Professional Documents
Culture Documents
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VOL. 341, OCTOBER 3, 2000 781 Security Bank and Trust Company, Inc. vs. Cuenca
Security Bank and Trust Company, Inc. vs. Cuenca
where it exists, is an important and valuable right. Public policy
*
G.R. No. 138544. October 3, 2000. would be better served by according the appellate court an
effective opportunity to review the decision of the trial court on
SECURITY BANK AND TRUST COMPANY, INC., the merits, rather than by aborting the right to appeal by a literal
petitioner, vs. RODOLFO M. CUENCA, respondent. application of the procedural rules relating to pro forma motions
for reconsideration.”
Pleadings and Practice; Service of Pleadings; The explanation
Actions; Motions for Reconsideration; Pleadings and Practice;
that service was done by registered mail in lieu of personal service
A motion for reconsideration is not pro forma just because it
due to limitations in time and distance sufficiently shows that
reiterated the arguments earlier passed upon and rejected by the
personal service was not practicable.—The Petition does state that
court.—Respondent contends that petitioner’s Motion for
it was served on the respective counsels of Sta. Ines and Cuenca
Reconsideration of the CA Decision, in merely rehashing the
“by registered mail in lieu of personal service due to limitations in
arguments already passed upon by the appellate court, was pro
time and distance.” This explanation sufficiently shows that
forma; that as such, it did not toll the period for filing the present
personal service was not practicable. In any event, we find no
Petition for Review. Consequently, the Petition was filed out of
adequate reason to reject the contention of petitioner and thereby
time. We disagree. A motion for reconsideration is not pro forma
deprive it of the opportunity to fully argue its cause.
just because it reiterated the arguments earlier passed upon and
rejected by the appellate court. The Court has explained that a Novation; Requisites; In the absence of an express agreement,
movant may raise the same arguments, precisely to convince the novation takes place only when the old and the new obligations are
court that its ruling was erroneous. incompatible on every point.—Novation of a contract is never
presumed. It has been held that “[i]n the absence of an express
Same; Same; Same; Where the circumstances of a case do not
agreement, novation takes place only when the old and the new
show an intent on the part of the movant merely to delay the
obligations are incompatible on every point.” Indeed, the following
proceedings, the Supreme Court has refused to characterize the
requisites must be established: (1) there is a previous valid
motion as simply pro forma.—There is no clear showing of intent
obligation; (2) the parties concerned agree to a new contract; (3)
on the part of petitioner to delay the proceedings. In Marikina
the old contract is extinguished; and (4) there is a valid new
Valley Development Corporation vs. Flojo, the Court explained
contract.
that a pro forma motion had no other purpose than to gain time
and to delay or impede the proceedings. Hence, “where the Same; Loans; That a subsequent loan agreement extinguished
circumstances of a case do not show an intent on the part of the an obligation earlier obtained under a credit accommodation could
movant merely to delay the proceedings, our Court has refused to be evidenced by its explicit provision to “liquidate” the principal
characterize the motion as simply pro forma.” It held: “We note and the interest of the earlier indebtedness.—We reject these
finally that because the doctrine relating to pro forma motions for contentions. Clearly, the requisites of novation are present in this
reconsideration impacts upon the reality and substance of the case. The 1989 Loan Agreement extinguished the obligation
statutory right of appeal, that doctrine should be applied obtained under the 1980 credit accommodation. This is evident
reasonably, rather than literally. The right to appeal, from its explicit provision to “liquidate” the principal and the
interest of the earlier indebtedness, as the following shows: “1.02.
Purpose. The First Loan shall be applied to liquidate the principal
_______________
portion of the Borrower’s present total outstanding Indebtedness
* THIRD DIVISION.
to the Lender (the “Indebtedness”) while the Second Loan shall be
applied to liquidate the past due interest and penalty portion of obligation. As the Court held in National Bank v. Veraguth , “[i]t
the Indebtedness.” (Italics supplied.) The testimony of an officer of is fundamental in the law of suretyship that any agreement
the bank that the proceeds of the 1989 Loan Agreement were used between the creditor and the principal debtor which essentially
“to pay-off” the original indebtedness serves to strengthen this varies the terms of the principal contract, without the consent of
ruling. the surety, will release the surety from liability.”
