deeds of Lucena City in favor of ICP namely.00. 13115. p.00 of which P50.000. Buenaflor Castillo Umali. Marietta Castillo and Leovina Castillo Jalbuena. This problem was made known to Santiago Rivera. namely.00 after the property has been converted into a subdivision. as mortgagors and Insurance Corporation of the Philippines (ICP) as mortgagee. armed with the agreement.000. par.00.000. the properties of the Castillos were foreclosed by ICP As the highest bidder with a bid of P285. As shown by the contract. Record). ICP required that the Castillos mortgage to them the properties in question. represented by its President Santiago Rivera and the Castillo family. namely. represented by its President. Inc. In giving the bond. 9 and 9-A. represented by Rivera received from Bormaheco the subject matter of the said Sales Agreement. Pre-trial Order. through Rivera. executed in favor of Bormaheco a Chattel Mortgage (Exh. In this agreement. Record). 29. the aforementioned tractor Caterpillar Model D-7 as evidenced by Invoice No. Slobec obtained from Insurance Corporation of the Phil. Bertilla Castillo-Rada. Slobec. 13114. as borne out by Exhibit ’8′ (p. 281114. de Castillo.a loan from the Development Bank of the Philippines. 1). Santiago Rivera obliged himself to pay the Castillo family the sum of P70. namely TCT Nos.00. and the balance of P180. 112. Exhibit U .

who (Mrs.). that plaintiffs are guilty of laches in not asserting their alleged right in due time. Q-T. 1974. by way of affirmative and special defenses that the complaint did not state facts sufficient to state a cause of action against defendants. with the following decretal portion: . Insurance Corporation of the Phil. until October 1. On September 29. Rec. 46-49. but they failed to do so. 444. Pursuant thereto. the defendants controverted the complaint and alleged. 24846. Modesto Cervantes. PM Parts transferred unto itself the titles over the lots in dispute so that said parcels of land are now covered by TCT Nos. to redeem the property. sent a letter dated August 9.13115. 138. I) as well as the Deed of Sale (Annexes J. K. Rivera as a party plaintiff (p. T-24846. ICP sold to Phil. plaintiffs filed their Second Amended Complaint. 23705. 23. PM Parts. ’22′(p. a Deed of Sale of Real Estate covering the subject properties was issued in favor of ICP (Exh.13117. Consequently. 139. the heirs of the late Felipe Castillo. that defendant PM Parts is an innocent purchaser for value and relied on the face of the title before it bought the subject property (p. T-24847.1976 addressed to plaintiff Mrs. Record). The mortgagors had one (1) year from the date of the registration of the certificate of sale. they filed an Amended Complaint on January 10. L) and the Deeds of Authority to Sell.). Rec.).13116. 1976. (PM Parts) the four (4) parcels of land and by virtue of said conveyance. 38-45). Sale and the Affidavit of Consolidation of Ownership (Annexes F. 706. as shown in Exh. 23706. 1980 (p. Castillo Umali as the appointed administratrix of the properties in question filed an action for annulment of title before the then Court of First Instance of Quezon and docketed thereat as Civil Case No. pp. Record). On April 10. H. Rec. Mr. that plaintiffs are not entitled to the reliefs demanded.23708 (Exhs. Mauricia Meer Castillo requesting her and her children to vacate the subject property. Thereafter. 744. 8085. T-24848 and T-24849 (Exhs. On July 20. 1974. 3 After trial. impleading Santiago M. Castillo) in turn sent her reply expressing her refusal to comply with his demands. 71071 1. Plaintiffs pray that the four (4) parcels of land subject hereof be declared as owned by the estate of the late Felipe Castillo and that all Transfer Certificates of Title Nos. In their amended answer. through its President. Machinery Parts Manufacturing Co. They contended that all the aforementioned transactions starting with the Agreement of Counter-Guaranty with Real Estate Mortgage (Exh. that plaintiffs are estopped or precluded from asserting the matters set forth in the Complaint. 1975. Record). particularly plaintiff Buenaflor M. ICP consolidated its ownership over the subject parcels of land through the requisite affidavit of consolidation of ownership dated October 29. Thereafter. p. (Branch IX) before whom the administration proceedings has been pending. 23707. G. the court a quo rendered judgment. 24847. Certificate of Sale (Exh. 23708. pp. 13114. that is. M to P. L and M) are void for being entered into in fraud and without the consent and approval of the Court of First Instance of Quezon. Record). 1983. 24848 and 24849 as well as those appearing as encumbrances at the back of the certificates of title mentioned be declared as a nullity and defendants to pay damages and attorney’s fees (pp. I).

