Laches & Reformation of instrument

FIRST DIVISION

[G.R. No. 128991. April 12, 2000]

YOLANDA ROSELLO-BENTIR, SAMUEL PORMIDA and CHARITO

PORMIDA, petitioners, vs. HONORABLE MATEO M. LEANDA, in his
capacity as Presiding Judge of RTC, Tacloban City, Branch 8, and LEYTE
GULF TRADERS, INC., respondents.

DECISION

KAPUNAN, J.:

Reformation of an instrument is that remedy in equity by means of which a written

instrument is made or construed so as to express or conform to the real intention of the
parties when some error or mistake has been committed. 1 It is predicated on the
[1]

equitable maxim that equity treats as done that which ought to be done. 2 The rationale
[2]

of the doctrine is that it would be unjust and unequitable to allow the enforcement of a
written instrument which does not reflect or disclose the real meeting of the minds of the
parties.3 However, an action for reformation must be brought within the period
[3]

prescribed by law, otherwise, it will be barred by the mere lapse of time. The issue in
this case is whether or not the complaint for reformation filed by respondent Leyte Gulf
Traders, Inc. has prescribed and in the negative, whether or not it is entitled to the
remedy of reformation sought. Oldmiso

On May 15, 1992, respondent Leyte Gulf Traders, Inc. (herein referred to as respondent
corporation) filed a complaint for reformation of instrument, specific performance,
annulment of conditional sale and damages with prayer for writ of injunction against
petitioners Yolanda Rosello-Bentir and the spouses Samuel and Charito Pormida. The
case was docketed as Civil Case No. 92-05-88 and raffled to Judge Pedro S. Espina,
RTC, Tacloban City, Branch 7. Respondent corporation alleged that it entered into a
contract of lease of a parcel of land with petitioner Bentir for a period of twenty (20)
years starting May 5, 1968. According to respondent corporation, the lease was
extended for another four (4) years or until May 31, 1992. On May 5, 1989, petitioner
Bentir sold the leased premises to petitioner spouses Samuel Pormada and Charito
Pormada. Respondent corporation questioned the sale alleging that it had a right of first
refusal. Rebuffed, it filed Civil Case No. 92-05-88 seeking the reformation of the expired
contract of lease on the ground that its lawyer inadvertently omitted to incorporate in the
contract of lease executed in 1968, the verbal agreement or understanding between the
parties that in the event petitioner Bentir leases or sells the lot after the expiration of the
lease, respondent corporation has the right to equal the highest offer. Ncm

In due time, petitioners filed their answer alleging that the inadvertence of the lawyer
who prepared the lease contract is not a ground for reformation. They further contended
that respondent corporation is guilty of laches for not bringing the case for reformation
of the lease contract within the prescriptive period of ten (10) years from its execution.

1[1] 76 C.J.S. Reformation of Instruments 1.

2[2] Id., at 4.
3[3] 2-a Report of the Code Commission, p. 56.
Respondent corporation then filed its reply and on November 18, 1992, filed a motion to
admit amended complaint. Said motion was granted by the lower court. 4 [4]

Thereafter, petitioners filed a motion to dismiss reiterating that the complaint should be
dismissed on the ground of prescription.

On December 15, 1995, the trial court through Judge Pedro S. Espina issued an order
dismissing the complaint premised on its finding that the action for reformation had
already prescribed. The order reads: Scjuris

ORDER

Resolved here is the defendants MOTION TO DISMISS PLAINTIFFS

complaint on ground of prescription of action.

It is claimed by plaintiff that he and defendant Bentir entered into a

contract of lease of a parcel of land on May 5, 1968 for a period of 20
years (and renewed for an additional 4 years thereafter) with the verbal
agreement that in case the lessor decides to sell the property after the
lease, she shall give the plaintiff the right to equal the offers of other
prospective buyers. It was claimed that the lessor violated this right of first
refusal of the plaintiff when she sureptitiously (sic) sold the land to co-
defendant Pormida on May 5, 1989 under a Deed of Conditional Sale.
Plaintiffs right was further violated when after discovery of the final sale,
plaintiff ordered to equal the price of co-defendant Pormida was refused
and again defendant Bentir surreptitiously executed a final deed of sale in
favor of co-defendant Pormida in December 11, 1991.

The defendant Bentir denies that she bound herself to give the plaintiff the
right of first refusal in case she sells the property. But assuming for the
sake of argument that such right of first refusal was made, it is now
contended that plaintiffs cause of action to reform the contract to reflect
such right of first refusal, has already prescribed after 10 years, counted
from May 5, 1988 when the contract of lease incepted. Counsel for
defendant cited Conde vs. Malaga, L-9405 July 31, 1956 and Ramos vs.
Court of Appeals, 180 SCRA 635, where the Supreme Court held that the
prescriptive period for reformation of a written contract is ten (10) years
under Article 1144 of the Civil Code.

This Court sustains the position of the defendants that this action for
reformation of contract has prescribed and hereby orders the dismissal of
the case.

SO ORDERED.5 [5]

On December 29, 1995, respondent corporation filed a motion for reconsideration of the
order dismissing the complaint. Juris

On January 11, 1996, respondent corporation filed an urgent ex-parte motion for
issuance of an order directing the petitioners, or their representatives or agents to
refrain from taking possession of the land in question.

4[4] The order granting the motion and admitting the amended complaint was raised
in a petition for certiorari before the Court of Appeals. Said petition, docketed as CA-
G.R. SP No. 30994, was eventually dismissed by the appellate court.
5[5] Rollo, pp. 23-26.
Considering that Judge Pedro S. Espina, to whom the case was raffled for resolution,
was assigned to the RTC, Malolos, Bulacan, Branch 19, Judge Roberto A. Navidad was
designated in his place. Manikan

On March 28, 1996, upon motion of herein petitioners, Judge Navidad inhibited himself
from hearing the case. Consequently, the case was re-raffled and assigned to RTC,
Tacloban City, Branch 8, presided by herein respondent judge Mateo M. Leanda.