Same; Same; Same; Even as a surety held himself liable for
783
the credit accommodation or any modification thereof, such clause
should be understood in the context of the loan limit and the term.
VOL. 341, OCTOBER 3, 2000 783 —While respondent held himself liable for the credit
accommodation or any modification thereof,
Security Bank and Trust Company, Inc. vs. Cuenca
784
original loan accommodation is untenable—such theory is commonplace in present day financial and commercial practice. A
contrary to the principle that a surety cannot assume an obligation bank or financing company which anticipates entering into a
more onerous than that of the principal.—We reject petitioner’s series of credit transactions with a particular company, commonly
submission that only Sta. Ines as the borrower, not respondent, requires the projected principal debtor to execute a continuing
was entitled to be notified of any modification in the original loan surety agreement along with its sureties. By executing such an
accommodation. Following the bank’s reasoning, such agreement, the principal places itself in a position to enter into
modification would not be valid as to Sta. Ines if no notice were the projected series of transactions with its creditor; with such
given; but would still be valid as to respondent to whom no notice suretyship agreement, there would be no need to execute a
need be given. The latter’s liability would thus be more separate surety contract or bond for each financing or credit
burdensome than that of the former. Such untenable theory is accommodation extended to the principal debtor.”
contrary to the principle that a surety cannot assume an Same; Same; Same; Banks and Banking; It is a common
obligation more onerous than that of the principal. banking practice to require the JSS (“joint and solidary
Same; Same; Same; Continuing Sureties; Words and Phrases; signature”) of a major stockholder or corporate officer, as an
That the Indemnity Agreement is a continuing surety does not additional security for loans granted to corporations.—It is a
authorize the lender to extend the scope of the principal obligation common banking practice to require the JSS (“joint and solidary
inordinately; A continuing guaranty is one which covers all signature”) of a major stockholder or corporate officer, as an
transactions, including those additional security for loans granted to corporations. There are at
least two reasons for this. First, in case of default, the creditor’s
785 recourse, which is normally limited to the corporate properties
under the veil of separate corporate personality, would extend to
the personal assets of the surety. Second, such surety would be
compelled to ensure that the loan would be used for the purpose
VOL. 341, OCTOBER 3, 2000 785 agreed upon, and that it would be paid by the corporation.
Security Bank and Trust Company, Inc. vs. Cuenca
786
The facts are stated in the opinion of the Court. “In all other
2
respect[s], the decision appealed from is
De Borja, Medialdea, Bello, Gueuarra & Gerodias for AFFIRMED. ”
petitioner. 3
Carpio, Villaraza & Cruz for respondent R. Cuenca. Also challenged is the April 14, 1999 CA Resolution, which
Beltran, De Grano, Mendoza & Sarmiento for Sta. denied petitioner’s Motion for Reconsideration. 4
Being an onerous undertaking, a surety agreement is “WHEREFORE, judgment is hereby rendered ordering
strictly construed against the creditor, and every doubt is defendants Sta. Ines Melale Corporation and Rodolfo M. Cuenca
resolved in favor of the solidary debtor. The fundamental to pay, jointly and severally, plaintiff Security Bank & Trust
rules of fair play require the creditor to obtain the consent Company the sum of P39,129,124.73 representing the balance of
of the surety to any material alteration in the principal the loan as of May 10, 1994 plus 12% interest per annum until
loan agreement, or at least to notify it thereof. Hence, fully paid, and the sum of P100,000.00 as attorney’s fees and
petitioner bank cannot hold herein respondent liable for litigation expenses and to pay the costs.
loans obtained in excess of the amount or beyond the period SO ORDERED.”
stipulated in the original agreement, absent any clear
stipulation showing that the latter waived his right to be _______________
notified thereof, or to give consent thereto. This is
especially true where, as in this case, respondent was no 1 Written by Justice Jorge S. Imperial (Division chairman), with the
longer the principal officer or major stockholder of the concurrence of Justices Hector L. Hofileña and Omar U. Amin (members).