1970 (Exhibit K) Sales Agreement dated January 23.500. Chattel Mortgage dated January 23. Inc. Certificate of Sale dated September 28. . Transfer Certificates of Title Nos.1970 (Exhibit 1).000. T 24846. exemplary damages in the amount of P5. T-24848 and T-24849 subsequently issued by virtue of said sale in the name of Philippine Machinery Parts Manufacturing Co. T 23705.. The sale by Insurance Corporation of the Philippines in favor of defendant Philippine Machinery Parts Manufacturing Co. jointly and severally. SO ORDERED. Consequently. are similarly declared null and void.. over the four (4) parcels of land and Transfer Certificates of Title Nos. judgment is hereby rendered in favor of the plaintiffs and against the defendants. T-24847.00 for and as attomey’s fees. and actual litigation expenses in the sum of P6. T-23706. Inc. Orders the defendants jointly and severally to pay the plaintiffs moral damages in the sum of P10. Sales Agreement dated December 28.00. in lieu thereof.00. the sum of P10. and the Register of Deeds of Lucena City is hereby directed to issue.. In holding and finding that the actions entered into between petitioner Rivera with Cervantes are all fair and regular and therefore binding between the parties thereto. 1970 (Exhibit J) Chattel Mortgage dated November 25.00. are likewise null and void. 1971 (Exhibit 17). 1971 (Exhibit 16). N. spurious and without consideration.000. transfer certificates of title in the names of the plaintiffs. Defendants are likewise ordered to pay the plaintiffs.WHEREFORE. With costs against the defendants. 4 As earlier stated. T23707 and T-23708 (Exhibits M.. null and void for being fictitious.000. O and P) issued in the name of Insurance Corporation of the Philippines. respondent court reversed the aforequoted decision of the trial court and rendered the judgment subject of this petitionPetitioners contend that respondent Court of Appeals erred: 1. declaring the following documents: Agreement of Counter-Guaranty with Chattel-Real Estate Mortgage dated October 24. 1973 executed by the Provincial Sheriff of Quezon in favor of Insurance Corporation of the Philippines (Exhibit L). except Santiago Rivera.

it will be noted that petitioners submission under the first assigned error hinges purely on questions of fact. Rivera never made any advance payment. In aside the finding of the lower court that there was necessity to pierce the veil of corporate existence. 6 Chattel Mortgage 7 and the Agreement of CounterGuaranty with Chattel/Real Estate Mortgage. we find no compelling reason to deviate from this long-standing jurisprudential pronouncement. Petitioners aver that the transactions entered into between Santiago M. to Bormaheco. not only based on erroneous conclusions of facts. 1971 and not in 1970 as stated in the Chattel Mortgage (Exhibit K). the Sales Agreement and Chattel Mortgage had not as yet been executed. which clearly constitutes a breach of the contract. and that. In addition. despite the fact that the surety bond issued it had already expired when it opted to foreclose extrajudically the mortgage executed by the petitioners. Respondent Court of Appeals made several findings to the effect that the questioned documents are valid and binding upon the parties. In reversing the decision of the lower court of affirming the same 5 I. erroneous presumptions not supported by the evidence on record but also. that there was no fraud employed by private respondents in the execution thereof. does not convince us of the validity of petitioners’ contention that the contracts entered into by the parties are either absolutely simulated or downright fraudulent. the alleged failure of Rivera to pay the consideration agreed upon in the Sales Agreement. and 4. The evidence of record. the evidence on record reveals that petitioners had every intention to be bound by their undertakings in the various transactions had with private respondents. Rivera.00. . as President of Slobec Realty and Development Company (Slobec) and Mode Cervantes. as Vice-President of Bormaheco. in the alleged amount of P50.000. Equity and fair play dictates that one who commits a breach of his contract may not seek refuge under the protective mantle of the law. to secure the obligation of ICP under its surety bond. At the outset. 3. aside from the fact that it was Bormaheco. 8are all fraudulent and simulated and should. In reversing the decision of the lower court. and that when the Agreement of Counter-Guaranty with Chattel/Real Estate Mortgage was executed on October 24. It is a general rule in this jurisdiction that findings of fact of said appellate court are final and conclusive and. that the tractor was received by Rivera only on January 23. therefore. 