On May 10, 1996, respondent judge issued an order reversing the order of dismissal on
the grounds that the action for reformation had not yet prescribed and the dismissal was
"premature and precipitate", denying respondent corporation of its right to procedural
due process. The order reads: Suprema

ORDER

Stated briefly, the principal objectives of the twin motions submitted by the
plaintiffs, for resolution are:

(1) for the reconsideration of the Order of 15 December 1995 of the Court
(RTC, Br. 7), dismissing this case, on the sole ground of prescription of
one (1) of the five (5) causes of action of plaintiff in its complaint for
"reformation" of a contract of lease; and,

(2) for issuance by this Court of an Order prohibiting the defendants and
their privies-in-interest, from taking possession of the leased premises,
until a final court order issues for their exercise of dominical or possessory
right thereto.

The records of this case reveal that co-defendant BENTER (Yolanda) and
plaintiff Leyte Gulf Traders Incorporation, represented by Chairman Benito
Ang, entered into a contract of lease of a parcel of land, denominated as
Lot No. 878-D, located at Sagkahan District, Tacloban City, on 05 May
1968, for a period of twenty (20) years, (later renewed for an additional
two (2) years). Included in said covenant of lease is the verbal
understanding and agreement between the contracting parties, that when
the defendant (as lessor) will sell the subject property, the plaintiff as
(lessee) has the "right of first refusal", that is, the right to equal the offer of
any other prospective third-party buyer. This agreement (sic) is made
apparent by paragraph 4 of the lease agreement stating:

"4. IMPROVEMENT. The lessee shall have the right to erect on the
leased premises any building or structure that it may desire without
the consent or approval of the Lessor x x x provided that any
improvements existing at the termination of the lease shall remain
as the property of the Lessor without right to reimbursement to the
Lessee of the cost or value thereof."

That the foregoing provision has been included in the lease agreement if
only to convince the defendant-lessor that plaintiff desired a priority right to
acquire the property (ibid) by purchase, upon expiration of the effectivity of
the deed of lease.

In the course of the interplay of several procedural moves of the parties

herein, the defendants filed their motion to admit their amended answer to
plaintiffs amended complaint. Correspondingly, the plaintiff filed its
opposition to said motion. The former court branch admitted the amended
answer, to which order of admission, the plaintiff seasonably filed its
 motion for reconsideration. But, before the said motion for reconsideration
was acted upon by the court, the latter issued an Order on 15 December
1995, DISMISSING this case on the lone ground of prescription of the
cause of action of plaintiffs complaint on "reformation" of the lease
contract, without anymore considering the remaining cause of action, viz.:
(a) on Specific Performance; (b) an Annulment of Sale and Title; (c) on
Issuance of a Writ of Injunction, and (d) on Damages.

With due respect to the judicial opinion of the Honorable Presiding Judge
of Branch 7 of this Court, the undersigned, to whom this case was raffled
to after the inhibition of Judge Roberto Navidad, as acting magistrate of
Branch 7, feels not necessary any more to discuss at length that even the
cause of action for "reformation" has not, as yet, prescribed.

To the mind of this Court, the dismissal order adverted to above, was
obviously premature and precipitate, thus resulting denial upon the right of
plaintiff that procedural due process. The other remaining four (4) causes
of action of the complaint must have been deliberated upon before that
court acted hastily in dismissing this case.

WHEREFORE, in the interest of substantial justice, the Order of the court,

(Branch 7, RTC) dismissing this case, is hereby ordered
RECONSIDERED and SET ASIDE.

Let, therefore, the motion of plaintiff to reconsider the Order admitting the
amended answer and the Motion to Dismiss this case (ibid), be set for
hearing on May 24, 1996, at 8:30 oclock in the morning. Service of
notices must be effected upon parties and counsel as early as possible
before said scheduled date.

Concomitantly, the defendants and their privies-in-interest or agents, are

hereby STERNLY WARNED not to enter, in the meantime, the litigated
premises, before a final court order issues granting them dominical as well
as possessory right thereto.

To the motion or petition for contempt, filed by plaintiff, thru Atty. Bartolome
C. Lawsin, the defendants may, if they so desire, file their answer or
rejoinder thereto, before the said petition will be set for hearing. The latter
are given ten (10) days to do so, from the date of their receipt of a copy of
this Order.

SO ORDERED.6 [6]

On June 10, 1996, respondent judge issued an order for status quo ante, enjoining
petitioners to desist from occupying the property.7 [7]

Aggrieved, petitioners herein filed a petition for certiorari to the Court of Appeals seeking
the annulment of the order of respondent court with prayer for issuance of a writ of
preliminary injunction and temporary restraining order to restrain respondent judge from
further hearing the case and to direct respondent corporation to desist from further
possessing the litigated premises and to turn over possession to petitioners.

On January 17, 1997, the Court of Appeals, after finding no error in the questioned
order nor grave abuse of discretion on the part of the trial court that would amount to

6[6] Id., at 27-29.

7[7] Id., at 36-37.
lack, or in excess of jurisdiction, denied the petition and affirmed the questioned order. 8 [8]

A reconsideration of said decision was, likewise, denied on April 16, 1997. 9 [9]

Thus, the instant petition for review based on the following assigned errors, viz:

6.01 THE COURT OF APPEALS ERRED IN HOLDING THAT AN ACTION

FOR REFORMATION IS PROPER AND JUSTIFIED UNDER THE
CIRCUMSTANCES OF THE PRESENT CASE;

6.02 THE COURT OF APPEALS ERRED IN HOLDING THAT THE

ACTION FOR REFORMATION HAS NOT YET PRESCRIBED;

6.03 THE COURT OF APPEALS ERRED IN HOLDING THAT AN OPTION

TO BUY IN A CONTRACT OF LEASE IS REVIVED FROM THE IMPLIED
RENEWAL OF SUCH LEASE; AND,

6.04 THE COURT OF APPEALS ERRED IN HOLDING THAT A STATUS

QUO ANTE ORDER IS NOT AN INJUNCTIVE RELIEF THAT SHOULD
COMPLY WITH THE PROVISIONS OF RULE 58 OF THE RULES OF
COURT.10 [10]

The petition has merit. Scsdaad

The core issue that merits our consideration is whether the complaint for reformation of
instrument has prescribed. Sdaad

The remedy of reformation of an instrument is grounded on the principle of equity

where, in order to express the true intention of the contracting parties, an instrument
already executed is allowed by law to be reformed. The right of reformation is
necessarily an invasion or limitation of the parol evidence rule since, when a writing is
reformed, the result is that an oral agreement is by court decree made legally effective. 11
Consequently, the courts, as the agencies authorized by law to exercise the power to
[11]

reform an instrument, must necessarily exercise that power sparingly and with great
caution and zealous care. Moreover, the remedy, being an extraordinary one, must be
subject to limitations as may be provided by law. Our law and jurisprudence set such
limitations, among which is laches. A suit for reformation of an instrument may be barred
by lapse of time. The prescriptive period for actions based upon a written contract and
for reformation of an instrument is ten (10) years under Article 1144 of the Civil Code. 12 [12]