The Case
The Facts
This is the main principle used in denying the present 5
Petition for Review under Rule 45 of the Rules of1 Court. The facts are narrated by the Court of Appeals as follows:
Petitioner assails the December 22, 1998 Decision of the
“The antecedent material and relevant facts are that defendant-
Court of Appeals (CA) in CA-GR CV No. 56203, the
appellant Sta. Ines Melale (‘Sta. Ines’) is a corporation engaged in
dispositive portion of which reads as follows:
logging operations. It was a holder of a Timber License
“WHEREFORE, the judgment appealed from is hereby amended Agreement issued by the Department of Environment and
in the sense that defendant-appellant Rodolfo M. Cuenca [herein Natural Resources (‘DENR’).
respondent] is RELEASED from liability to pay any amount “On 10 November 1980, [Petitioner] Security Bank and Trust
stated in the judgment. Co. granted appellant Sta. Ines Melale Corporation [SIMC] a
“Furthermore, [Respondent] Rodolfo M. Cuenca’s counterclaim credit line in the amount of [e]ight [m]illion [p]esos
is hereby DISMISSED for lack of merit. (P8,000,000.00) to assist the latter in meeting the additional
capitalization requirements of its logging operations.
“The Credit Approval Memorandum expressly stated that the “On 26 November 1981, four (4) days prior to the expiration of the
P8M Credit Loan Facility shall be effective until 30 November period of effectivity of the P8M-Credit Loan Facility, appellant
1981: SIMC made a first drawdown from its credit line with [Petitioner]
‘JOINT CONDITIONS: SBTC in the amount of [s]ix [m]illion [o]ne [h]undred [t]housand
[p]esos (P6,100,000.00). To cover said drawdown, SIMC duly
‘1. Against Chattel Mortgage on logging trucks and/or executed promissory Note No. TD/TLS-3599-81 for said amount
inventories (except logs) valued at 200% of the lines plus (Exhibit ‘C’).
JSS of Rodolfo M. Cuenca; “Sometime in 1985, [Respondent] Cuenca resigned as President
‘2. Submission of an appropriate Board Resolution and Chairman of the Board of Directors of defendant-appellant
authorizing the borrowings, indicating therein the Sta. Ines. Subsequently, the shareholdings of [Respondent]
company’s duly authorized signatory/ies; Cuenca in defendant-appellant Sta. Ines were sold at a public
‘3. Reasonable/compensating deposit balances in current auction relative to Civil Case No. 18021 entitled ‘Adolfo A. Angala
account shall be maintained at all times; in this vs. Universal Holdings, Inc. and Rodolfo M. Cuenca.’ Said shares
connection, a Makati account shall be opened prior to were bought by Adolfo Angala who was the highest bidder during
availment on lines; the public auction.
‘4. Lines shall expire on November 30, 1981; and “Subsequently, appellant SIMC repeatedly availed of its credit
line and obtained six (6) other loan[s] from [Petitioner] SBTC in
‘5. The bank reserves the right to amend any of the
the aggregate amount of [s]ix [m]illion [t]hree [h]undred [s]ixty-
aforementioned terms and conditions upon written notice
[n]ine [t]housand [n]ineteen and 50/100 [p]esos (P6,369,019.50).
to the Borrower.’ (Emphasis supplied.)
Accordingly, SIMC executed Promissory Notes Nos.
“To secure the payment of the amounts drawn by appellant DLS/74/760/85, DLS/74773/85, DLS/74/78/85, DLS/74/760/85,
SIMC from the above-mentioned credit line, SIMC executed a DLS/74/12/86, and DLS/74/47/86 to cover the amounts of the
Chattel Mortgage dated 23 December 1980 (Exhibit ‘A’) over some abovementioned additional loans against the credit line.
6
of its machinery and equipment in favor of [Petitioner] SBTC. As “Appellant SIMC, however, encountered difficulty in making
additional security for the payment of the loan, [Respondent] the amortization payments on its loans and requested [Petitioner]
Rodolfo M. Cuenca executed an Indemnity Agreement dated 17 SBTC for a complete restructuring of its indebtedness. SBTC
December 1980 (Exhibit ‘B’) in favor of [Petitioner] SBTC whereby accommodated appellant SIMC’s request and signified its
he solidarily bound himself with SIMC as follows: approval in a letter dated 18 February 1988 (Exhibit ‘G’) wherein
x x x x x x x x x SBTC and defendant-appellant Sta. Ines, without notice to or the
prior consent of [Respondent] Cuenca, agreed to restructure the
past due obligations of defendant-appellant Sta.