1970. contrary to petitioners’ allegation. inter alia. cannot be availed of by the guilty party to justify and support an action for the declaration of nullity of the contract. that the former acted with grave abuse of discretion. which paid the premium for the surety bond issued by ICP. Under the circumstances. on an overall calibration. and not Rivera. such as the Sales Agreement. be declared null and void. binding on this Court in the absence of sufficient and convincing proof. Such allegation is premised primarily on the fact that contrary to the stipulations agreed upon in the Sales Agreement (Exhibit J).2. thus. holding valid and binding the supposed payment by ICP of its obligation to Bormaheco.

II. binding on Rivera.There is absolute simulation. petitioners seek to pierce the veil of corporate entity of Bormaheco. Neither will an allegation of fraud prosper in this case where petitioners failed to show that they were induced to enter into a contract through the insidious words and machinations of private respondents without which the former would not have executed such contract. Bormaheco accepted the payment of the premium as an agent of ICP The execution of the deed of sale with a right of repurchase in favor of Bormaheco under such circumstances sufficiently establishes the fact that Rivera recognized Bormaheco as an agent of ICP. 12 The doctrine applies when the corporate fiction is used to defeat public convenience. the corporation will be considered as a mere association of persons. neither are we inclined to apply the doctrine invoked by petitioners in granting the relief sought. which renders the contract null and void. Under the doctrine of piercing the veil of corporate entity. 10 We are not persuaded that such quantum of proof exists in the case at bar. Petitioners themselves admit in their present petition that Rivera executed a Deed of Sale with Right of Repurchase of his car in favor of Bormaheco and agreed that a part of the proceeds thereof shall be used to pay the premium for the bond. The subsequent act of Rivera in receiving and making use of the tractor subject matter of the Sales Agreement and Chattel Mortgage. He is now estopped from questioning the validity of the suretyship contract. 11 In effect. the legal fiction that a corporation is an entity with a juridical personality separate and distinct from its members or stockholders may be disregarded. To set aside a document solemnly executed and voluntarily delivered. 9 The basic characteristic of this type of simulation of contract is the fact that the apparent contract is not really desired or intended to either produce legal effects or in any way alter the juridical situation of the parties. liability will attach directly to the officers and stockholders. 15 In the case at bar. and the simultaneous issuance of a surety bond in favor of Bormaheco. conduce to the conclusion that petitioners had every intention to be bound by these contracts. The members or stockholders of the corporation will be considered as the corporation. ICP and PM Parts. alleging that these corporations employed fraud in causing the foreclosure and subsequent sale of the real properties belonging to petitioners. The occurrence of these series of transactions between petitioners and private respondents is a strong indication that the parties actually intended. While we do not discount the possibility of the existence of fraud in the foreclosure proceeding. when valid grounds therefore exist. 13 or when it is made as a shield to confuse the legitimate issues 14 or where a corporation is the mere alter ego or business conduit of a person. agency. justify wrong. or defend crime. Such payment to the agent of ICP is. or at least expected. therefore. to exact fulfillment of their respective obligations from one another. or where the corporation is so organized and controlled and its affairs are so conducted as to make it merely an instrumentality. concomitant with the execution of the Agreement of Counter-Guaranty with Chattel/Real Estate Mortgage. the proof of fraud must be clear and convincing. when the parties do not intend to be bound at all by the same. In such cases. protect fraud. The fact that it was Bormaheco which paid the premium for the surety bond issued by ICP does not per se affect the validity of the bond. It is our considered opinion that piercing the veil of corporate entity is not the proper remedy in order that the . conduit or adjunct of another corporation. that is.