Prescription is intended to suppress stale and fraudulent claims arising from

transactions like the one at bar which facts had become so obscure from the lapse of
time or defective memory.13 In the case at bar, respondent corporation had ten (10)
[13]

years from 1968, the time when the contract of lease was executed, to file an action for
reformation. Sadly, it did so only on May 15, 1992 or twenty-four (24) years after the
cause of action accrued, hence, its cause of action has become stale, hence, time-
barred. Sdaamiso

In holding that the action for reformation has not prescribed, the Court of Appeals
upheld the ruling of the Regional Trial Court that the 10-year prescriptive period should

8[8] Id., at 31-40.

9[9] Id., at 42.
10[10] Id., at 10-11.
11[11] See Note 1.
12[12] Ramos vs. Court of Appeals, 180 SCRA 635 (1989); Spouses Jayme and
Solidarios vs. Alampay, 62 SCRA 131 (1975); Conde vs. Cuenca, 99 Phil. 1056
(1956).
13[13] Ochagabia vs. Court of Appeals, 304 SCRA 587 (1999); Peaflor vs. IAC, 145
SCRA 223 (1986).
be reckoned not from the execution of the contract of lease in 1968, but from the date of
the alleged 4-year extension of the lease contract after it expired in 1988. Consequently,
when the action for reformation of instrument was filed in 1992 it was within ten (10)
years from the extended period of the lease. Private respondent theorized, and the
Court of Appeals agreed, that the extended period of lease was an "implied new lease"
within the contemplation of Article 1670 of the Civil Code, 14 under which provision, the
[14]

other terms of the original contract were deemed revived in the implied new lease.

We do not agree. First, if, according to respondent corporation, there was an agreement
between the parties to extend the lease contract for four (4) years after the original
contract expired in 1988, then Art. 1670 would not apply as this provision speaks of an
implied new lease (tacita reconduccion) where at the end of the contract, the lessee
continues to enjoy the thing leased "with the acquiescence of the lessor", so that the
duration of the lease is "not for the period of the original contract, but for the time
established in Article 1682 and 1687." In other words, if the extended period of lease
was expressly agreed upon by the parties, then the term should be exactly what the
parties stipulated, not more, not less. Second, even if the supposed 4-year extended
lease be considered as an implied new lease under Art. 1670, "the other terms of the
original contract" contemplated in said provision are only those terms which are
germane to the lessees right of continued enjoyment of the property leased.15 The [15]

prescriptive period of ten (10) years provided for in Art. 1144 16 applies by operation of
[16]

law, not by the will of the parties. Therefore, the right of action for reformation accrued
from the date of execution of the contract of lease in 1968.

Even if we were to assume for the sake of argument that the instant action for
reformation is not time-barred, respondent corporations action will still not prosper.
Under Section 1, Rule 64 of the New Rules of Court, 17 an action for the reformation of
[17]

an instrument is instituted as a special civil action for declaratory relief. Since the
purpose of an action for declaratory relief is to secure an authoritative statement of the
rights and obligations of the parties for their guidance in the enforcement thereof, or
compliance therewith, and not to settle issues arising from an alleged breach thereof, it
may be entertained only before the breach or violation of the law or contract to which it
refers.18 Here, respondent corporation brought the present action for reformation after
[18]

an alleged breach or violation of the contract was already committed by petitioner

Bentir. Consequently, the remedy of reformation no longer lies. Ncmmis

We no longer find it necessary to discuss the other issues raised considering that the
same are predicated upon our affirmative resolution on the issue of the prescription of
the action for reformation.

14[14] ART. 1670. If at the end of the contract the lessee should continue enjoying the
thing leased for fifteen days with the acquiescence of the lessor, and unless a notice
to the contrary by either party has previously been given, it is understood that there
is an implied new lease, not for the period of the original contract, but for the time
established in articles 1682 and 1687. The other terms of the original contract shall
be revived.
15[15] Dizon v. Magsaysay, 57 SCRA 250 [1974].
16 ART. 1144. The following actions must be brought within ten years from the time the right of action accrues:
[16]

(1) Upon a written contract;

(2) Upon an obligation created by law;

(3) Upon a judgment.

17[17] The second paragraph of said section was deleted in the present Section 1,
Rule 63 of the 1997 Rules of Civil Procedure.
18[18] Reparations Commission vs. Northern Lines, Inc. 34 SCRA 203 (1970).
WHEREFORE, the petition is hereby GRANTED. The Decision of the Court of Appeals
dated January 17, 1997 is REVERSED and SET ASIDE. The Order of the Regional Trial
Court of Tacloban City, Branch 7, dated December 15, 1995 dismissing the action for
reformation is REINSTATED. Scncm

SO ORDERED.

Davide, Jr., C.J., (Chairman), Puno, Pardo, and Ynares-Santiago, JJ., concur.

THIRD DIVISION

[G.R. No. 133317. June 29, 1999]

ANTONIO R. AGRA, CAYETANO FERRERIA, NAPOLEON M. GAMO

and VICENTE O. NOVALES, petitioners, vs. PHILIPPINE NATIONAL
BANK, respondent.

DECISION
PANGANIBAN, J.:

Laches is a recourse in equity. Equity, however, is applied only in the absence, never in
contravention, of statutory law. Thus, laches cannot, as a rule, abate a collection suit filed within
the prescriptive period mandated by the Civil Code.