_______________
789 6 According to the RTC, Sta. Ines’ Timber License Agreement, which was
supposed to expire on July 15, 1998, was suspended by the Department of
Environment and Natural Resources on December 6, 1989 and eventually
VOL. 341, OCTOBER 3, 2000 789 cancelled on May 4, 1990. (RTC Decision, p. 3; rollo, p. 12.)
Security Bank and Trust Company, Inc. vs. Cuenca
790
792
VOL. 341, OCTOBER 3, 2000 791
Security Bank and Trust Company, Inc. vs. Cuenca 792 SUPREME COURT REPORTS ANNOTATED
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Security Bank and Trust Company, Inc. vs. Cuenca i. Whether or not the Honorable Court of Appeals erred in
ruling that Respondent Cuenca’s liability under the
Indemnity Agreement covered only availments on SIMC’s
The appellate court also noted that the Credit Approval credit line to the extent of eight million pesos
Memorandum had specified that the credit accommodation (P8,000,000.00) and made on or before 30 November 1981;
was for a total amount of P8 million, and that its expiry
ii. Whether or not the Honorable Court of Appeals erred in
date was November 30, 1981. Hence, it ruled that Cuenca
ruling that the restructuring of SIMC’s indebtedness
was liable only for loans obtained prior to November 30,
under the P8 million credit accommodation was
1981, and only for an amount not exceeding P8 million.
tantamount to an extension granted to SIMC without
It further held that the restructuring of Sta. Ines’
Respondent Cuenca’s consent, thus extinguishing his
obligation under the 1989 Loan Agreement was
liability under the Indemnity Agreement pursuant to
tantamount to a grant of an extension of time to the debtor
Article 2079 of the Civil Code;
without the consent of the surety. Under Article 2079 of the
Civil Code, such extension extinguished the surety. iii. Whether or not the Honorable Court of appeals erred in
The CA also opined that the surety was entitled to ruling that the restructuring of SIMC’s indebtedness
notice, in case the bank and Sta. Ines decided to materially under the P8 million credit accommodation constituted a
alter or modify the principal obligation after the expiry novation of the principal obligation, thus extinguishing
date of the credit accommodation. Respondent Cuenca’s liability under the indemnity
7
Hence, this recourse to this Court. agreement;
Preliminary Matters: Procedural Questions application of the procedural rules relating to pro forma motions
for reconsideration.”
Motion for Reconsideration
Not Pro Forma
Section 11, Rule 13 of the 1997 Rules of Court, provides as
Respondent contends that petitioner’s Motion for
follows:
Reconsideration of the CA Decision, in merely rehashing
the arguments already passed upon by the appellate court, “SEC. 11. Priorities in modes of service and filing.—Whenever
was pro forma; that as such, it did not9 toll the period for practicable, the service and filing of pleadings and other papers
filing the present Petition for 10
Review. Consequently, the shall be done personally. Except with respect to papers emanating
Petition was filed out of time. from the court, a resort to other modes must be accompanied by a
We disagree. A motion for reconsideration is not pro written explanation why the service or filing was not done
forma just because it reiterated the arguments earlier personally. A violation of this Rule may be cause to consider the
passed upon and rejected by the appellate court. The Court paper as not filed.”
has explained that a movant may raise the same
arguments, precisely to convince the court that its ruling Respondent maintains that the present Petition for Review
11
was erroneous. does not contain a sufficient written explanation why it
Moreover, there is no clear showing of intent on the part was served by registered mail.
of petitioner to delay the proceedings. In Marikina Valley We do not think so.13 The Court held in Solar
12
Development Corporation vs. Flojo, the Court explained Entertainment v. Ricafort that the aforecited rule was
that a pro forma motion had no other purpose than to gain mandatory, and that “only when personal service or filing
time and to delay or impede the proceedings. Hence, is not practicable may resort to other modes be had, which
“where the circumstances of a case do not show an intent must then be accompanied by a written explanation as to
on the part of the movant merely to delay the proceedings, why personal service or filing was not practicable to begin
our Court has refused to characterize the motion as simply with.”