ICP had the right to proceed at once to the foreclosure of the mortgage as mandated by the provisions of Art. it is these corporations which desire to enforce an alleged right against petitioners. In the first place. under the circumstances. on the contrary. Respondent court. 2071 Civil Code for these further reasons: Slobec. the Agreement of Counter-Guaranty with Real Estate Mortgage (Exh. First. The mere fact. petitioners do not seek to impose a claim against the individual members of the three corporations involved. 1) expressly grants to ICP the right to foreclose the real estate mortgage in the event of ‘non- . In the instant case. the liability of ICP under the surety bond had already expired. Rule 5. it is disputably presumed that the ordinary course of business has been followed: Second. therefore. plus the fact that no receipt was presented to show the amount allegedly paid by ICP to Bormaheco. Third. in finding for the validity of the foreclosure sale. sufficient to justify the piercing of the corporate fiction. was admittedly insolvent. Petitioners are merely seeking the declaration of the nullity of the foreclosure sale. viz. likewise. This presumption is in consonance with pars. the legal corporate entity is disregarded only if it is sought to hold the officers and stockholders directly liable for a corporate debt or obligation. and (b) at the time of the foreclosure of the mortgage. petitioners failed to establish by clear and convincing evidence that private respondents were purposely formed and operated. Assuming that petitioners were indeed defrauded by private respondents in the foreclosure of the mortgaged properties. and thereafter transacted with petitioners.: (1) no written notice was furnished by Bormaheco to ICP anent the failure of Slobec in paying its obligation with the former. III. especially because Bormaheco consented to ICPs foreclosure of the mortgage. this fact alone is not. the principal debtor. declared: Now to the question of whether or not the foreclosure by the ICP of the real estate mortgage was in the exercise of a legal right. which relief may be obtained without having to disregard the aforesaid corporate fiction attaching to respondent corporations. and its authorization to foreclose the mortgage upon Slobec’s default. We agree with the appellants that the foreclosure proceedings instituted by the ICP was in the exercise of a legal right.foreclosure proceeding may be declared a nullity under the circumstances obtaining in the legal case at bar. ICP has in its favor the legal presumption that it had indemnified Bormaheco by reason of Slobec’s default in the payment of its obligation under the Sales Agreement. with the sole intention of defrauding the latter. since petitioners do not intend to hold the officers and/or members of respondent corporations personally liable therefor. R and Q Section 5. 16 absent sufficient showing that the corporate entity was purposely used as a shield to defraud creditors and third persons of their rights. * New Rules of Court which provides that it is disputably presumed that private transactions have been fair and regular. Secondly. The main issue for resolution is whether there was a valid foreclosure of the mortgaged properties by ICP Petitioners argue that the foreclosure proceedings should be declared null and void for two reasons. that the businesses of two or more corporations are interrelated is not a justification for disregarding their separate personalities. which resulted in the accrual of ICPS liability to Bormaheco. Slobec’s obligation becomes demandable by reason of the expiration of the period of payment.

