[G.R. No. 16530. March 31, 1922.
] The parties agree that the circumstances under which
MAMERTO LAUDICO and FRED. M. HARDEN,
plaintiffs-appellants, vs. MANUEL ARIAS
RODRIGUEZ, ET AL., defendants-appellants.
SYLLABUS
1. CONTRACT OF LEASE; PERFECTION;
ACCEPTANCE BY LETTER. Under article 1262,
paragraph 2, the Civil Code, an acceptance by letter does
not have any effect until it comes to the knowledge of the
one making the offer. Before notice of acceptance, the
offerer is not bound and may withdraw the offer.
2. ID.; ID.; REVOCATION OF OFFER. Before
notice of acceptance, the offer may be revoked, and the
revocation will have the effect of preventing the
perfection of the contract, although it may not be known
by the acceptant.
AVANCEA, J p:
On February 5, 1919, the defendant, Vicente Arias, who,
with his codefendants, owned the building Nos. 205 to
221 on Carriedo Street, on his behalf and that of his
coowners, wrote a letter to the plaintiff, Mamerto
Laudico, giving him an option to lease the building to a
third person, and transmitting to him for that purpose a
tentative contract in writing containing the conditions
upon which the proposed lease should be made. Later
Mr. Laudico presented his coplaintiff, Mr. Fred. M.
Harden, as the party desiring it lease the building. On
one hand, other conditions were added to those
originally contained in the tentative contract, and, on the
other, counter-propositions were made and explanations
requested on certain points in order to make them clear.
These negotiations were carried on by correspondence
and verbally at interviews held with Mr. Vicente Arias,
no definite agreement having been arrived at until the
plaintiff, Mr. Laudico, finally wrote a letter to Mr. Arias
on March 6, 1919, and advising him that all his
propositions, as amended and supplemented, were
accepted. It is admitted that this letter was received by
Mr. Arias by special delivery at 2:53 p. m. of that day.
On that same day at 11:25 in the morning, Mr. Arias
had, in turn, written a letter to the plaintiff, Mr. Laudico,
withdrawing the offer to lease the building.
The chief prayer of the plaintiff in this action is that the
defendants be compelled to execute the contract of lease
of the building in question. It thus results that when
Arias sent his letter of withdrawal to Laudico, he had not
yet received the letter of acceptance, and when it
reached him, he had already sent his letter of
withdrawal. Under these facts we believe that no
contract was perfected between the plaintiffs and the
defendants.
that offer was made were such that the offer could be
withdrawn at any time before acceptance.
Under article 1262, paragraph 2, of the civil Code, an
acceptance by letter does not have any effect until it
comes to the knowledge of the offerer. Therefore, before
he learns of the acceptance, the latter is not yet bound
by it and can still withdraw the offer. Consequently,
when Mr. Arias wrote Mr. Laudico, withdrawing the offer,
he had the right to do so, inasmuch as he had not yet
received notice of the acceptance. And when the notice of
the acceptance was received by Mr. Arias, it no longer
had any effect, as the offer was not then in existence, the
same having already been withdrawn. There was No
meeting of the minds, through offer and acceptance,
which is the essence of the contract. While there was an
offer, there was no acceptance, and when the latter was
made and could have a binding effect, the offer was then
lacking. Though both the offer and the acceptance
existed, they did not meet to give birth to a contract.
Our attention has been called to a doctrine laid down in
some decisions to the effect that ordinarily notice of the
revocation of an offer must be given to avoid an
acceptance which may convert it into a binding contract,
and that no such notice can be deemed to have been
given to the person to whom the offer was made unless
the revocation was in fact brought home to his
knowledge.
This, however, has no application in the instant case,
because when Arias received the letter of acceptance, his
letter of revocation had already been received. The latter
was sent through a messenger at 11:25 in the morning
directly to the office of Laudico and should have been
received immediately on that same morning, or least,
before Arias received the letter of acceptance. On this
point we do not give any credence to the testimony of
Laudico that he received this letter of revocation at 3:30
in the afternoon of that day. Laudico is interested in
destroying the effect of this revocation so that the
acceptance may be valid, which is the principal ground
of his complaint.
But even supposing Laudico's testimony to be true, still
the doctrine invoked has no application here. With
regard to contracts between absent persons there are
two principal theories, to wit, one holding that an
acceptance by letter of an offer has no effect until it
comes to the knowledge of the offerer, and the other
maintaining that it is effective from the time the letter is
sent.
The Civil Code, in paragraph 2 article 1262, has adopted
the first theory and, according to its most eminent
commentators, it means that, before the acceptance is
known, the offer can be revoked, it not being necessary,
in order for the revocation to have the effect of impeding
the perfection of the contract, that it be known by the
acceptant Q. Mucius Scaevola says apropos: "To our
mind, the power to revoke is implied in the criterion that
no contract exists until the acceptance is known. As the
tie or bond springs from the meeting or concurrence of
the minds, since up to that moment there exists only a
unilateral act, it is evident that he who makes it must
have the power to revoke it by withdrawing his
proposition, although with the obligation to pay such
damages as may have been sustained by the person or
persons to whom the offer was made and by whom it
was accepted, if he in turn failed to give them notice of
the withdrawal of the offer. This view is confirmed by the
provision of article 1257, paragraph 2 concerning the
case where a stipulation is made in favor of a third
person, which provision, which provision authorizes the
contracting parties to revoke the stipulation before the
notice of its acceptance. That case is quite similar to that
under comment, as said stipulation in favor of a third
person (who, for the very reason of being a third person,
is not a contracting party) is tantamount to an offer
made by the makers of the contract which may or may
not be accepted by him, and which does not have any
effect until the obligator is notified, and may, before it is
accepted, be revoked by those who have made it;
therefore, the case being similar, the same rule applies."
Under the second theory, the doctrine invoked by the
plaintiffs is sound, because if the sending of the letter of
acceptance in itself really perfects the contract, the
revocation the acceptor. But this consideration has no
place in the first theory under which the forwarding of
the letter of acceptance, in itself, does not have any effect
until the acceptance is known by the person who has
made the offer.
The judgment appealed from is reversed and the
defendants are absolved from the complaint, without
special finding as to costs. So ordered.
[G.R. No. 108294. September 15, 1997.]
ANDRES RAMOS, SPOUSES FELIPE BELMONTE, and
AMALIA BELMONTE, petitioners, vs. THE
HONORABLE COURT OF APPEALS, GOVERNMENT
SERVICE INSURANCE SYSTEM (GSIS), EDUARDO
YUSECO, and DIONISIO PALLA, respondents.
SYNOPSIS
Eduardo Yuseco (now deceased) obtained a loan of
P35,000.00 from the Government Service Insurance
System. To guarantee payment, Yuseco constituted a
mortgage over his property covered by TCT No. 123161.
Although Yuseco was prohibited from selling, disposing
of, mortgaging or in any manner encumbering the
mortgaged property without prior written consent of the
GSIS, he sold the property to Felipe Belmonte, who
agreed to assume Yuseco's obligation to GSIS. The
undertaking was to be performed within one year from
the perfection of the contract. Said transaction was
approved by the GSIS. As Belmonte was unable to
comply with his obligation, he and his wife asked Andres
Ramos to share in the payment of the amortizations to
GSIS. Since December 9, 1969, petitioners had been
paying the GSIS the monthly amortizations, but for some
reason they stopped doing so in October 1, 1981. The
GSIS extrajudicially foreclosed the mortgage and
purchased the property as the highest bidder at the
auction sale. At about the same time, petitioners
signified their intention to redeem the property, Yuseco
negotiated the sale of the foreclosed property to private
respondent Dionisio Palla. Palla purchased the property
from Yuseco for P92,000.00 and redeemed the property
in his own name from the GSIS. TCT No. 123161 was
canceled and in lieu thereof, TCT No. 302915 was issued
in the name of Dionisio Palla. Petitioners filed an action
before the Regional Trial Court for Annulment of
Foreclosure Proceedings, Redemption and Sale, and
Reconveyance. The lower court rendered judgment for
petitioners and ruled that the "Deed of Absolute Sale
with Assumption of Mortgage" executed in favor of
petitioners prevailed over that made in favor of Palla. On
appeal, the Court of Appeals reversed the ruling of the
trial court. It held that the "Deed" which Yuseco had
made with petitioners was unenforceable because of lack
of approval by the GSIS; that the GSIS legally foreclosed
the mortgage; and that petitioners' remedy is to bring an
action against the estate of Yuseco. Hence, the present
petition. cdtai
The Supreme Court affirmed the decision of the Court of
Appeals. The Court held that because of the petitioners'
failure to comply with the conditions imposed by the
GSIS, the "Deed of Absolute Sale with Assumption of
Mortgage" was not perfected so that Yuseco remained
the owner of the property, subject of the deed, and as
such had a right to sell it to private respondent Palla.
SYLLABUS
CIVIL LAW; OBLIGATIONS AND CONTRACTS;
CONDITIONAL OBLIGATIONS; IN SALES WITH
ASSUMPTION OF MORTGAGE, THE ASSUMPTION OF
MORTGAGE IS A CONDITION TO THE SELLER'S
CONSENT SO THAT WITHOUT APPROVAL BY THE
MORTGAGEE, NO SALE IS PERFECTED; CASE AT BAR.
Because of petitioners' failure to update their account
and execute a promissory note, GSIS' conditional
approval of the sale of the property and assumption of
mortgage never became effective. The "Deed of Absolute