The Case

Before us is a Petition for Review on Certiorari under Rule 45 of the Rules of Court,
assailing the November 26, 1997 Decision of the Court of Appeals,i[1] which disposed as follows:
IN VIEW OF THE FOREGOING, the decision of the lower court is hereby AFFIRMED,
with the modification that the award of attorneys fees is hereby DELETED and the twelve
percent (12%) interest on the P2,500,000.00 the defendant-appellants are to pay PNB should start
from August 30, 1976, the date when the complaint was filed.ii[2]
The decretal portion of the aforementioned trial court ruling reads:
WHEREFORE, in view of the foregoing, in the interest of justice, judgment is rendered in favor of
the plaintiff ordering all the sureties jointly and severally, to pay PNB as follows:
a)the amount of P2,500,000.00 plus twelve per centum (12%) accrued interest from August
1, 1976;
b) ten percent (10%) of the total amount due as attorneys fees and cost of the suit.
SO ORDERED.
Also assailed by petitioners is the April 2, 1998 Resolution of the Court of Appeals, which
denied their Motion for Reconsideration.iii[3]

The Facts
 The facts are summarized by the Court of Appeals (CA) in this wise:iv[4]
On August 30, 1976, an action for collection of a sum of money was filed by the Philippine
National Bank (PNB, for brevity) against Fil-Eastern Wood Industries, Inc. (Fil-Eastern, for short) in its
capacity as principal debtor and against Cayetano Ferreria, Pedro Atienza, Vicente O. Novales, Antonio
R. Agra, and Napoleon M. Gamo in their capacity as sureties.
In its complaint, plaintiff PNB alleged that on July 17, 1967 Fil-Eastern was granted a loan in the
amount of [t]wo [m]illion [f]ive [h]undred [t]housand [p]esos (P2,500,000.00) with interest at twelve
percent (12%) per annum. Drawings from said demand loan were made on different dates as evidenced
by several promissory notes and were credited to the account of Fil-Eastern. To secure the payment of the
said loan Fil-Eastern as principal and sureties Ferreria, Atienza, Novales, Agra, and Gamo executed a
Surety Agreement whereby the sureties, jointly and severally with the principal, guaranteed and warranted
to PNB, its successors or assigns, prompt payment of subject obligation including notes, drafts, bills of
exchange, overdrafts and other obligations of every kind, on which Fil-Eastern was indebted or may
thereafter become indebted to PNB. It was further alleged that as of May 31, 1976 the total indebtedness
of Fil-Eastern and its sureties on subject loan amounted to [f]ive [m]illion [t]wo [h]undred [n]inety-
[s]even [t]housand, [n]ine [h]undred [s]eventy-[s]ix [p]esos and [s]eventeen [c]entavos (P5,297,976.17),
excluding attorneys fees. Notwithstanding repeated demands, the defendants refused and failed to pay
their loans.
The defendants (herein sureties) filed separate answers (pp. 49, 68, 205, 208 and 231). Collating
these, We drew the following: All of them claimed that they only signed the Surety Agreement with the
understanding that the same was a mere formality required of the officers of the corporation. They did
not in any way or manner receive a single cent from the proceeds of said loan and/or derive any profit
therefrom. Neither did they receive any consideration valuable or otherwise, from defendant Fil-Eastern.
They further claim that the loan in question was negotiated and approved under highly irregular,
anomalous and suspicious circumstances to the point that the Surety Agreement executed thereafter is
invalid, null and void and without force and effect. The extension of time of payment of the loan in
question released and discharged the answering defendants from any liability under the Surety
Agreement. The Surety Agreement is null and void from the beginning due to a defect in the consent of
the defendants and that their liabilities under the Surety Agreement, if any, has been extinguished by
novation. The cause of action of the complainant is barred by laches and estoppel in that the plaintiff
with full knowledge of the deteriorating financial condition of Fil-Eastern did not take steps to collect
from said defendant corporation while still solvent. They also maintained that if anyone is liable for the
payment of said loan, it is Felipe Ysmael, Jr. and not them or it is only Fil-Eastern and the controlling
officers who profited and made use of the proceeds of the loan. Defendant Agra likewise said that he was
made to sign the Surety Agreement and he did it because of the moral influence and pressure exerted
upon him by Felipe Ysmael, Jr. (their employer at the time of signing), thereby arousing strong fears of
losing a much needed employment to support his family should he refuse to sign as Surety.
In the order of the trial court dated October 30, 1978, defendant Fil-Eastern was declared in default
for its failure to answer the complaint within the reglementary period and the case was scheduled for pre-
trial conference. The individual defendants with the courts approval thereafter filed an amended third-
party complaint against Felipe Ysmael, Jr.
The amended third-party complaint alleged that at the time of execution of the alleged Surety
Agreement subject matter of the principal complaint, third-party plaintiffs were but employees of Ysmael
Steel Manufacturing Co., owned by third-party-defendant. Third-party-plaintiffs were in no financial
position to act as sureties to a P2.5 million loan. They became incorporators of original defendant Fil-
Eastern because of fear of losing their employment brought about by the tremendous pressure and moral
influence exerted upon them by their employer-third-party-defendant. They signed the Surety Agreement
upon the order of the third-party-defendant. In signing the said document, the third-party-plaintiffs were
assured by the third-party-defendant that they had nothing to fear and worry about because the latter will
assume all liabilities as well as profits therefrom and that the loan subject of the Surety Agreement was
with the prior approval and blessing of a high government official. They were likewise assured that the
surety agreement was but a formality and that because of such pressure, influence as well as assurances,
third-party-plaintiffs signed the Surety Agreement.
Third-party-defendant Felipe Ysmael, Jr. in his answer alleged that the Surety Agreement was freely
and voluntarily signed and executed by third-party-plaintiffs without any intimidation, undue, improper or
fraudulent representations. Further, granting arguendo that the consent of third-party plaintiffs in signing
said Surety Agreement was vitiated with intimidation, undue influence or fraudulent representation on the
part of third-party-defendant, said Surety Agreement is only voidable and therefore binding unless
annulled by a proper action in court. The third-party-plaintiffs did not file the proper court action for the
annulment of said agreement. They are now barred from filing an action for annulment of said
agreement, the prescriptive period therefor being only four (4) years from the time the defect of the
consent had ceased, and from the discovery of the all[e]ged fraud. In addition, third-party plaintiffs had
ratified said agreement which they signed in July 1967 by signing their names on and execution of several
promissory thereafter.
At the pre-trial conference held on March 21, 1980, the parties failed to agree on a possible
amicable settlement hence the case was set for trial on the merits. On July 5, 1984, during the pendency
of the trial, third-party defendant Felipe Ysmael, Jr. died. He was substituted by his legal heirs Patrick
Ysmael and Jeanne Ysmael as third-party defendants. Defendant Pedro Atienza died on January 4, 1987.
It appearing that he has no legal heirs, the case against him was dismissed.
After trial, the regional trial court (RTC) ruled against herein petitioners. On appeal, the CA
modified the RTC ruling by deleting the award of attorneys fees. Hence, this recourse to this
Court.