pro forma.” It held: In this case, the Petition does state that it was served on
the respective counsels of Sta. Ines and Cuenca “by
“We note finally that because the doctrine relating to pro forma registered mail in lieu of personal service due to limitations
motions for reconsideration impacts upon the reality and in time and distance.”14 This explanation sufficiently shows
substance of the statutory right of appeal, that doctrine should be that personal service was not practicable. In any event, we
applied reasonably, rather than literally. The right to appeal, find no adequate reason to reject the contention of
where it exists, is an important and valuable right. Public policy petitioner and thereby deprive it of the opportunity to fully
would be better served by according the appellate court an argue its cause.
effective opportunity to review the decision of the trial court on
the merits, rather than by aborting the right to appeal by a literal
_______________
_______________ 13 293 SCRA 661, August 5, 1998, per Davide, J. (now CJ).
14 Petition for Review, p. 29; rollo, p. 92.
9 §2, Rule 37 of the Rules of Court, provides that “[a] pro forma motion for new
trial or reconsideration shall not toll the reglementary period of appeal.” 796
10 Respondent’s Memorandum, pp. 114-115; rollo, pp. 480-481.
11 See Guerra Enterprises v. CFI, 32 SCRA 314, April 17, 1970.
796 SUPREME COURT REPORTS ANNOTATED
12 251 SCRA 87, December 8, 1995, per Feliciano, J.
Security Bank and Trust Company, Inc. vs. Cuenca
795
799
Security Bank and Trust Company, Inc. vs. Cuenca
“ART. 1296. When the principal obligation is extinguished in VOL. 341, OCTOBER 3, 2000 799
consequence of a novation, accessory obligations may subsist only Security Bank and Trust Company, Inc. vs. Cuenca
insofar as they may benefit third persons who did not give their
consent.“
appellate court’s reliance on that document, contending
that it was not a binding agreement because it was not
Alleged Extension signed by the parties. It adds that it was merely for its
Petitioner insists that the 1989 Loan Agreement was a internal use.
We disagree. It was petitioner itself which presented the
mere renewal or extension of the 25P8 million original
accommodation; it was not a novation. said document to prove the accommodation. Attached to the
This argument must be rejected. To begin with, the 1989 Complaint as Annex
27
A was a copy thereof “evidencing the
Loan Agreement expressly stipulated that its purpose was accommodation.” Moreover, in its Petition before this
to “liquidate,” not to renew or extend, the outstanding Court, it alluded to the Credit Approval Memorandum in
indebtedness. Moreover, respondent did not sign or consent this wise:
to the 1989 Loan Agreement, which had allegedly extended “4.1 On 10 November 1980, Sta. Ines Melale Corporation (“SIMC”)
the original P8 million credit facility. Hence, his obligation was granted by the Bank a credit line in the aggregate amount of
as a surety should be deemed extinguished, pursuant to Eight Million Pesos (P8,000,000.00) to assist SIMC in meeting the
Article 2079 of the Civil Code, which specifically states that additional capitalization requirements for its logging operations.
“[a]n extension granted to the debtor by the creditor For this purpose, the Bank issued a Credit Approval
without the consent of the guarantor 26
extinguishes the Memorandum dated 10 November 1980.”
guaranty, x x x.” In an earlier case, the Court explained
the rationale of this provision in this wise: Clearly, respondent is estopped from denying the terms
and conditions of the P8 million credit accommodation as
“The theory behind Article 2079 is that an extension of time given
contained in the very document it presented to the courts.
to the principal debtor by the creditor without the surety’s
Indeed, it cannot take advantage of that document by
consent would deprive the surety of his right to pay the creditor
agreeing to be bound only by those portions that are
and to be immediately surrogated to the creditor’s remedies
favorable to it, while denying those that are
against the principal debtor upon the maturity date. The surety is
disadvantageous.
said to be entitled to protect himself against the contingency of
the principal debtor or the indemnitors becoming insolvent during
the extended period.” Second Issue: Alleged Waiver of Consent
28 Petitioner’s Memorandum, p. 19; rollo, p. 330. that may have heretofore been made, or may hereafter be
executed by and
800
_______________
800 SUPREME COURT REPORTS ANNOTATED
29 Petitioner’s Memorandum, p. 29; rollo, p. 340.
Security Bank and Trust Company, Inc. vs. Cuenca 30 50 Phil. 253, 257, April 1, 1927, per Villamor, J.