Sale with Assumption of Mortgage" itself was not
perfected since assumption of the mortgage by
petitioners was a condition precedent for the sale of the
property to them. Art. 1181 of the Civil Code provides
that "In conditional obligations, the acquisition of rights,
as well as the extinguishment or loss of those already
acquired, shall depend upon the happening of the event
which constitutes the condition." Accordingly, in sales
with assumption of mortgage, the assumption of
mortgage is a condition to the seller's consent so that
without approval by the mortgagee, no sale is perfected.
LLjur
MENDOZA, J p:
On September 8, 1967, Eduardo Yuseco (now deceased)
obtained a loan of P35,000.00 from the Government
Service Insurance System. To guarantee payment of the
loan, Yuseco constituted a mortgage over his property
covered by TCT No. 123161 of the Register of Deeds of
Quezon City in favor of GSIS. Under the mortgage
contract, Yuseco was prohibited from selling, disposing
of, mortgaging, or in any manner encumbering the
mortgaged property without the prior written consent of
the GSIS. cdasia
On November 17, 1969, Yuseco executed a "Contract to
Sell" (Exh. A) of the mortgaged property in favor of
petitioner Felipe Belmonte, by virtue of which Belmonte
agreed to assume Yuseco's obligation to the GSIS. The
undertaking was to be performed within one year from
the perfection of the contract. Belmonte was, however,
unable to comply with his obligation within the period
agreed upon, so that he requested an extension. His
request was granted and he was given until January 15,
1971 to comply with his obligation. As Belmonte was still
unable to comply with his obligation notwithstanding the
extension given to him, he and his wife asked Andres
Ramos to share in the payment of the amortization's to
the GSIS. This was made with the knowledge and
consent of Yuseco who executed a "Deed of Absolute Sale
with Assumption of Mortgage" (Exh. D) in favor of all
petitioners on January 21, 1971. It was agreed that the
spouses Belmonte and Ramos would pay for all expenses
for the preparation of documents and afterwards submit
the contract to the GSIS for its approval.
On February 26, 1971, the GSIS informed Yuseco that
his request for authority to execute the "Deed of
Absolute Sale with Assumption of Mortgage" could not
be considered pending the return of the certificate of title
which Yuseco had borrowed from the GSIS. On July 26,
1971, however, the GSIS notified Yuseco that its Board
of Trustees had approved his request for authority to
execute the "Deed of Absolute Sale with Assumption of
Mortgage" even though Yuseco's certificate of title had
not been returned. The approval was made subject to the
following conditions:
1. That the account of the mortgagor-vendors with
the System is up-to-date, including the fire insurance
premiums;
2. That the prospective vendees shall execute in
favor of and submit to the System, the corresponding
Promissory Note on the obligation to be assumed;
3. That the vendees shall pay direct to the System
the amount of P378.88 corresponding to the monthly
amortization on the loan including the fire insurance
premiums; and
4. That the vendees shall pay to the System the
amount of P40.00 as assumption and service fees and
shall pay all fees incidental to the registration of the
Deed of Sale with Assumption of Mortgage.
(Exh. G)
A copy of the letter of the GSIS to Yuseco was furnished
petitioners Andres Ramos and Amalia Belmonte.
On February 14, 1975, petitioners delivered to the GSIS
a letter from Eduardo Yuseco, informing the GSIS that
the certificate of title had been lost and, for this reason,
requesting the GSIS to undertake the reconstitution of
the lost title and to charge the cost thereof to petitioners.
1
To protect their interest, petitioners at the same time
registered an adverse claim which was annotated on TCT
No. 123161.
Since December 9, 1969, petitioners had been paying
the GSIS the monthly amortization's, but for some
reason they stopped doing so on October 1, 1981, after
paying a total of P27,430.16, 2 although in the
confirmation of accounts sent by the GSIS, the total
payments credited to them was P30,903.52. 3 The
payments were all made in the name of Eduardo Yuseco.
(Exhs. E, E-1 to E-51)
On July 16, 1982, the GSIS informed Yuseco and the
spouses Belmonte of the arrearages amounting to
P37,758.84 and warned them that if the amount was not
settled on time, the mortgage would be foreclosed. As no
settlement of the amount was made, the GSIS
extrajudicially foreclosed the mortgage on September 17,
1982. The GSIS purchased the property as the highest
bidder at the auction sale. It then informed the spouses
Belmonte of the foreclosure of the mortgage and
demanded the payments of rents from them for their use
of the property. On October 19, 1982, the GSIS again
wrote the spouses Belmonte and asked them to file an
application for the lease of the property to formalize their
stay on the property.
But the Belmontes did not do so. On April 27, 1983, the
spouses and Ramos wrote the GSIS that, as vendees of
the property, they were exercising their right to redeem
the property (Exh. M). The GSIS replied that it would
consider any legal redemptioner who first exercised the
right of redemption (Exh. N).
At about the same time that petitioners signified their
intention to redeem the property, Yuseco negotiated for
the sale of the foreclosed property to private respondent
Dionisio Palla, showing the latter a photocopy of his title
to the property.
Palla and his lawyer, Atty. Marte Sta. Elena, went to
verify the authenticity of Yuseco's title in the Register of
Deeds of Quezon City where they learned of the adverse
claim of petitioners. Upon assurance by his lawyer that
the adverse claim was not an impediment to the
purchase of the property and despite advice from Yuseco
that there were tenants (the petitioners were actually the
occupants) on the property, Palla purchased the
property from Yuseco for P92,000.00 on May 20, 1983
(Exh. Q). Palla sought to redeem the property from the
GSIS but he was not allowed to do so in his own name.
Consequently, he advanced the redemption price, in the
amount of P53,000.00, to Yuseco who redeemed the
property from the GSIS on June 14, 1983.
TCT No. 123161 in the name of Eduardo Yuseco was
cancelled and, in lieu thereof, TCT No. 302915 was
issued in the name of Dionisio Palla (Exh. R). As the new
owner of the property, Palla sued Ramos and the
spouses Belmonte for ejectment in the Metropolitan Trial
Court of Quezon City. The case was, however, suspended
and no further action was taken thereon.
Petitioners filed an action before the Regional Trial Court
for Annulment of Foreclosure Proceedings, Redemption
and Sale, and Reconveyance. They assailed the validity
of the foreclosure proceedings, alleging that the GSIS
had acted in bad faith by withholding information on the
reconstitution of TCT No. 123161 and the foreclosure of
the mortgage. They charged that Yuseco had acted in
bad faith in selling the foreclosed property to Palla even
if the same had already been sold to them. Petitioners
alleged that Palla was not a purchaser in good faith
because he had knowledge of petitioners' adverse claim
on the property. They also charged the GSIS with bad
faith, alleging that it took part in the sale of the property
to Palla despite its knowledge that the property had
previously been sold to petitioners.
The lower court gave judgment for petitioners and ruled
that the "Deed of Absolute Sale with Assumption of
Mortgage" executed in favor of petitioners prevailed over
that made in favor of Palla. It ordered the GSIS to return
the redemption price of P53,000.00 to Palla, even as it
ordered petitioners to pay the same amount to GSIS and
to reimburse Palla for the real estate tax paid by him.
The dispositive portion of the lower court's decision
reads:
FOREGOING PREMISES FULLY CONSIDERED,
judgment is hereby rendered:
1. Declaring that the Deed of Absolute Sale with
Assumption of Mortgage, Exh. "D", executed by Eduardo
Yuseco in favor of plaintiffs Andres Ramos, Felipe and
Amalia Belmonte stands and prevails over the Deed of
Absolute Sale with Assumption of Mortgage (Exh. "12")
executed by Eduardo Yuseco in favor of Dionisio Palla;
2. Declaring as null and void the Absolute Deed of
Sale with Assumption of Mortgage, Exh. "12" executed
by Eduardo Yuseco in favor of Dionisio Palla;
3. Directing the GSIS to return to defendant
Dionisio Palla the amount of P53,000.00 paid for and in
behalf of Eduardo Yuseco for the redemption of the
property in question sold to the GSIS after foreclosure of
the mortgage constituted thereon;
4. Ordering the plaintiffs Andres Ramos and
spouses Felipe and Amalia Belmonte to pay the amount
of P53,000.00 for the redemption of the property from
the GSIS and the latter to accept said payment and issue
upon receipt of said amount the corresponding
certificate of redemption in their favor;
5. Ordering plaintiffs to reimburse to defendant
Palla all payments for the real estate taxes made on the
property in question;
6. Ordering defendants, jointly and severally, to
pay to plaintiffs by way of attorney's fees the amount of
Ten Thousand (P10,000.00) Pesos.
All other claims and counterclaims are hereby dismissed
for lack of sufficient evidence to support the same.
No pronouncement as to costs. IT IS SO ORDERED.
Quezon City, Philippines, 30 June 1989.
The Court of Appeals reversed. It held that the "Deed of
Absolute Sale with Assumption of Mortgage" which
Yuseco had made with petitioners was unenforceable
because of lack of approval by the GSIS; that the GSIS
legally foreclosed the mortgage for failure of Eduardo
Yuseco to pay; and that petitioners' remedy is to bring
an action against the estate of Yuseco. The dispositive
portion of the appellate court's decision reads:
WHEREFORE, premises considered, the appealed
decision is hereby REVERSED, and a new one is entered
dismissing the complaint and the counterclaim, without
prejudice to plaintiffs-appellees' recourse against the
estate of the late Eduardo Yuseco, should any of the
estate be found to exist. No costs.
SO ORDERED.
Hence, this petition for review. Petitioners allege that:
1. THE RESPONDENT COURT OF APPEALS
COMMITTED A GRAVE MISAPPREHENSION OF THE
FACTS AND GROSS MISAPPRECIATION OF THE
EVIDENCE WHEN IT RULED THAT THE EVIDENCE
DOES NOT SUPPORT AN INFERENCE OF FRAUD ON