Ruling of the Court of Appeals

In ruling that petitioners were liable under the surety agreement, the Court of Appeals
rejected their defense of laches. It held that the lapse of seven years and eight months from
December 31, 1968 until the judicial demand on August 30, 1976 cannot be considered as
unreasonable delay which would necessitate the application of laches. The action filed by the
plaintiff has not yet prescribed. It is well within the ten-year prescriptive period provided for by
law wherein actions based on written contracts can be instituted.v[5]
The Court of Appeals also noted that the prescriptive period did not begin to run from
December 31, 1968 as [herein petitioners] presupposed. It was only from the time of the judicial
demand on August 30, 1976 that the cause of action accrued. Thus, [private respondent] was
well within the prescriptive period of ten years when it instituted the case in court. The Court of
Appeals further ruled that placing the blame on [PNB] for its failure to immediately pounce
upon its debtors the moment the loan matured is grossly unfair for xxx demand upon the sureties
to pay is not necessary.
The appellate court also held that petitioners proved only the first of the following four
essential elements of laches: (1) conduct on the part of the defendant, or one under whom he
claims, giving rise to the situation of which complaint is made and for which the complainant
seeks a remedy; (2) delay in asserting the complainants rights, the complainant having had
knowledge or notice of the defendants conduct and having been afforded an opportunity to
institute a suit; (3) lack of knowledge or notice on the part of the defendant that the complainant
would assert the right on which he bases his suit; and (4) injury or prejudice to the defendant in
the event relief is accorded to the complainant, or the suit is not held barred.

Issues

In their Memorandum, petitioners raise the following issues:vi[6]

1.WHETHER OR NOT THE CLAIM OF THE PNB AGAINST THE PETITIONERS IS
ALREADY BARRED BY THE EQUITABLE DEFENSE OF LACHES?
2. WHETHER OR NOT THE RESPECTIVE CONJUGAL PARTNERSHIPS OF THE
PETITIONERS COULD BE HELD LIABLE FOR ANY LIABILITY OF THE PETITIONERS UNDER
THE SURETY AGREEMENT IN FAVOR OF THE PNB?
Under the first issue, petitioners submit four other questions:
1-a WHETHER OR NOT THE EQUITABLE DEFENSE OF LACHES APPLIES
INDEPENDENTLY OF PRESCRIPTION?
1-b WHETHER OR NOT THE CAUSE OF ACTION OF THE PNB AGAINST THE
PETITIONERS ACCRUED ONLY FROM THE TIME OF THE JUDICIAL DEMAND ON AUGUST
30, 1976?
1-c WHETHER OR NOT THE FOUR (4) WELL-SETTLED ELEMENTS OF LACHES
ARE PRESENT IN THIS CASE?
1-d WHETHER OR NOT THE RULING IN THE CASE OF PHILIPPINE NATIONAL
BANK VS. COURT OF APPEALS, 217 SCRA 347, IS APPLICABLE IN THIS INSTANT CASE?
In the main, the issue is whether petitioners may raise the defense of laches in order to avoid
their liability under the surety agreement. Preliminarily, we shall also take up the question of
petitioners liability as sureties.

The Courts Ruling

The appeal is not meritorious.

Preliminary Matter: Liability of Petitioners as Sureties

The present controversy began when the Philippine National Bank (PNB) sought to enforce
the Surety Agreement. The pertinent provisions of said Agreement are as follows:
WHEREAS, FIL-EASTERN WOOD INDUSTRIES, INC. herein referred to as the Principal, has
obtained and/or desires to obtain certain credits, loans, overdrafts, discounts, etc., from the Creditor, for
all of which the Creditor requires security; and the Surety, on account of valuable consideration received
from the Principal, has agreed and undertake to assist the principal by becoming such Surety.
NOW THEREFORE, for the purpose above mentioned, the Surety, jointly and severally with the
Principal, hereby guarantees and warrants to the Creditor, its successors or assigns, the prompt payment
at maturity of all the notes, drafts, bills of exchange, overdrafts and other obligations of every kind, on
which the Principal may now be indebted or may hereafter become indebted to the Creditor, but the
liability of the Surety shall not at any time exceed the sum of TWO MILLION FIVE HUNDRED
THOUSAND ONLY (P2,500,000.00) (demand loan of P2,500,000.00), Philippine Currency, plus the
interest thereon at the rate of (___%) per cent per annum, and the cost and expenses of the Creditor
incurred in connection with the granting of the credits, loans, overdrafts, etc., covered by this surety
agreement, including those for the custody, maintenance and preservation of the securities given therefor
and also for the collection thereof.
Both the Principal and the Surety shall be considered in default when they fail to pay the obligation
upon maturity with or without demand and in such case the Surety agrees to pay to the creditor, its
[successors] or assigns, all outstanding obligations of the Principal, whether due or not due and whether
held by the Creditor as principal or agent, and it is agreed that a certified statement by the Creditor as to
the amount due from the Principal shall be accepted as correct by the Surety without question.
The Surety expressly waives all rights to demand for payment and notice of non-payment and
protest, and agrees that the securities of every kind, that are now and may hereafter be left with the
Creditor, its successors, indorsees or assigns, as collateral to any evidence of debt or obligations or upon
which a lien may exist thereon may be withdrawn or surrendered at any time, and the time of payment
thereof extended, without notice to, or consent by the Surety; and that the liability on this guaranty shall
be solidary, direct and immediate and not contingent upon the pursuit by the Creditor, its successors,
indorsees or assigns, of whatever remedies it or they have against the Principal or the securities or liens it
or they may possess and the Surety will at any time, whether due or not due, pay to the Creditor with or
without demand upon the Principal, any obligation or indebtedness of the Principal not in excess of the
amount abovementioned.
This instrument is intended to be a complete and perfect indemnity to the Creditor to the extent
above stated, for any indebtedness or liability of any kind owing by the Principal to the Creditor from
time to time, and to be valid and continuous without further notice to the Surety, and may be revoked by
the Surety at any time, but only after forty-eight hours notice in writing to the Creditor, and such
revocation shall not operate to relieve the Surety from responsibility for obligations incurred by the
Principal prior to the termination of such period. (Emphasis supplied.)
 It must be stressed that petitioners, as sureties, bound themselves solidarily for the
obligation of Fil-Eastern to PNB. Petitioners admit that they signed the Surety Agreement, but
they challenge their liability thereon on the ground that they were allegedly coerced by their
employer into signing the deed. The argument is too late at best.
As pointed out by the Court of Appeals, petitioners failed to challenge their consent to the
Agreement within the prescriptive period. Article 1391 of the Civil Code provides that the action
to annul a contract vitiated by intimidation, violence or undue influence shall be filed within four
years from the cessation of such defects. In this case, Petitioners Agra, Gamo and Novales
resigned from Fil-Eastern in 1967, 1968 and 1969, respectively. It was only in 1976, when PNB
sought to enforce the contract, that they alleged a defect in their consent. By their inaction, their
alleged cause of action based on vitiated consent had precribed. There was no question that
petitioners, in their capacity as sureties, were answerable for the obligations of Fil-Eastern to
PNB.
We shall now go to the main issue of this case: Whether petitioners may invoke the defense
of laches, considering that PNBs claim had not yet prescribed.