801
merely its “renewal,” which “connotes 29cessation of an old
contract and birth of another one x x x.”
At the outset, we should emphasize that an essential VOL. 341, OCTOBER 3, 2000 801
alteration in the terms of the Loan Agreement without the Security Bank and Trust Company, Inc. vs. Cuenca
consent of the surety extinguishes the latter’s obligation.
30
As the Court held in National Bank v. Veraguth, “[i]t is between the parties thereto, including the substitutions,
fundamental in the law of suretyship that any agreement renewals, extensions, increases, amendments, conversions and
between the creditor and the principal debtor which revivals of the aforesaid credit accommodation(s), and further
essentially varies the terms of the principal contract, bind(s) himself/themselves with the CLIENT in favor of the
without the consent of the surety, will release the surety BANK for the faithful compliance of all the terms and conditions
from liability.” contained in the aforesaid credit accommodation(s), all of which
In this case, petitioner’s assertion—that respondent are incorporated herein and made part hereof by reference.”
consented to the alterations in the credit accommodation—
finds no support in the text of the Indemnity Agreement, While respondent held himself liable for the credit
which is reproduced hereunder: accommodation or any modification thereof, such clause
should be understood in the context of the P8 million limit
“Rodolfo M. Cuenca of legal age, with postal address c/o Sta. Ines
and the November 30, 1981 term. It did not give the bank
Malale Forest Products Corp., Alco Bldg., 391 Buendia Avenue
or Sta. Ines any license to modify the nature and scope of
Ext., Makati Metro Manila for and in consideration of the credit
the original credit accommodation, without informing or
accommodation in the total amount of eight million pesos
getting the consent of respondent who was solidarily liable.
(P8,000,000.00) granted by the SECURITY BANK AND TRUST
Taking the bank’s submission to the extreme, respondent
COMPANY, a commercial bank duly organized and existing
(or his successors) would be liable for loans even amounting
under and by virtue of the laws of the Philippine, 6778 Ayala
to, say, P100 billion obtained 100 years after the expiration
Avenue, Makati, Metro Manila hereinafter referred to as the
of the credit accommodation, on the ground that he
BANK in favor of STA. INES MELALE FOREST PRODUCTS
consented to all alterations and extensions thereof.
CORP., x x x—hereinafter referred to as the CLIENT, with the
Indeed, it has been held that a contract of surety “cannot
stipulated interests and charges thereon, evidenced by that/those
extend to more than what is stipulated. It is strictly
certain PROMISSORY NOTE[(S)], made, executed and delivered
construed against the creditor, every doubt 31being resolved
by the CLIENT in favor of the BANK hereby bind(s)
against enlarging the liability of the surety.” Likewise, the
himself/themselves jointly and severally with the CLIENT in
Court has ruled that “it is a wellsettled legal principle that
favor of the BANK for the payment, upon demand and without
if there is any doubt on the terms and conditions of the
benefit of excussion of whatever amount or amounts the CLIENT
surety agreement, the doubt should be resolved in favor of
may be indebted to the BANK under and by virtue of aforesaid
the surety x x x. Ambiguous contracts are construed
credit accommodation(s) including the substitutions, renewals, 32
against the party who caused the ambiguity.” In the
extensions, increases, amendment, conversions and revivals of the
absence of an unequivocal provision that respondent
aforesaid credit accommodation(s), as well as of the amount or
waived his right to be notified of or to give consent to any
amounts of such other obligations that the CLIENT may owe the
alteration of the credit accommodation, we cannot sustain
BANK, whether direct or indirect, principal or secondary, as
petitioner’s view that there was such a waiver.
appears in the accounts, books and records of the BANK, plus
It should also be observed that the Credit Approval
interest and expenses arising from any agreement or agreements
Memorandum clearly shows that the bank did not have
absolute authority to unilaterally change the terms of the
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loan accommodation. Indeed, it may do so only upon notice obligation without the consent of the surety or notice
to the borrower, pursuant to this condition: thereto.
_______________ _______________
31 Aguenza v. CA, 271 SCRA 1, April 7, 1997, per Hermosisima, J. See 33 Credit Approval Memorandum, p. 2; rollo, p. 110.
also Zenith Insurance Corp. v. CA, 119 SCRA 485, December 29, 1982. 34 Petitioner’s Memorandum, pp. 24-25; rollo, pp. 335-336.