THE PART OF APPELLANT EDUARDO YUSECO AND
PRIVATE RESPONDENT GSIS.
2. THE RESPONDENT COURT OF APPEALS
GRAVELY ERRED IN HOLDING THAT THE DEED OF
ABSOLUTE SALE WITH ASSUMPTION OF MORTGAGE
WAS NOT PERFECTED BECAUSE OF THE ALLEGED
NON- FULFILLMENT BY PETITIONERS OF THE
SUSPENSIVE CONDITION IMPOSED BY THE GSIS AS
WELL AS THE LACK OF WRITTEN CONSENT AND
APPROVAL OF THE MORTGAGEE GSIS OF THE SALE.
3. THE RESPONDENT COURT OF APPEALS
SERIOUSLY ERRED IN NOT HOLDING THAT THE
PETITIONERS HAVE THE BETTER AND SUPERIOR
RIGHT OVER THE PRIVATE RESPONDENT DIONISIO
PALLA AS REGARDS THE MORTGAGED PROPERTY IN
QUESTION.
Petitioners' contentions are without merit. We hold that
because of petitioners' failure to comply with the
conditions imposed by the GSIS the "Deed of Absolute
Sale with Assumption of Mortgage" was not perfected so
that Yuseco remained the owner of the property, subject
of the deed, and as such had a right to sell it to private
respondent Palla.
First. Petitioners' contention that "there was no valid
reason to justify foreclosure of the mortgaged property
because the petitioners were not delinquent and had not
been shown to have been in receipt of demand for
payment of any balance due" 4 is contrary to the
evidence. As of September 17, 1982, Eduardo Yuseco
was in arrears for P40,547.05. Demands had been made
on him and on petitioners to pay this amount otherwise
the mortgage would be foreclosed. As they failed to pay
the amount, the GSIS instituted foreclosure proceedings.
As the Court of Appeals found: 5
Despite such payments made, on July 16, 1982, the
GSIS informed Yuseco and appellee Belmonte of
arrearages in the mortgage amounting to P37,758.84
warning them of the intended foreclosure of said
mortgage if settlement thereof is not promptly made
(Exhs. "13", "13-A", "13-B", & "13-C", GSIS). Since
neither Yuseco nor the appellees heeded the foregoing
warning, the GSIS foreclosed the mortgage on September
17, 1982 (Exh. "16", GSIS), with it as the highest bidder
during the auction sale.
Second. Petitioners claim, however, that they failed to
update their account because the GSIS refused to accept
payment from them unless Yuseco's certificate of title,
which he had borrowed, was first returned. Indeed the
updating of account and payment of the current
amortization's, as well as the execution of a promissory
note for the balance of the obligation, were the principal
conditions for the GSIS' approval of the "Deed of
Absolute Sale with Assumption of Mortgage." The return
of the certificate of title, however, was not a condition for
acceptance of payment of the amortization's and
arrearages. The fact is that payments made by
petitioners in the name of Eduardo Yuseco from
December 9, 1969 (Exh. E) to October 1, 1981 (Exh. E-
52) were accepted by the GSIS. If petitioners stopped
paying it was not because the GSIS later refused to
accept further payments from them.
Indeed, the updating of account, payment of the monthly
amortization's, and execution of a promissory note were
imposed by the GSIS as conditions for its approval of the
"Deed of Absolute Sale with Assumption of Mortgage" in
favor of petitioners, and it would be absurd for it to
refuse compliance with those conditions unless the
certificate of title was first returned. That would be to
impose a condition (return of the certificate of title) on
compliance with conditions for GSIS approval of the sale
with assumption of mortgage. The fact is that the return
of the title was required in the beginning, on February
26, 1971, as condition for considering Yuseco's request
for authority to sell the mortgaged property to petitioner.
Even without the return of the certificate of title,
however, the GSIS later gave its approval to the sale
subject to the two conditions stated. It is probable that it
did so after being convinced that the return of the
certificate of title was no longer possible as petitioners
themselves on February 14, 1975 informed the GSIS
that the title had been lost, even as they asked it to
undertake the reconstitution of the title for them.
There is therefore no basis for the claim that petitioners
failed to update their account and pay the arrearages
because the GSIS refused to accept payment from them.
There was no reason for the GSIS to have done so. It was
for reason of their own that petitioners simply stopped
paying on October 1, 1981.
Third. Because of petitioners' failure to update their
account and execute a promissory note, GSIS
conditional approval of the sale of the property and
assumption of mortgage never became effective. The
"Deed of Absolute Sale with Assumption of Mortgage"
itself was not perfected since assumption of the
mortgage by petitioners was a condition precedent for
the sale of the property to them. Art. 1181 of the Civil
Code provides that "In conditional obligations, the
acquisition of rights, as well as the extinguishment or
loss of those already acquired, shall depend upon the
happening of the event which constitutes the condition."
Accordingly, in sales with assumption of mortgage, the
assumption of mortgage is a condition to the seller's
consent so that without approval by the mortgagee, no
sale is perfected. 7
Indeed, no one can plausibly assert that with only
P15,000.00 paid to Yuseco and about P30,903.52 paid
to the GSIS, petitioners became the owners of the
property when the consideration for the sale of the land
and its improvements was not only the amount paid to
the seller but the payment of his indebtedness to the
GSIS as well. Since the "Deed of Absolute Sale with
Assumption of Mortgage" executed by Yuseco in favor of
the petitioners was ineffective, Yuseco legally remained
as the owner and mortgagor of the subject property and
the debtor of the GSIS. In fact, the title to the property
(TCT No. 123161) remained in his name.
As such, Yuseco had the right to redeem, as he did in
fact redeem, the property on June 14, 1983, before the
expiration on October 11, 1983 of the one-year period of
redemption under Act 3135, 6. 8
Fourth. Nor can petitioners assail the sale of the
property after its redemption to respondent Palla. As
already stated, the "Deed of Absolute Sale with
Assumption of Mortgage," on the basis of which they
base their action in this case, never became effective
because of their non-compliance with the conditions for
approval of the sale by the GSIS. On the other hand, as
pointed out by the Court of Appeals, the foreclosure of
the mortgage was a sufficient justification for Palla's
disregard of the petitioners' adverse claim. Whether
petitioners can recover what they had paid to Yuseco
and to the GSIS in his behalf is a matter which is not
now in issue but should be threshed out in any
proceeding which petitioners should commence against
the estate of Eduardo Yuseco. Suffice it to state that the
estate is not a party in this appeal. llcd
WHEREFORE, the decision of the Court of Appeals is
AFFIRMED. SO ORDERED
[G.R. No. 118509. September 5, 1996.]
LIMKETKAI SONS MILLING, INC., petitioner, vs.
COURT OF APPEALS, BANK OF THE PHILIPPINE
ISLANDS and NATIONAL BOOK STORE, respondents.
SYLLABUS
1. REMEDIAL LAW; CIVIL PROCEDURE, MOTION
FOR RECONSIDERATION; REFERRAL OF A CASE TO
THE COURT EN BANC; THE MOTION THAT THE CASE
SHOULD BE REFERRED TO THE COURT EN BANC AS
THE DOCTRINE LAID DOWN IN ABRENICA V. GONDA
AND DE GRACIA, TALISOG V. VDA. DE NIEBA, AND
VILLONCO REALTY CO. V. BORMAHECO HAVE BEEN
MODIFIED ON REVERSED, IS MISPLACED; REASON.
It is argued, albeit erroneously, that the case should be
referred to the Court En Banc as the doctrines laid down
in Abrenica v. Gonda and De Gracia, 34 Phil. 739,
Talosig v. Vda. de Nieba, 43 SCRA 473, and Villonco
Realty Co. v. Bormaheco, Inc., et al., 65 SCRA 352, have
been modified or reversed. A more circumspect analysis
of these vis-a-vis the case at bench would inevitably lead
petitioner to the conclusion that there was neither
reversal nor modification of the doctrines laid down in
the Abrenica, Talosig and Villonco cases. In fact, the
inapplicability of the principle enunciated in Abrenica
and Talosig to this case has already been extensibly
discussed in the Court's resolution, hence the same will
not be addressed anew. As regards the case of Villonco,
petitioner mistakenly assumes that its case has a similar
factual milieu with the former. The Court finds no
further need to elaborate on the issue, but will simply
point out the significant fact that the offer of the buyer
in Villonco, unlike in this case, was accepted by the
seller, Bormaheco, Inc.; and Villonco involves a perfected
contract, a factor crucially absent in the instant case as
there was no meeting of the minds between the parties.
2. POLITICAL LAW; SUPREME COURT; CHANGE
IN THE MEMBERSHIP OF THE THREE DIVISIONS;
SUCH REORGANIZATION IS PURELY AN INTERNAL
MATTER OF THE COURT. What petitioner bewails the
most is the present composition of the Third Division
which deliberated on private respondents' motion for
reconsideration and by a majority vote reversed the
unanimous decision of December 1, 1995. More
specifically, petitioner questions the assumption of Chief
Justice Narvasa of the chairmanship of the Third
Division and arrogantly rams its idea on how each
Division should be chaired, i.e., the First Division should
have been chaired by Chief Justice Narvasa, the Second
Division by Mr. Justice Padilla, the next senior Justice,
and the Third Division by Mr. Justice Regalado, the third
in line. We need only to stress that the change in the
membership of the three divisions of the Court was
inevitable by reason of Mr. Justice Feliciano's retirement.
Such reorganization is purely an internal matter of the
Court to which petitioner certainly has no business at
all. In fact, the current "staggered" set-up in the
chairmanships of the Divisions is similar to that adopted
in 1988. In the year, the Court's Third Division was
likewise chaired by then Chief Justice Fernan, while the
First and Second Divisions were headed by the next
senior Justices Justices Narvasa and Melencio
Herrera, respectively.
3. ID.; UNFOUNDED INSINUATIONS THAT THE
PONENTE EMPLOYED A "DOUBLE STANDARD" IN
DECIDING THE CASE BORDERS ON CONTEMPT AND
IS INAPPROPRIATE FOR ONE WHO BELONGS TO THE
LEGAL PROFESSION. Counsel for the petitioner
additionally insinuates that the ponente employed a
"double standard" in deciding the case and professes
bewilderment at the ponente's act of purportedly taking