Main Issue: Laches

Petitioners admit that PNBs claim, though filed more than seven years from the maturity of
the obligation, fell within the ten-year prescriptive period. They argue, however, that the cause
was already barred by laches, which is defined as the failure or neglect for an unreasonable or
unexplained length of time to do that which by exercising due diligence, could or should have
been done earlier warranting a presumption that he has abandoned his right or declined to assert
it.vii[7] In arguing that the appellate court erred in rejecting the defense of laches, petitioners cite
four reasons: (1) the defense of laches applies independently of prescription; (2) the cause of
action against petitioners accrued from the maturity of the obligation, not from the time of
judicial demand; (3) the four well-settled elements of laches were duly proven; and (4) PNB v.
CA applies in the instant case. As will be shown below, all these arguments are devoid of merit.

Application of Laches

Assailing the CA ruling that laches was inapplicable because the claim was brought within
the ten-year prescriptive period, petitioners stress that the defense of laches differs from and is
applied independently of prescription. In support, they cite, among others, Nielson & Co., Inc. v.
Lepanto Consolidated Mining Co.,viii[8] in which the Supreme Court ruled:
[T]he defense of laches applies independently of prescription. Laches is different from the statute
of limitations. Prescription is concerned with the fact of delay, whereas laches is concerned with the
effect of delay. Prescription is a matter of time; laches is principally a question of inequity of permitting a
claim to be enforced, this inequity being founded on some change in the condition of the property or the
relation of the parties. Prescription is statutory; laches is not. Laches applies in equity; whereas
prescription applies at law. Prescription is based on fixed time, laches is not.
True, prescription is different from laches, but petitioners reliance on Nielson is misplaced.
As held in the aforecited case, laches is principally a question of equity. Necessarily, there is no
absolute rule as to what constitutes laches or staleness of demand; each case is to be determined
according to its particular circumstances. The question of laches is addressed to the sound
discretion of the court and since laches is an equitable doctrine, its application is controlled by
equitable considerations.ix[9] Petitioners, however, failed to show that the collection suit against
herein sureties was inequitable. Remedies in equity address only situations tainted with inequity,
not those expressly governed by statutes. Indeed, the petitioners failed to prove the presence of
all the four established requisites of laches, viz:
(1) conduct on the part of the defendant or one under whom he claims, giving rise to the situation of
which complaint is made and for which the complainant seeks a remedy;
 (2) delay in asserting the complainants right, the complainant having had knowledge or notice of
defendants conduct and having been afforded an opportunity to institute a suit;
(3) lack of knowledge or notice on the part of the defendant that the complainant would assert the
right on which he bases his claim; and
(4) injury or prejudice to the defendant in the event relief is accorded to the complainant, or the suit
is not held barred.x[10]
That the first element exists is undisputed. Neither Fil-Eastern nor the sureties, herein
petitioners, paid the obligation under the Surety Agreement.
The second element cannot be deemed to exist. Although the collection suit was filed more
than seven years after the obligation of the sureties became due, the lapse was within the
prescriptive period for filing an action. In this light, we find immaterial petitioners insistence
that the cause of action accrued on December 31, 1968, when the obligation became due, and not
on August 30, 1976, when the judicial demand was made. In either case, both submissions fell
within the ten-year prescriptive period. In any event, the fact of delay, standing alone, is
insufficient to constitute laches.xi[11]
Petitioners insist that the delay of seven years was unreasonable and unexplained, because
demand was not necessary. Again we point that, unless reasons of inequitable proportions are
adduced, a delay within the prescriptive period is sanctioned by law and is not considered to be a
delay that would bar relief. In Chavez v. Bonto-Perez,xii[12] the Court reiterated an earlier holding,
viz:
Laches is a doctrine in equity while prescription is based on law. Our courts are basically courts of
law and not courts of equity. Thus, laches cannot be invoked to resist the enforcement of an existing legal
right. We have ruled in Arsenal v. Intermediate Appellate Court x x x that it is a long standing principle
that equity follows the law. Courts exercising equity jurisdiction are bound by rules of law and have no
arbitrary discretion to disregard them. In Zabat, Jr. v. Court of Appeals x x x, this Court was more
emphatic in upholding the rules of procedure. We said therein:
As for equity, which has been aptly described as justice outside legality, this is applied
only in the absence of, and never against, statutory law or, as in this case, judicial rules of
procedure. Aequetas nunquam contravenit legis. This pertinent positive rules being present
here, they should preempt and prevail over all abstract arguments based only on equity.
Thus, where the claim was filed within the three-year statutory period, recovery therefore cannot be
barred by laches.
Petitioners also failed to prove the third element of laches. It is absurd to maintain that
petitioners did not know that PNB would assert its right under the Surety Agreement. It is
unnatural, if not unheard of, for banks to condone debts without adequate recompense in some
other form. Petitioners have not given us reason why they assumed that PNB would not enforce
the Agreement against them.
Finally, petitioners maintain that the fourth element is present because they would suffer
damage or injury as a result of PNBs claim. This is the crux of the controversy. In addition to
the payment of the amount stipulated in the Agreement, other equitable grounds were
enumerated by petitioners, viz:
1.Petitioners acted as sureties under pressure from Felipe Baby Ysmael, Jr., the headman of the
Ysmael Group of Companies where the petitioners were all employed in various executive positions.
2. Petitioners did not receive a single centavo in consideration of their acting as sureties.
3. The surety agreement was not really a requisite for the grant of the loan to FIL-EASTERN
because the first release on the loan was made on July 17, 1967, or even before the Surety Agreement was
executed by petitioners on July 21, 1967.
4. Petitioners were assured that the Surety Agreement was merely a formality, and they had reason
to believe that assurance because the loan was principally secured by an assignment of 15% of the
proceeds of the sale of logs of FIL-EASTERN to Iwai & Co., Ltd., and such assignment was clearly
stated in PNB Board Resolution No. 407. In fact, while it was expressly stated in all of the eight (8)
promissory notes covering the releases of the loan that the said loan was secured by 15% of the contract
of sale with Iwai & Co., Ltd., only three (3) promissory notes stated that the loan was also secured by the
joint and several signatures of the officers of the corporation. It is to be noted that no mention was
even made of the joint and several signatures of petitioners as sureties. In other words, the principal
security was the assignment of 15% of the contract for the sale of logs to Iwai & Co., Ltd.
5. For reasons not explained by PNB, PNB did not collect the 15% of the proceeds of the sale of the
logs to Iwai & Co., Ltd., and such failure resulted in the non-collection of the P2,500,000.00 demand
loan, or at least a portion of it.
6. For reasons likewise unexplained by PNB, PNB did not make any demand upon petitioners to
pay the unpaid loan of FIL-EASTERN until after FIL-EASTERN had become bankrupt, and PNB was
aware of this fact because it foreclosed the chattel mortgages on the other loans of FIL-EASTERN which
were secured by said chattel mortgages.xiii[13] (Emphasis found in the original.)
These circumstances do not justify the application of laches. Rather, they disclose
petitioners failure to understand the language and the nature of the Surety Arrangement. They
cannot now argue that the Surety Agreement was merely a formality, secondary to the
assignment of 15 percent of the proceeds of the sale of Fil-Easterns logs to Iwai and Co., Ltd.
Neither can they rely on PNBs failure to collect the assigned share in the sale of the logs or to
make a demand on petitioners until after Fil-Eastern had become bankrupt. The Court stresses
that the obligation of a surety is direct, primary and absolute. Thus, the Court has held:
[A]lthough the contract of a surety is in essence secondary only to a valid principal obligation, his
liability to the creditor or promisee of the principal is said to be direct, primary, and absolute; in other
words, he is directly and equally bound with the principal. The surety therefore becomes liable for the
debt or duty of another although he possesses no direct or personal interest over the obligations nor does
he receive any benefit therefrom.xiv[14]
When petitioners signed as sureties, they expressly and unequivocally agreed to the
stipulation that the liability on this guaranty shall be solidary, direct and immediate and not
contingent upon the pursuit by the creditor, its successors, indorsees or assigns, of whatever
remedies it or they have against the principal or the securities or liens it or they may possess.
If they had mistaken the import of the Surety Agreement, they could have easily asked for its
revocation. The Agreement stipulates that it may be revoked by the Surety at any time, but only
after forty-eight hours notice in writing to the Creditor, and such revocation shall not operate to
relieve the Surety from responsibility for obligations incurred by the Principal prior to the
termination of such period. This they did not do.
Equally unavailing is petitioners allegation that the Surety Agreement was not a requisite
for the grant of the loan. Even if their assertion is true, the fact remains that they signed the
contract and voluntarily bound themselves to be solidarily liable for the loan amounting to
P2,500,000.
The other equitable circumstances above enumerated fail to support petitioners cause. As
earlier stated, petitioners are already barred from questioning the voluntariness of their consent.
Furthermore, this Court has categorically ruled that a surety is liable for the debt of another,
although he or she received no benefit therefrom.xv[15]
Clearly, aside from the fact that the collection suit was filed only after the lapse of seven
years from the date the obligation became due and demandable, petitioners failed to adduce any
showing of inequity. Hence, the rules on equity cannot protect them.