32 Garcia v. CA, 258 SCRA 446, 456, July 5, 1996, per Melo, J. 35 Article 2054, Civil Code.
36 61 SCRA 22, 26, November 13, 1974, per Fernando, J.
802
803
“Comprehensive or continuing surety agreements are in fact quite commonplace in compelled to ensure that the loan would be used for the
present day financial and commercial practice. A bank or financing company purpose agreed upon, and that it would be paid by the
which anticipates entering into a series of credit transactions with a particular corporation.
company, commonly requires the projected principal debtor to execute a Following this practice, it was therefore logical and
continuing surety agreement along with its sureties. By executing such an reasonable for the bank to have required the JSS of
agreement, the principal places itself in a position to enter into the projected series respondent, who was the chairman and president of Sta.
of transactions with its creditor; with such suretyship agreement, there would be Ines in 1980 when the credit accommodation was granted.
no need to execute a separate surety contract or bond for each financing or credit There was no reason or logic, however, for the bank or Sta.
accommodation extended to the principal debtor.” Ines to assume that he would still agree to act as surety in
the 1989 Loan Agreement, because at that time, he was no
38 216 SCRA 9, November 26, 1992, per Davide, J. (now CJ). See also
longer an officer or a stockholder of the debtor-corporation.
Fortune Motors v. CA, 267 SCRA 653, February 7, 1997.
Verily, he was not in a position then to ensure the payment
804 of the
805
804 SUPREME COURT REPORTS ANNOTATED
Security Bank and Trust Company, Inc. vs. Cuenca VOL. 341, OCTOBER 3, 2000 805
Security Bank and Trust Company, Inc. vs. Cuenca
subsequent loans, purportedly under the 1980 credit
accommodation, that were obtained in 1986. Certainly, he obligation. Neither did he have any reason to bind himself
could not have guaranteed the 1989 Loan Agreement, further to a bigger and more onerous obligation.
which was executed after November 30, 1981 and which Indeed, the stipulation in the 1989 Loan Agreement
exceeded the stipulated P8 million ceiling. providing for the surety of respondent, without even
Petitioner, however, cites the Dino ruling in which the informing him, smacks of negligence on the part of the
Court found the surety liable for the loan obtained after the bank and bad faith on that of the principal debtor. Since
payment of the original one, which was covered by a that Loan Agreement constituted a new indebtedness, the
continuing surety agreement. At the risk of being old loan having been already liquidated, the spirit of fair
repetitious, we hold that in Dino, the Surety Agreement play should have impelled Sta. Ines to ask somebody else to
specifically provided that “each suretyship is a continuing act as a surety for the new loan.
one which shall remain in full force and effect until this In the same vein, a little prudence should have impelled
bank is notified of its revocation.” Since the bank had not the bank to insist on the JSS of one who was in a position
been notified of such revocation, the surety was held liable to ensure the payment of the loan. Even a perfunctory
even for the subsequent obligations of the principal attempt at credit investigation would have revealed that
borrower. respondent was no longer connected with the corporation at
No similar provision is found in the present case. On the the time. As it is, the bank is now relying on an unclear
contrary, respondent’s liability was confined to the 1980 Indemnity Agreement in order to collect an obligation that
credit accommodation, the amount and the expiry date of could have been secured by a fairly obtained surety. For its
which were set down in the Credit Approval Memorandum. defeat in this litigation, the bank has only itself to blame.
In sum, we hold that the 1989 Loan Agreement
Special Nature of the JSS
extinguished by novation the obligation under the 1980 P8
It is a common banking practice to require the JSS (“joint million credit accommodation. Hence, the Indemnity
and solidary signature”) of a major stockholder or corporate Agreement, which had been an accessory to the 1980 credit
officer, as an additional security for loans granted to accommodation, was also extinguished. Furthermore, we
corporations. There are at least two reasons for this. First, reject petitioner’s submission that respondent waived his
in case of default, the creditor’s recourse, which is normally right to be notified of, or to give consent to, any
limited to the corporate properties under the veil of modification or extension of the 1980 credit
separate corporate personality, would extend to the accommodation.
personal assets of the surety. Second, such surety would be
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806
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