a position in the ponencia contrary to ponente's stand in
his book. It is quite unfortunate that to strengthen his
unmeritorious posture, the counsel for the petitioner
would resort to such unfounded insinuations, conduct
which to the ponente's mind borders on contempt and is
inappropriate for one who belongs to the legal
profession. Be that as it may, the ponente wishes to
state that he has not and has never "used a double
standard" in his entire career in the judiciary in the
adjudication of cases. And contrary to petitioner's
misimpression, the ponente never took a "questionable
position in his ponencia" different from "his authoritative
reference and textbook" which cited the case of Abrenica
v. Gonda and De Gracia precisely because of the
inherent factual differences of this case with that of
Abrenica. Had counsel for the petitioner been
meticulous, he would not have overlooked the fact that
counsels for the other party never waived their right to
object to the admission of an inadmissible evidence. The
fact is that counsels for private respondents raised their
persistent objections as early as the initial hearing and,
when unceremoniously rebuffed for no apparent reason,
registered their continuing objections.
DAVIDE, Jr., J ., concurring:
ANY INSINUATION THAT THE REORGANIZATION WAS
ACCOMPLISHED UNDER "UNUSUAL" CIRCUMSTANCES
TO FAVOR THE PRIVATE RESPONDENTS AND THAT
THE NEW MEMBERS OF THE THIRD DIVISION HAD NO
TIME TO STUDY THE CASE BECAUSE THEY "HAD
HARDLY WARMED THEIR SEATS" ARE COMPLETELY
WITHOUT BASIS. The reorganization of the three
Divisions of the Court was a consequence of the
retirement of Mr. Justice Florentino P. Feliciano, and
formally effected through the issuance by the Chief
Justice of Special Order No. 62 on 15 December 1995.
This reorganization, like those before it, was made only
upon prior consultation with and approval of the
Members of the Court. The petitioner itself found such
reorganization "long overdue". The record will show that
the motions for reconsideration of the decision of 1
December 1995 were filed several days after the issuance
of Special Order No. 62. That of private respondent
National Book Store was filed at 2:57 p.m. on 26
December 1995 and that of private respondent Bank of
the Philippine Islands at 3:31 p.m. likewise on 26
December 1995. The motions for reconsideration,
together with the motion for leave to file consolidated
comment and the consolidated comment, were
calendared for the first time on the agenda of the Third
Division of 5 February 1996. It was only on 25 March
1996 when the resolution granting the motions for
reconsideration was promulgated after thorough
deliberations on the issues raised. Any insinuation then
that the reorganization was accomplished under
"unusual" circumstances to favor the private
respondents and that the new Members of the Third
Division had no time to study the case because they
"had hardly warmed their seats," are completely without
basis.
FRANCISCO, J p:
Motion of petitioner Limketkai Sons Milling, Inc., for
reconsideration of the Court's resolution of March 29,
1996, which set aside the Court's December 1, 1995
decision and affirmed in toto the Court of Appeals'
decision dated August 12, 1994.
It is argued, albeit erroneously, that the case should be
referred to the Court En Banc as the doctrines laid down
in Abrenica v. Gonda and De Gracia, 34 Phil. 739,
Talosig v. Vda. de Nieba, 43 SCRA 473, and Villonco
Realty Co. v. Bormaheco, Inc., et al., 65 SCRA 352, have
been modified or reversed. A more circumspect analysis
of these cases vis-a-vis the case at bench would
inevitably lead petitioner to the conclusion that there
was neither reversal nor modifications of the doctrines
laid down in the Abrenica, Talosig and Villonco cases. In
fact, the inapplicability of the principle enunciated in
Abrenica and Talosig to this case has already been
extensively discussed in the Court's resolution, hence
the same will not be addressed anew. As regards the
case of Villonco, petitioner mistakenly assumes that its
case has a similar factual milieu with the former. The
Court finds no further need to elaborate on the issue,
but will simply point out the significant fact that the
offer of the buyer in Villonco, unlike in this case, was
accepted by the seller, Bormaheco, Inc.; and Villonco
involves a perfected contract, a factor crucially absent in
the instant case as there was no meeting of the minds
between the parties.
What petitioner bewails the most is the present
composition of the Third Division which deliberated on
private respondents' motions for reconsideration and by
a majority vote reversed the unanimous decision of
December 1, 1995. More specifically, petitioner
questions the assumption of Chief Justice Narvasa of the
chairmanship of the Third Division and arrogantly rams
its idea on how each Division should be chaired, i.e., the
First Division should have been chaired by Chief Justice
Narvasa, the Second Division by Mr. Justice Padilla, the
next senior Justice, and the Third Division by Mr.
Justice Regalado, the third in line. We need only to
stress that the change in the membership of the three
divisions of the Court was inevitable by reason of Mr.
Justice Feliciano's retirement. Such reorganization is
purely an internal matter of the Court to which
petitioner certainly has no business at all. In fact, the
current "staggered" set-up in the chairmanships of the
Divisions is similar to that adopted in 1988. In that year,
the Court's Third Division was likewise chaired by then
Chief Justice Fernan, while the First and Second
Divisions were headed by the next senior Justices
Justices Narvasa and Melencio-Herrera, respectively.
Moreover, the Court invites the petitioner's attention to
its Manifestation and Motion for Voluntary Inhibition,
dated March 8, 1996 (Rollo, pp. 386388), where it
noted, without objection, the transfer of Mr. Chief
Justice Narvasa, Mr. Justice Davide, Jr., and Mr. Justice
Francisco to the Court's Third Division. In this
Manifestation, petitioner merely moved for the inhibition
of the Chief Justice on the ground that the Chief Justice
previously acted as counsel for one of the respondents,
which allegation the Chief Justice vehemently denied by
saying that the information upon which the petitioner
relied "is utterly without foundation in fact and is
nothing but pure speculation or wistful yearning." 1 It
was only after the rendition of the Court's March 29,
1996 resolution when petitioner unprecedentedly
objected to the composition of the Third Division. Suffice
it to say that the Court with its new membership is not
obliged to follow blindly a decision upholding a party's
case when, after its re-examination, the same calls for a
rectification. "Indeed", said the Court in Kilosbayan, Inc.
v. Morato, et al., 250 SCRA 130, 136, "a change in the
composition of the Court could prove the means of
undoing an erroneous decision." And it is precisely in
recognition of the fact that the Court is far from infallible
that parties are duly accorded a remedy under the Rules
of Court to bring to the Court's attention any error in the
judgment by way of, among others, a motion for
reconsideration. "More important that anything else", in
the words of Mr. Justice Malcolm, "is that the court
should be right" and to render justice where justice is
due. It is therefore unfair, if not uncalled for, to brand
the instant case as "one of utmost uniqueness in the
annals of our judiciary." 2
Counsel for the petitioner additionally insinuates that
the ponente employed a "double standard" in deciding
the case and professes bewilderment at the ponente's act
of purportedly taking a position in the ponencia contrary
to ponente's stand in his book. 3 It is quite unfortunate
that to strengthen his unmeritorious posture, the
counsel for the petitioner would resort to such
unfounded insinuations, conduct which to the ponente's
mind borders on contempt and is inappropriate for one
who belongs to the legal profession. Be that as it may,
the ponente wishes to state that he has not and has
never "used a double standard" 4 in his entire career in
the judiciary in the adjudication of cases. And contrary
to petitioner's misimpression, the ponente never took a
"questionable position in his ponencia" 5 different from
"his authoritative reference and textbook" 6 which cited
the case of Abrenica v. Gonda and de Gracia precisely
because of the inherent factual differences of this case
with that of Abrenica. Had counsel for the petitioner
been meticulous, he would not have overlooked the fact
that counsels for the other party never waived their right
to object to the admission of an inadmissible evidence.
The fact is that counsels for private respondents raised
their persistent objections as early as the initial hearing
and, when unceremoniously rebuffed for no apparent
reason, registered their continuing objections. This is
borne out by the records which the Court in its March
29, 1996 resolution cited.
Petitioner may not now feign ignorance of these pertinent
objections. The Court finds no cogent reason to depart
from its ruling in its March 29, 1996 resolution. To
reiterate:
"Corollarily, as the petitioner's exhibits failed to establish
the perfection of the contract of sale, oral testimony
cannot take their place without violating the parol
evidence rule. 9 It was therefore irregular for the trial
court to have admitted in evidence testimony to prove
the existence of a contract of sale of a real property
between the parties despite the persistent objection
made by private respondents' counsels as early as the
first scheduled hearing. While said counsels cross-
examined the witnesses, this, to our view, did not
constitute a waiver of the parol evidence rule. The
Talosig v. Vda. de Nieba, 10 and Abrenica v. Gonda and
de Gracia 11 cases cited by the Court in its initial
decision, which ruled to the effect that an objection
against the admission of any evidence must be made at
the proper time, i.e., ". . . at the time question is asked",
12 and that if not so made it will be understood to have
been waived, do not apply as these two cases involved
facts 13 different from the case at bench. More
importantly, here, the direct testimonies of the witnesses
were presented in "affidavit-form" where prompt
objection to inadmissible evidence is hardly possible,
whereas the direct testimonies in these cited cases were
delivered orally in open court. The best that counsels