Applicability of PNB v. CA

Petitioners allege that the CA committed grave error in failing to apply PNB v. Court of
Appeals,xvi[16] which they insist to be analogous to the present case. The facts in said case are as
follows:
Private Respondent B.P. Mata & Co. Inc. (Mata), is a private corporation engaged in providing
goods and services to shipping companies. Since 1966, it has acted as a manning or crewing agent for
several foreign firms, one of which is Star Kist foods, Inc., USA (Star Kist). As part of their agreement,
Mata makes advances for the crews basic personal needs. Subsequently, Mata sends monthly billings to
its foreign principal Star Kist, which in turn reimburses Mata by sending a telegraphic transfer through
banks for credit to the latters account.
Against this background, on February 21, 1975, Security Pacific National Bank (SEPAC) of Los
Angeles which had an agency arrangement with Philippine National Bank (PNB), transmitted a cable
message to the International Department of PNB to pay the amount of US$14,000 to Mata by crediting
the latters account with the Insular Bank of Asia and America (IBAA), per order of Star Kist. Upon
receipt of this cabled message on February 24, 1975, PNBs International Department noticed an error
and sent a service message to SEPAC Bank. The latter replied with the instructions that the amount of
US$14,000 should only be for US$1,400.
On the basis of the cable message dated February 24, 1975, Cashiers Check No. 269522 in the
amount of US$1,400 (P9,772.96) representing reimbursement from Star Kist, was issued by the Star Kist
for the account of Mata on February 25, 1975 through the Insular Bank of Asia and America (IBAA).
However, fourteen days after or on March 11, 1975, PNB effected another payment through
Cashiers Check No. 270271 in the amount of US$14,000 (P97,878.60) purporting to be another
transmittal of reimbursement from Star Kist, private respondents foreign principal.
Six years later, or more specifically, on May 13, 1981, PNB requested Mata for refund of
US$14,000 (P97,878.60) after it discovered its error in effecting the second payment.
On February 4, 1982, PNB filed a civil case for collection and refund of US$14,000 against
Mata arguing that based on a constructive trust under Article 1456 of the Civil Code, it has a
right to recover the said amount it erroneously credited to respondent Mata.xvii[17]
On the ground of laches, the Court decided against the claim of PNB, stating that:
[i]t is amazing that it took petitioner almost seven years before it discovered that it had erroneously
paid private respondent. Petitioner would attribute its mistake to the heavy volume of international
transactions handled by the Cable and Remittance Division of the International Department of PNB.
Such specious reasoning is not persuasive. It is unbelievable for a bank, and a government bank at that,
which regularly publishes its balanced financial statements annually or more frequently, by the quarter, to
notice its error only seven years later. As a universal bank with worldwide operations, PNB cannot afford
to commit such costly mistakes. Moreover, as between parties where negligence is imputable to one and
not to the other, the former must perforce bear the consequences of its neglect. Hence, petitioner should
bear the cost of its own negligence.
Petitioners maintain that the delay in PNB v. CA was even shorter than that in the present
case. If the bank in the aforesaid case was negligent in not discovering the overpayment, herein
petitioners assert that the negligence was even more culpable in the present case. They add that,
given the standard practice of banks to flag delinquent accounts, the inaction for almost seven
years of herein respondent bank was gross and inexcusable.
We are not persuaded. There are no absolute rules in the application of equity, and each case
must be examined in the light of its peculiar facts. In PNB v. CA, there was a mistake, an
inexcusable one, on the part of petitioner bank in making an overpayment and repeating the same
error fourteen days later. If the bank could not immediately discover the mistake despite all its
agents and employees, the beneficiary of the amount could not be expected to do so. It is, thus,
inequitable to allow PNB to collect the amount, after such a long delay, from the beneficiary who
had assumed, after all those years, that the amount really belonged to it.
In the present case, there is no showing of any mistake or any inequity. The fact alone that
seven years had lapsed before PNB filed the collection suit does not mean that it discovered the
obligation of the sureties only then. There was a Surety Arrangement, and the law says that the
said contract can be enforced by action within ten years. The bank and the sureties all knew that
the action to enforce the contract did not have to be filed immediately. In other words, the bank
committed no mistake or inequitable conduct that needed correction, and the sureties had no
misconception about their liabilities under the contract.
Clearly, petitioners have no recourse in equity, because they failed to show any inequity on
the part of PNB.
 Additional Issue: Liability of Conjugal Assets