an annotation on the upper part thereof states: “NOTE: EFFECTIVITY DATE OF THIS BOND SHALL BE ON JANUARY 22.000. The liability of INSURANCE CORPORATION OF THE PHILIPPINES.payment or non-liquidation of the entire indebtedness or fraction thereof upon maturity as stipulated in the contract’. 1972. if a default exists. 1970. There are certain instances.” 19 On the other hand. it is hereby agreed and understood that the INSURANCE CORPORATION OF THE PHILIPPINES will not be liable for any claim not presented in writing to the Corporation within THIRTY (30) DAYS from the expiration of this BOND. generally the failure to comply with the condition will prevent recovery from the surety. wherein ICP and Slobec undertook to guarantee the payment of the balance of P180. or on mere suspicion of possible default. We have repeatedly held that the extent of a surety’s liability is determined only by the clause of the contract of suretyship as well as the conditions stated in the bond. and that non-payment of any of the installments when due shall make the entire obligation immediately due and demandable. or where the surety already has knowledge or is chargeable with knowledge of the default. 1971 up to July 23. 20 The Promissory Note executed by Slobec on even date in favor of Bormaheco further provides that the obligation shall be payable on or before February 23. It cannot be extended by implication beyond the terms the contract. 18 The surety bond was dated October 24. 1971. under this BOND will expire Twelve (I 2) months from date hereof. New Civil Code). 17 1. This is a valid and binding stipulation in the absence of showing that it is contrary to law. Petitioners asseverate that there was no notice of default issued by Bormaheco to ICP which would have entitled Bormaheco to demand payment from ICP under the suretyship contract. morals.00 payable in eighteen (18) monthly installments on one unit of Model CAT D-7 Caterpillar Crawler Tractor. except where required by the provisions of the contract. there is excuse or provision in the suretyship contract exempting the surety for liability therefor. 24 . pertinently provides in part as follows: 1. Furthermore. B-1401 0 which was issued by ICP in favor of Bormaheco.000. a demand or notice of default is not required to fix the surety’s liability. Surety Bond No. 23 Hence. 22 Fundamental likewise is the rule that. or where. the Sales Agreement dated January 23.00 shall be payable in eighteen (18) monthly installments. where the contract of suretyship stipulates that notice of the principal’s default be given to the surety. such as a failure to give notice of slight defaults. 1306. and that the obligee hereby waives his right to bring claim or file any action against Surety and after the termination of one (1) year from the time his cause of action accrues. which are waived by the obligee. when failure to comply with the condition will not extinguish the surety’s liability. 1971 provides that the balance of P180. good customs. however. 21 It is basic that liability on a bond is contractual in nature and is ordinarily restricted to the obligation expressly assumed therein. (Art. However. public order or public policy.

Section 1. such liability is strictly limited to that assumed by its terms. to which he may resort only after payment by himself. to terminate at a specified time. 3. 1972 up to July 23. twelve (1 2) months from its effectivity date. The default of Slobec during this period cannot be a valid basis for the exercise of the right to foreclose by ICP since its surety contract had already been terminated. There is nothing in the records of the proceedings to show that ICP indemnified Bormaheco for the failure of the plaintiffs to pay their obligation. the liability of Slobec became an unsecured obligation. 26 While ordinarily the termination of a surety’s liability is governed by the provisions of the contract of suretyship. under the terms of the bond. such guaranty was valid only for and within twelve (1 2) months from the date of effectivity of the surety bond. “ 25 The failure. 1972. Therefore.000. 29 In the case at bar. 1972. the suretyship contract expressly provides that ICP shag not be liable for any claim not filed in writing within thirty (30) days from the expiration of the bond. Consequently. the surety bond issued by ICP was to expire on January 22. where the obligation of a surety is. or until January 22. from January 23. the court a quo categorically stated that ‘(n)o evidence was presented to show that Bormaheco demanded payment from ICP nor was there any action taken by Bormaheco on the bond posted by ICP to guarantee the payment of plaintiffs obligation. Lastly. whereas Slobec’s installment payment was to end on July 23. the disputable presumption that private transactions have been fair and regular. Thereafter. Furthermore. until he has paid something as such guarantor neither he nor the creditor can resort to such collaterals. of Bormaheco to notify ICP in writing about Slobec’s supposed default released ICP from liability under its surety bond.27 This is an exception to the general rule that the obligation of the surety continues for the same period as that of the principal debtor. while he is liable to the full extent thereof. The liability of a surety is measured by the terms of his contract. Since ICP failed to duly prove the fact of payment. the foreclosure of the mortgage. 2. the allegation of ICP that it has paid Bormaheco is not supported by any documentary evidence. while ICP guaranteed the payment by Slobec of the balance of P180. Rule 131 of the Rules of Court provides that the burden of evidence lies with the party who asserts an affirmative allegation. his obligation cannot be enlarged by an unauthorized extension thereof. after the expiration of the surety bond under which ICP as surety has not incurred any liability. It cannot claim exemption from the required written notice since its case does not fall under any of the exceptions hereinbefore enumerated. the liability of ICP was extinguished when Bormaheco failed to file a written claim against it within thirty (30) days from the expiration of the surety bond. should be declared null and void. as erroneously relied upon by respondent Court of Appeals. 30 . In its decision dated May 25 1987.In the case at bar. Consequently. Besides. it has been held that where The guarantor holds property of the principal as collateral surety for his personal indemnity. finds no application to the case at bar. 1972. ICP could not validly foreclose that real estate mortgage executed by petitioners in its favor since it never incurred any liability under the surety bond. therefore. as where the principal debtor is required to make payment by installments. 1972. 28 It is possible that the period of suretyship may be shorter than that of the principal obligation. and.00.