could have done, and which they did, under the
circumstances was to preface the cross-examination
with objection."
xxx xxx xxx
"Counsels should not be blamed and, worst, penalized
for taking the path of prudence by choosing to cross-
examine the witnesses instead of keeping mum and
letting the inadmissible testimony in "affidavit form" pass
without challenge. We thus quote with approval the
observation of public respondent Court of Appeals on
this point:
"As a logical consequence of the above findings, it follows
that the court a quo erred in allowing the appellee to
introduce parol evidence to prove the existence of a
perfected contract of sale over and above the objection of
the counsel for the defendant-appellant. The records
show that the court a quo allowed the direct testimony of
the witnesses to be in affidavit form subject to cross-
examination by the opposing counsel. If the purpose
thereof was to prevent the opposing counsel from
objecting timely to the direct testimony, the scheme
failed for as early as the first hearing of the case on
February 28, 1989 during the presentation of the
testimony in affidavit form of Pedro Revilla, Jr., plaintiff-
appellee's first witness, the presentation of such
testimony was already objected to as inadmissible." 14
[Italics in the original]
The other points raised by petitioner need no further
discussion as they have already been considered in the
resolution sought to be reconsidered, and no compelling
reason is shown to urge this Court to change its stand.
ACCORDINGLY, petitioner's motion for reconsideration
and motion to refer the case to the Court En Banc are
hereby DENIED WITH FINALITY, without prejudice to
any and all appropriate actions that the Court may take
not only against counsel on record for the petitioner for
his irresponsible remarks, but also against other
persons responsible for the reckless publicity anent this
case calculated to maliciously erode the people's faith
and confidence in the integrity of this Court. SO
ORDERED.
[G.R. No. L-13817. August 31, 1961.]
MACONDRAY & COMPANY, INC., plaintiff-appellee,
vs. PERFECTO PION, ET AL., defendants. RUPERTO
K. KANGLEON, deceased, substituted by VALENTINA
TAGLE-KANGLEON, ET AL., defendants-appellants.
SYLLABUS
1. CONTRACT; CONTRACT OF GUARANTY NOT
FORMAL; VALID IN WHATEVER FORM IT MAY BE. A
contract of guaranty is not a formal contract and is valid
in whatever form it may be provided that it complies with
the statute of frauds.
2. ID.; CONTRACT OF GUARANTY WHEN IT
BECOMES BINDING; NOTICE OF ACCEPTANCE NOT
NECESSARY. Once a principal contract is perfected,
the subsidiary contract of guaranty becomes effective
and binding and no notice of acceptance by the creditor
to the guarantor is necessary for its validity.
3. ID.; CONTRACT OF GUARANTY. Where the
actual cost of the articles, the payment of which is
guaranteed by another, is less than the amount
originally undertaken to be paid in the contract of
guarantee, the same does not constitute a variation of
the terms of the contract of guarantee.
PADILLA, J p:
On 11 May 1955 the plaintiff filed a complaint 1
against the defendants in the Court of First Instance of
Manila alleging that upon representation and
undertaking made by Ruperto K. Kangleon, then a
member of the Senate, in a letter addressed to the
plaintiff dated 30 January 1954, that he would
guarantee payment of his co-defendants' obligation,
should they fail to pay on the due date (Exhibit F), on 2
and 9 February 1954, the plaintiff sold on credit and
delivered to the defendants Perfecto Pion and Conrado
Piring, known in the theater and entertainment business
as "Tugak" and "Pugak," respectively, and transacting
business under a common name known as "All Stars
Productions," 127 rolls of cinematographic films, F. G.
release positive type 825B, 35 mm. x 1,000 ft., for the
total sum of P6,985, payable on or before 9 May 1954,
12% interest thereon from date of maturity and 20%
thereof for attorney's fee in case of suit for collection
(Exhibits A, B, C, D, E); that the principal debtors have
failed to pay the amount owed by them on the due date;
that upon extensive investigations made by the plaintiff
as to whether the principal debtors have any property,
real or personal, which may be levied upon for the
satisfaction of their obligation, it has found that they
have none; that the defendant Kangleon could not point
to the plaintiff any property of the principal debtors
leviable for execution sufficient to satisfy the obligation;
and that the sum of P6,985, the amount owed, or part
thereof, has not been paid by the defendants. It prayed
that after hearing judgment be rendered ordering the
defendants, jointly and severally, to pay it the sum of
P6,985, 12% interest thereon from 10 May 1954 until
fully paid, 20% of the amount due or P1,387 as
attorney's fee, and costs, and that it be granted other
just and equitable relief (civil No 23947).
On 10 November 1955 the defendant Kangleon answered
the plaintiff's complaint setting up the defense that the
letter he had written to the plaintiff dated 30 January
1954 (Exhibit F) was only to introduce his co-
defendants; that assuming that there was an intent on
his part to guarantee payment of his co-defendant's
obligation, the said letter (Exhibit F) was but an offer to
act as guarantor of his co-defendants; that as the
acceptance of his offer to act as guarantor for his co-
defendants has not been actually made known to him by
the plaintiff, the contract of guaranty between them has
not been perfected; and that assuming that there has
been a perfected contract of guaranty between the
plaintiff and the answering defendant, the latter's
obligation was extinguished by the extension for
payment up to 3 May 1954 granted by the plaintiff to his
co-defendants. By way of counterclaim, he sought from
the plaintiff the sum of P20,000 as damages suffered by
his good name and reputation caused by the plaintiff's
clearly unfounded civil action, P2,000 as attorney's fee
and P1,000 for expenses incurred in the litigation. As
cross-claim, should he be finally adjudged liable to pay
the plaintiff, he prayed that his co-defendants be ordered
to reimburse him whatever amount he would pay to the
plaintiff, and to pay him P3,000 as attorney's fee and
expenses of litigation. He further prayed that he be
absolved from the plaintiff's complaint and that he be
granted other just and equitable relief.
The defendants Pion and Piring did not answer the
plaintiff's complaint or their co-defendants' cross-claim.
On 10 November 1955 the plaintiff answered the
defendant's counterclaim.
On 25 August 1956 the plaintiff and the answering
defendant entered into a stipulation of facts and
submitted the case for judgment based upon the said
stipulation.
Not having answered the complaint against them despite
notice, the Court declared the defendants Pion and
Piring in default (p. 5, rec. on app.)
At the trial of the case on 30 August 1956, the plaintiff
and the answering defendant further stipulated that the
former had looked for properties of his co-defendants
Pion and Piring but found none (p. 23, rec. on app.).
The plaintiff presented its evidence against the
defendants in default.
On 30 September 1957 the Court rendered judgment,
the dispositive part of which is:
WHEREFORE, judgment is hereby rendered sentencing
the defendants Perfecto Pion and Conrado Piring to pay
the plaintiff jointly and severally the sum of P6,985.00
plus interest at the rate of 12% per annum from May 9,
1954 until fully paid and an amount equivalent to 20%
as attorney's fees and costs of suit.
If this judgment becomes unsatisfied by the defendants
Perfecto Pion and Conrado Piring, the defendant
Ruperto Kangleon is hereby sentenced to pay the
plaintiff all the amount to which his co- defendants were
sentenced to pay. (p. 29, rec. on app.)
The answering defendant has appealed.
From the stipulation of facts entered into by and
between the appellant and appellee and the
documentary evidence submitted by the appellee against
the defendants in default, the following appear: On 30
January 1954 the defendants Piring and Pion
requested the appellant, then a member of the Senate, to
help them buy on credit from the appellee some
cinematographic films. To accommodate them, the
appellant wrote a letter to the appellee, as follows:
REPUBLIC OF THE PHILIPPINES
SENATE
MANILA
January 30, 1954
The Manager
Macondray & Company
China Bank Building
Manila
Sir:
This will introduce to you the bearers, Messrs. Conrado
Piring and Perfecto Pion, both well known theater
characters under the names of "Pugak" and
"Tugak", respectively.
I have been made to understand by them in their
representations to me that they wish to place an order
for the following items:
10 rolls Negative at P157.00 each, and
100 rolls positive at P55.00 each
of Dupont Release Positives Safety Basis for use of their
firm called "All Stars Productions" under the
management and control of Pugak and Tugak payable
within three (3) months time ending April, 1954 and for
which by their guaranty I pledge payment.
In view of the foregoing, I shall appreciate any help you
can give to facilitate said purchases subject to usual
business procedures.
Sincerely,
(Sgd.) RUPERTO K. KANGLEON
Senator
(Exhibit F) which letter the defendants in default
presented to the appellee. On the strength of the
appellant's letter above quoted, on 2 and 9 February
1954, the appellee sold on credit and delivered to the
defendants in default 127 rolls of cinematographic films,
F. G. release positive type 825B, 35 mm. x 1,000 ft. for
the total sum of P6,985, excluding sales tax, which is for
the buyers' account, payable on or before 9 May 1954.
The parties, among others, further stipulated that the
buyers would pay interest at the rate of 1% per month
on all amounts not paid when due; that should a
litigation arise from non-payment, the venue of action has been granted them within which to settle their
would be the courts of Manila and that the buyers would obligations.
pay 20% of the amount due for attorney's fee and costs
of the suit (Exhibits A, B, C, D, E). The defendants in Cordially yours,
default failed to pay their obligation on the due date. On
27 May 1954 the appellee wrote to the appellant a letter (Sgd.) RUPERTO K. KANGLEON
of the following tenor:
On 2 June 1954 the appellee replied to the appellant's
May 27, 1954 answer to the letter thus:

Honorable Ruperto K. Kangleon June 2, 1954

Philippine Senate Hon. Ruperto K. Kangleon

Manila Philippine Senate

Dear Sir: Manila

On January 30th, last, you requested us to give Messrs. Dear Sir:

Conrado Piring and Perfecto Pion, of "All-Stars
We have your letter of May 31st in reply to ours of the
Productions" certain rolls of negative end positive films,
27th and note that you are getting in touch with Messrs.
the cost of which was payable in three months and
Conrado Piring and Perfecto Pion with regard to their
payment of which you guaranteed.
account.
These films were delivered and billed at P6,985.00 on
We know of no extension of time for payment being
Feb. 9th last. The amount has not been paid (and) we
granted to these people and certainly no one in authority
have difficulty locating the above gentlemen as they
has made such an arrangement. For this reason, if
cannot be found in their offices.
payment is not received from them by the 15th inst. we
In view of this we hereby request you to send us a check expect to receive a remittance from you to cover the full
for the amount as it was due on May 3rd. amount.

Yours very truly, Yours very truly,

MACONDRAY & CO., INC. MACONDRAY & CO., INC.

s/ILLEGIBLE s/ILLEGIBLE

Collection Department Collection Department

On 31 May 1954, the appellant answered the appellee as On 19 July 1954 the appellee wrote the following letter
follows: to the defendants in default:

May 31, 1954 July 19, 1954

Macondray & Co., Inc. Mr. Conrado Piring

3rd Floor, China Bank Bldg. 147 Pureza Extension

Manila Sta. Mesa, Manila

Gentlemen: Mr. Perfecto Pion

This will acknowledge receipt of your letter of May 27th. 147 Pureza Extension

Messrs. Conrado Piring and Perfecto Pion are being Sta. Mesa, Manila
contacted to invite their attention to your letter.
Gentlemen:
Notwithstanding the foregoing, I have been made to
Please be advised that Macondray & Co., Inc. has turned
understand by Messrs. Piring and Pion that in
over to me for corresponding judicial action your account
arrangements with that Company an extension of time
for films in the amount of P6,985.00. As this obligation
is now long past due, payment thereof is earnestly
requested. Unless payment thereof is received from you
immediately, I shall be compelled, much to my regret, to
take this matter to the court.
Very truly Yours,
(Sgd.) JOSE AGBULOS
Attorney for
Macondray & Co., Inc.
which was sent to them by registered mail (Exhibits G,
G-1 & G-2). Neither the defendants in default nor the
appellant paid the amount owed to the appellee.
During the time this appeal was pending in this Court
the appellant died. His heirs or their legal representative
were directed to appear in substitution for the deceased
appellant. Attorneys San Juan, Africa & Benedicto
entered their appearance for said heirs, namely, Mrs.
Valentina Tagle-Kangleon, Benjamin T. Kangleon,
Juanito T. Kangleon, Mrs. Flora San Gabriel, Miss
Corazon Kangleon, Miss Lourdes Kangleon, Mrs. Teresita
Limcolioc, Mrs. Aida Rosca, Jesus Kangleon, Jose
Kangleon and Miss Cecilia Kangleon.
The appellant contends that although in the stipulation
of facts entered into by and between him and the
appellee, he had admitted the liability of his co-
defendants, who were declared in default, under the
principle of res inter alios acta, that an admission by a
third person can not bind another, his admission cannot
bind the defendants in default, and no judgment against
them may be rendered on the basis of the stipulation of
facts referred to. Since the appellee had not established
a case against the defendants in default, the principal
debtors, it cannot directly hold liable the appellant, the
guarantor, whose obligation is only subsidiary to that of
the former.
The appellant proceeds from the wrong premise that the
case was submitted to the Court solely on the stipulation
of facts entered into by and between him and the
appellee. The records show that when the case was
called for trial on 30 August 1956, after the appellant's
co-defendants had been declared in default, the appellee
presented its evidence, testimonial and documentary,
against them (pp. 5-18, t.s.n.; Exhibits A, B, C, D, E, G,
G, G-1 & G-2), and thereby established their primary
liability.
The appellant claims that the letter (Exhibit F) is merely
a letter of introduction and does not constitute an offer
of guaranty. A cursory reading of the letter (Exhibit F)
belies his assertion. While in his opening sentence he
says that "This will introduce to you the bearers, Messrs.
Conrado Piring and Perfecto Pion . . . ," who "wish to
place an order for" cinematographic films, yet in the later
part he says that "for which by their guaranty I pledge
payment." This can only mean that he undertakes to
guarantee payment of the principal debtors' obligation
should they fail to pay. The appellant is a responsible
man and may be presumed to mean what he says. At
that time, he was occupying the exalted position of
member of the Senate and his plighted word given to
another would immediately be accepted. It is not,
therefore, odd that upon receipt of the appellant's letter
(Exhibit F), the appellee readily sold on credit to the
principal debtors, the defendants in default, the
cinematographic films in question.
That the appellant really meant to guarantee payment of
the principal debtors' obligation should they default, is
patent in his answer to the appellee's letter dated 27
May 1954, reminding him that on 30 January he
requested it "to give Messrs. Conrado Piring and Perfecto
Pion, of "All Stars Productions', certain rolls of negative
and positive films, the cost of which was payable in three
months time and payment of which you guaranteed; that
the ''films were delivered and billed at P6,985.00 on Feb.
9th, last;" and that "the amount has not been paid (and)
we have difficulty locating the above gentlemen as they
cannot be found in their offices," and requesting the
appellant to send a check for the amount. In his answer
to the foregoing letter, dated 31 May 1954, he
acknowledged receipt of the appellee's letter of the 27th
of the same month and informed it that the principal
debtors were "being contacted to invite their attention to
your letter." Had the appellant meant otherwise, he
would have immediately denied that he ever guaranteed
payment of the principal debtors' obligation. This he did
not do.
The appellant's very letter (Exhibit F) constitutes his
undertaking of guaranty. "Contracts shall be obligatory
in whatever form they may have been entered into,
provided all the essential requisites for their validity are
present." 2 A contract of guaranty is not a formal
contract and shall be valid in whatever form it may be,
provided that it complies with the statute of frauds.
The appellant insists that he should have been notified
by the appellee of the acceptance of his offer of guaranty.
In the first place, his letter (Exhibit F) already
constitutes his undertaking of guaranty. In the second
place, the contract entered into by and between the
appellee and the defendants in default is the principal
contract and the contract entered into by and between
the appellant and the appellee is subsidiary to the
principal contract. Since the principal contract had
already been perfected, the subsidiary contract of
guaranty became binding upon effectivity of the principal
contract. Hence no notice of acceptance by the appellee
to the appellant is necessary for its validity.
The appellant states that assuming that the letter
Exhibit F constitutes a contract of guaranty, the films
actually sold to the principal debtors were 127 rolls of F.
G. release positive type 825B, 35 mm. x 1,000 ft. at P55
a roll, payable 9 May 1954, while what he undertook to
guarantee payment was 10 rolls negative at P157 each
and 100 rolls positive at P55 each, payable within three
months ending April, 1954. Citing article 2055 of the
Civil Code that a guaranty cannot extend to more than
what is stipulated therein, the appellant contends that
he cannot be held liable for the contract in view of the
variation in his undertaking. The total cost of what was
actually sold to and bought by the principal debtors is
P6,985, which is less than the total cost of what was
originally intended to be bought by them amounting to
P7,070. The variation was merely in kind and not in
subject matter cinematographic films which did not
render the appellant's obligation more burdensome.
Instead his obligation was rendered less onerous by the
reduction in the original price of P7,070 to P6,985. The
fact that in the letter Exhibit F, the appellant mentioned
that the principal debtors' obligation would be "payable
within three months time ending April, 1954," while in
the contract entered into by and between the appellee
and the principal debtors they have stipulated that their
obligation would be payable on or before 9 May 1954, is
of no moment. The letter Exhibit F was dated 30
January 1954. Counted from that date, the three
months period would expire on 30 April 1954. However,
actually the principal contract was consummated on 9
February 1954 (Exhibit A). It is but fair that the three
months period be counted from that date ending 9 May
1954. Again, the appellant's obligation has not become
more onerous than what he actually bound himself.
The judgment appealed from is affirmed against the
heirs of the deceased appellant herein above named,
with costs against them.
[G.R. No. 105774. April 25, 2002.]
GREAT ASIAN SALES CENTER CORPORATION and
TAN CHONG LIN, petitioners, vs. THE COURT OF
APPEALS and BANCASIA FINANCE AND INVESTMENT
CORPORATION, respondents.
SYNOPSIS
The board of directors of Great Asian Sales Center
Corporation approved a resolution authorizing its
Treasurer and General Manager, Arsenio Lim Piat, Jr. to
secure a loan from Bancasia and to sign all documents
necessary to secure the loan. After sometime, the board
of directors of Great Asian approved a second resolution
authorizing Great Asian to secure a discounting line with
Bancasia and designating Arsenio as the authorized
signatory, to sign all documents to secure the
discounting line. Tan Chong Lin signed two surety
agreements to guarantee solidarily the debts of Great
Asian to Bancasia. Great Asian, through Arsenio, signed
four (4) Deeds of Assignment of Receivables assigning to
Bancasia fifteen (15) postdated checks which were
dishonored by the drawee banks. Subsequently, Great
Asian filed a petition for insolvency. Thereafter, Bancasia
filed a complaint for collection of a sum of money against
Great Asian and Tan Chong Lin. The trial court decided
in favor of the plaintiff. On appeal, the Court of Appeals
sustained the decision of the lower court, deleting only
the award of attorney's fees. Hence, this petition.
SaHTCE
The Supreme Court ruled that Arsenio had all the proper
and necessary authority from, the board of directors of
Great Asian to sign the Deeds of Assignment and to
endorse the fifteen postdated checks. Arsenio signed the
Deeds of Assignment as agent and authorized signatory
of Great Asian under the authority expressly granted by
its board of directors.
The failure of the drawers to pay the checks is a
suspensive condition, the happening of which gives rise
to Bancasia's right to demand payment from Great
Asian. This conditional obligation of Great Asian arises
from its written contracts with Bancasia as embodied in
the Deeds of Assignment. ASIDTa
Indisputably, Tan Chong Lin explicitly and
unconditionally bound himself to pay Bancasia,
solidarily with Great Asian, if the drawers of the checks
fail to pay on their due dates. The condition on which
Tan Chong Lin's obligation hinged had happened. As
surety, Tan Chong Lin automatically became liable for
the entire obligation to the same extent as Great Asian.
SYLLABUS
1. COMMERCIAL LAW; CORPORATION LAW;
PRIVATE CORPORATIONS; CORPORATE POWERS,
EXERCISED BY THE BOARD OF DIRECTORS;
EXCEPTION. The Corporation Code of the Philippines
vests in the board of directors the exercise of the
corporate powers of the corporation, save in those
instances where the Code requires stockholders'
approval for certain specific acts. Section 23 of the Code
provides: "SEC. 23. The Board of Directors or Trustees.
Unless otherwise provided in this Code, the corporate
powers of all corporations formed under this Code shall
be exercised, all business conducted and all property of
such corporations controlled and held by the board of
directors or trustees . . . ." In the ordinary course of
business, a corporation can borrow funds or dispose of
assets of the corporation only on authority of the board
of directors. The board of directors normally designates
one or more corporate officers to sign loan documents or
deeds of assignment for the corporation. CcTIAH
2. CIVIL LAW; OBLIGATIONS AND CONTRACTS;
SOURCES OF OBLIGATIONS. Obviously, there is one
vital suspensive condition in the Deeds of Assignment.
That is, in case the drawers fail to pay the checks on
maturity, Great Asian obligated itself to pay Bancasia
the full face value of the dishonored checks, including
penalty and attorney's fees. The failure of the drawers to
pay the checks is a suspensive condition, the happening
of which gives rise to Bancasia's right to demand
payment from Great Asian. This conditional obligation of
Great Asian arises from its written contracts with
Bancasia as embodied in the Deeds of Assignment.
Article 1157 of the Civil Code provides that
"Obligations arise from: (1) Law; (2) Contracts; (3) Quasi-
contracts; (4) Acts or omissions punished by law; and (5)
Quasi-delicts."
3. ID.; ID.; OBLIGATORY FORCE OF CONTRACTS;
OBLIGATIONS ARISING FROM CONTRACTS HAVE THE
FORCE OF LAW BETWEEN THE CONTRACTING
PARTIES; CASE AT BAR. By express provision in the
Deeds of Assignment, Great Asian unconditionally
obligated itself to pay Bancasia the full value of the
dishonored checks. In short, Great Asian sold the
postdated checks on with recourse basis against itself.
This is an obligation that Great Asian is bound to
faithfully comply because it has the force of law as
between Great Asian and Bancasia. Article 1159 of the
Civil Code further provides that "Obligations arising
from contracts have the force of law between the
contracting parties and should be complied with in good
faith." CcTHaD
4. ID.; ID.; AUTONOMY OF CONTRACTS;
CONTRACTING PARTIES MAY ESTABLISH SUCH
STIPULATIONS NOT CONTRARY TO LAW, MORALS,
GOOD CUSTOMS, PUBLIC ORDER OR PUBLIC POLICY;
CASE AT BAR. Great Asian and Bancasia agreed on
this specific with recourse stipulation, despite the fact