In their Memorandum, petitioners belatedly ask the Court to rule that, in case of a court
ruling adverse to them, the conjugal properties would not be liable for the husbands debts that
did not redound to the benefit of the conjugal partnership.xviii[18]
This issue cannot be allowed, for it is being raised for the first time only in petitioners
Memorandum. Issues, arguments, theories and causes of action not raised below may no longer
be posed on appeal.xix[19] Furthermore, petitioners are asking the Court to issue a ruling on a
hypothetical situation. In effect, they are asking the Court to render an advisory opinion, a task
which is beyond its constitutional mandate.
WHEREFORE, the petition is hereby DENIED and the assailed Decision of the Court of
Appeals is AFFIRMED. Costs against petitioners.
SO ORDERED.
Vitug, Purisima, and Gonzaga-Reyes, JJ., concur.
Romero, J., (Chairman), abroad on official leave.
i[1]PennedbyJ.ArturoB.Buena(nowAssociateJusticeoftheSupremeCourt),divisionchairman;withthe
concurrenceofJJ.BuenaventuraJ.GuerreroandPortiaAlinoHormachuelos,members.
ii[2] CADecision,p.14; Rollo,p.43.
iii[3] Rollo,p.45.
iv[4]CADecision,pp.14;Rollo,pp.3033.ThecasewasdeemedsubmittedforresolutiononJanuary28,
1999,whentheCourtreceivedpetitionersReplyMemorandum.
v[5] CADecision,p.10;Rollo,p.39.
vi[6]PetitionersMemorandum,p.5;Rollo,p.148.
vii[7]Vitug,CompendiumofCivilLawandJurisprudence,pp.570571;citingMadejav.Patcho,132SCRA
540.
viii[8]18SCRA1040,December17,1966,perZaldivar,J.SeealsoHeirsofBatiogLacamenv.Heirsof
Laruan,65SCRA605,609,July31,1975;RadioCommunicationofthePhilippines,Inc.v.NLRC,223SCRA
656,June25,1993;Jimenezv.Fernandez,184SCRA190,196,April6,1990;Santiagov.CourtofAppeals,
278SCRA98,August21,1997,perHermosisima,Jr.J.
ix[9]Jimenezv.Fernandez,184SCRA196,April6,1990,perParas,J.
x[10] Catholic Bishop of Balanga v. CA, 264 SCRA 181, November 14, 1996, per
Hermosisima Jr., J.; Go Chi Gun, et al. v. Co Cho, et al., 96 Phil. 622, February 28, 1955;
Mejia de Lucas v. Gamponia, 100 Phil. 277, October 31, 1956; Z.E. Lotho, Inc. v. Ice & Cold
Storage Industries, Inc., 3 SCRA 744, December 28, 1961, 1961; Abraham v. Recto-
Kasten, 4 SCRA 298, June 31, 1962; Custodio v. Casiano, 9 SCRA 841, December 27,
1963; Nielsen & Co., Inc. v. Lepanto Consolidated Mining Co., 18 SCRA 1040, December
17, 1966; Miguel v. Catalino, 26 SCRA 234, November 29, 1968; Yusingco v. Ong Hing
Lian, 42 SCRA 589, December 24, 1971; Perez v. Ong Chua, 116732, September 23, 1982;
Rafols v. Barba, 119 SCRA 146, December 13, 1982; Chung Ka Bio v. Intermediate
Appellate Court, supra; Claverias v. Quingco, 207 SCRA 66, 83 March 6, 1992;
Buenaventura v. Court of Appeals, 216 SCRA 818, 824, December 28, 1992.
xi[11]Chavezv.BontoPerez,242SCRA73,March1,1995,perPuno,J.
xii[12] 242SCRA81,supra;quotingImperialValleyShippingAgencyv.NLRC,200SCRA178,August5,
1991.
xiii[13]PetitionersMemorandum,pp.1718;Rollo,pp.160161.
xiv[14]Garciav.CourtofAppeals,191SCRA493,November20,1990,perCruz,J.
xv[15] Ibid.
xvi[16]217SCRA347,January21,1993,perRomero,J.
xvii[17]PNBv.CA,supra,pp.350351.
xviii[18]PetitionersMemorandum,p.27;Rollo,p.170.
xix[19] SanJuanStructuralv.CA,GRNo.129459,September29,1998;KengHuaPaperProductCo.,Inc.v.
CA,GRNo.116863,February12,1998.