the decision of respondent Court of Appeals is hereby REVERSED and SET ASIDE. The submission is without merit and the conclusion is specious We have stated earlier that the doctrine of piercing the veil of corporate fiction is not applicable in this case. of the four (4) parcels of land covered by the aforesaid certificates of title. must be declared null and void since they cannot be considered altogether free of the taint of bad faith. except Santiago Rivera. against herein petitioners. Accordingly. T-24847. Inc. therefore. the transfer certificates of title issued in its name. was also the legal counsel of ICP and PM Parts. The foregoing dispositions are without prejudice to such other and proper legal remedies as may be available to respondent Bormaheco. . it acquired a valid title over the subject properties. its inapplicability has no bearing on the good faith or bad faith of private respondent PM Parts. Cervantes served as Vice-President of Bormaheco and. ICP and herein petitioners. Atty. Inc. Private respondent PM Parts posits that it is a buyer in good faith and. It must be noted that Modesto N. Martin de Guzman. the defense of good faith may not be resorted to by private respondent PM Parts which is charged with knowledge of the true relations existing between Bormaheco. who is the Executive Vice-President of Bormaheco. T23705. as President of PM Parts. (2) Transfer Certificates of Title Nos.. The Register of Deeds of Lucena City is hereby directed to cancel Transfer Certificates of Title Nos.. Inc. 31 There is no doubt that said Agreement of Counter-Guaranty is issued for the personal indemnity of ICP Considering that the fact of payment by ICP has never been established. later. IV. However. Hence. it cannot be said that PM Parts had no knowledge of the aforesaid several transactions executed between Bormaheco and petitioners. that ICP cannot foreclose on the subject properties. These facts were admitted without qualification in the stipulation of facts submitted by the parties before the trial court. (3) the sale by Insurance Corporation of the Philippines in favor of Philippine Machinery Parts Manufacturing Co. T-23707 and T-23708 issued in the name of the Insurance Corporation of the Philippines. it follows.The Agreement of Counter-Guaranty with Chattel/Real Estate Mortgage states that it is being issued for and in consideration of the obligations assumed by the Mortgagee-Surety Company under the terms and conditions of ICP Bond No. T-24848 and T24849 subsequently issued by virtue of said sale in the name of the latter corporation. In addition. executed by the Provincial Sheriff of Quezon in favor of the Insurance Corporation of the Philippines. and judgment is hereby rendered declaring the following as null and void: (1) Certificate of Sale. 14010 in behalf of Slobec Realty Development Corporation and in favor of Bormaheco. Inc. T-24846. pursuant to the doctrine above adverted to. On this fact alone. as well as the certificate of sale.1973. and to issue in lieu thereof the corresponding transfer certificates of title in the name of herein petitioners. WHEREFORE. and (4) Transfer Certificates of Title Nos. T24848 and T-24849 in the name of Philippine Machinery Parts Manufacturing Co. T-23706. T-24847. T-24846. dated September 28.