that the receivables were negotiable instruments with
the endorsement of Arsenio. The contracting parties had
the right to adopt the with recourse stipulation which is
separate and distinct from the warranties of an endorser
under the Negotiable Instruments Law. Article 1306 of
the Civil Code provides that "The contracting parties
may establish such stipulations, clauses, terms and
conditions as they may deem convenient, provided they
are not contrary to law, morals, good customs, public
order, or public policy." The explicit with recourse
stipulation against Great Asian effectively enlarges, by
agreement of the parties, the liability of Great Asian
beyond that of a mere endorser of a negotiable
instrument. Thus, whether or not Bancasia gives notice
of dishonor to Great Asian, the latter remains liable to
Bancasia because of the with recourse stipulation which
is independent of the warranties of an endorser under
the Negotiable Instruments Law.
5. COMMERCIAL LAW; FINANCING COMPANY
ACT; ASSIGNMENT OF A NEGOTIABLE INSTRUMENT,
PRINCIPAL MODE OF CONVEYING ACCOUNTS
RECEIVABLE; CASE AT BAR. There is nothing in the
Negotiable Instruments Law or in the Financing
Company Act (old or new), that prohibits Great Asian
and Bancasia parties from adopting the with recourse
stipulation uniformly found in the Deeds of Assignment.
Instead of being negotiated, a negotiable instrument may
be assigned. Assignment of a negotiable instrument is
actually the principal mode of conveying accounts
receivable under the Financing Company Act. Since in
discounting of receivables the assignee is subrogated as
creditor of the receivable, the endorsement of the
negotiable instrument becomes necessary to enable the
assignee to collect from the drawer. This is particularly
true with checks because collecting banks will not
accept checks unless endorsed by the payee. The
purpose of the endorsement is merely to facilitate
collection of the proceeds of the checks. The purpose of
the endorsement is not to make the assignee finance
company a holder in due course because policy
considerations militate against according finance
companies the rights of a holder in due courser.
Otherwise, consumers who purchase appliances on
installment, giving their promissory notes or checks to
the seller, will have no defense against the finance
company should the appliances later turn out to be
defective. Thus, the endorsement does not operate to
make the finance company a holder in due course. For
its own protection, therefore, the finance company
usually requires the assignor, in a separate and distinct
contract, to pay the finance company in the event of
dishonor of the notes or checks. ESTcIA
6. ID.; NEGOTIABLE INSTRUMENTS LAW; NOTICE
OF DISHONOR; WHEN NOTICE NEED NOT BE GIVEN
TO THE DRAWER; CASE AT BAR. The exercise by
Bancasia of its option to sue for breach of contract under
the Civil Code will not leave Great Asian holding an
empty bag. Great Asian, after paying Bancasia, is
subrogated back as creditor of the receivables. Great
Asian can then proceed against the drawers who issued
the checks. Even if Bancasia failed to give timely notice
of dishonor, still there would be no prejudice whatever to
Great Asian. Under the Negotiable Instruments Law,
notice of dishonor is not required if the drawer has no
right to expect or require the bank to honor the check, or
if the drawer has countermanded payment. In the
instant case, all the checks were dishonored for any of
the following reasons: "account closed," "account under
garnishment," "insufficiency of funds," or "payment
stopped." In the first three instances, the drawers had no
right to expect or require the bank to honor the checks,
and in the last instance, the drawers had
countermanded payment.
7. REMEDIAL LAW; EVIDENCE; PRESUMPTIONS;
ALTHOUGH THE CAUSE IS NOT STATED IN THE
CONTRACT, IT IS PRESUMED THAT IT EXISTS AND IS
LAWFUL. One other issue raised by Great Asian, that
of lack of consideration for the Deeds of Assignment, is
completely unsubstantiated. The Deeds of Assignment
uniformly provide that the fifteen postdated checks were
assigned to Bancasia "for valuable consideration."
Moreover, Article 1354 of the Civil Code states that,
"Although the cause is not stated in the contract, it is
presumed that it exists and is lawful, unless the debtor
proves the contrary." The record is devoid of any showing
on the part of Great Asian rebutting this presumption.
aIDHET
8. COMMERCIAL LAW; INSOLVENCY LAW;
PETITION FOR VOLUNTARY INSOLVENCY;
REQUISITES. [I]n its verified petition for voluntary
insolvency, Great Asian admitted its debt to Bancasia
when it listed Bancasia as one of its creditors, an extra-
judicial admission that Bancasia proved when it formally
offered in evidence the verified petition for insolvency.
The Insolvency Law requires the petitioner to submit a
schedule of debts that must "contain a full and true
statement of all his debts and liabilities." The Insolvency
Law even requires the petitioner to state in his
verification that the schedule of debts contains "a full,
correct and true discovery of all my debts and liabilities .
. . ." Great Asian cannot now claim that the listing of
Bancasia as a creditor was not an admission of its debt
to Bancasia but merely an acknowledgment that
Bancasia had sent a demand letter to Great Asian.
9. CIVIL LAW; OBLIGATIONS AND CONTRACTS;
SOLIDARY OBLIGATION; NOT EXTINGUISHED IN CASE
AT BAR. Under Article 1215 of the Civil Code, what
releases a solidary debtor is a "novation, compensation,
confusion or remission of the debt" made by the creditor
with any of the solidary debtors. These warranties,
however, are the usual warranties made by one who
discounts receivables with a financing company or bank.
The Surety Agreements, written on the letter head of
"Bancasia Finance & Investment Corporation," uniformly
state that "Great Asian Sales Center . . . has obtained
and/or desires to obtain loans, overdrafts, discounts
and/or other forms of credits from" Bancasia. Tan Chong
Lin was clearly on notice that he was holding himself as
surety of Great Asian which was discounting postdated
checks issued by its buyers of goods and merchandise.
Moreover, Tan Chong Lin, as President of Great Asian,
cannot feign ignorance of Great Asian's business
activities or discounting transactions with Bancasia.
Thus, the warranties do not increase or enlarge the risks
of Tan Chong Lin under the Surety Agreements. There is,
moreover, no novation of the debt of Great Asian that
would warrant release of the surety. TIaCAc
10. ID.; ID.; ID.; WHEN IT EXISTS; CASE AT BAR.
Article 1207 of the Civil Code provides, ". . . There is a
solidary liability only when the obligation expressly so
states, or when the law or nature of the obligation
requires solidarity." The stipulations in the Surety
Agreements undeniably mandate the solidary liability of
Tan Chong Lin with Great Asian. Moreover, the
stipulations in the Surety Agreements are sufficiently
broad, expressly encompassing "all the notes, drafts,
bills of exchange, overdraft and other obligations of every
kind which the PRINCIPAL may now or may hereafter
owe the Creditor". Consequently, Tan Chong Lin must be
held solidarily liable with Great Asian for the
nonpayment of the fifteen dishonored checks, including
penalty and attorney's fees in accordance with the Deeds
of Assignment.
11. ID.; DAMAGES; ATTORNEY'S FEES; AWARDED
IN CASE AT BAR. The award of attorney's fees in the
instant case is justified, not only because of such
stipulation, but also because Great Asian and Tan
Chong Lin acted in gross and evident bad faith in
refusing to pay Bancasia's plainly valid, just and
demandable claim. We deem it just and equitable that
the stipulated attorney's fee should be awarded to
Bancasia. HCSAIa
CARPIO, J p:
The Case
Before us is a Petition for Review on Certiorari under
Rule 45 of the Revised Rules on Civil Procedure assailing
the June 9, 1992 Decision 1 of the Court of Appeals 2 in
CA-G.R. CV No. 20167. The Court of Appeals affirmed
the January 26, 1988 Decision 3 of the Regional Trial
Court of Manila, Branch 52, 4 ordering petitioners Great
Asian Sales Center Corporation ("Great Asian" for
brevity) and Tan Chong Lin to pay, solidarily, respondent
Bancasia Finance and Investment Corporation
("Bancasia" for brevity) the amount of P1,042,005.00.
The Court of Appeals affirmed the trial court's award of
interest and costs of suit but deleted the award of
attorney's fees. ATCaDE
The Facts
Great Asian is engaged in the business of buying and
selling general merchandise, in particular household
appliances. On March 17, 1981, the board of directors of
Great Asian approved a resolution authorizing its
Treasurer and General Manager, Arsenio Lim Piat, Jr.
("Arsenio" for brevity) to secure a loan from Bancasia in
an amount not to exceed P1.0 million. The board
resolution also authorized Arsenio to sign all papers,
documents or promissory notes necessary to secure the
loan. On February 10, 1982, the board of directors of
Great Asian approved a second resolution authorizing
Great Asian to secure a discounting line with Bancasia
in an amount not exceeding P2.0 million. The second
board resolution also designated Arsenio as the
authorized signatory to sign all instruments, documents
and checks necessary to secure the discounting line.
On March 4, 1981, Tan Chong Lin signed a Surety
Agreement in favor of Bancasia to guarantee, solidarily,
the debts of Great Asian to Bancasia. On January 29,
1982, Tan Chong Lin signed a Comprehensive and
Continuing Surety Agreement in favor of Bancasia to
guarantee, solidarily, the debts of Great Asian to
Bancasia. Thus, Tan Chong Lin signed two surety
agreements ("Surety Agreements" for brevity) in favor of
Bancasia.
Great Asian, through its Treasurer and General Manager
Arsenio, signed four (4) Deeds of Assignment of
Receivables ("Deeds of Assignment" for brevity),
assigning to Bancasia fifteen (15) postdated checks. Nine
of the checks were payable to Great Asian, three were
payable to "New Asian Emp.", and the last three were
payable to cash. Various customers of Great Asian
issued these postdated checks in payment for appliances
and other merchandise.
Great Asian and Bancasia signed the first Deed of
Assignment on January 12, 1982 covering four
postdated checks with a total face value of P244,225.82,
with maturity dates not later than March 17, 1982. Of
these four postdated checks, two were dishonored. Great
Asian and Bancasia signed the second Deed of
Assignment also on January 12, 1982 covering four
postdated checks with a total face value of P312,819.00,
with maturity dates not later than April 1, 1982. All
these four checks were dishonored. Great Asian and
Bancasia signed the third Deed of Assignment on
February 11, 1982 covering eight postdated checks with
a total face value of P344,475.00, with maturity dates
not later than April 30, 1982. All these eight checks were
dishonored. Great Asian and Bancasia signed the fourth
Deed of Assignment on March 5, 1982 covering one
postdated check with a face value of P200,000.00, with
maturity date on March 18, 1982. This last check was
also dishonored. Great Asian assigned the postdated
checks to Bancasia at a discount rate of less than 24%
of the face value of the checks.
Arsenio endorsed all the fifteen dishonored checks by
signing his name at the back of the checks. Eight of the
dishonored checks bore the endorsement of Arsenio
below the stamped name of "Great Asian Sales Center",
while the rest of the dishonored checks just bore the
signature of Arsenio. The drawee banks dishonored the
fifteen checks on maturity when deposited for collection
by Bancasia, with any of the following as reason for the
dishonor: "account closed", "payment stopped", "account
under garnishment", and "insufficiency of funds". The
total amount of the fifteen dishonored checks is
P1,042,005.00.
After the drawee bank dishonored Check No. 097480
dated March 16, 1982, Bancasia referred the matter to
its lawyer, Atty. Eladia Reyes, who sent by registered
mail to Tan Chong Lin a letter dated March 18, 1982,
notifying him of the dishonor and demanding payment
from him. Subsequently, Bancasia sent by personal
delivery a letter dated June 16, 1982 to Tan Chong Lin,
notifying him of the dishonor of the fifteen checks and
demanding payment from him. Neither Great Asian nor
Tan Chong Lin paid Bancasia the dishonored checks.
On May 21, 1982, Great Asian filed with the then Court
of First Instance of Manila a petition for insolvency,
verified under oath by its Corporate Secretary, Mario
Tan. Attached to the verified petition was a "Schedule
and Inventory of Liabilities and Creditors of Great Asian
Sales Center Corporation," listing Bancasia as one of the
creditors of Great Asian in the amount of P1,243,632.00.
On June 23, 1982, Bancasia filed a complaint for
collection of a sum of money against Great Asian and
Tan Chong Lin. Bancasia impleaded Tan Chong Lin
because of the Surety Agreements he signed in favor of
Bancasia. In its answer, Great Asian denied the material
allegations of the complaint claiming it was unfounded,
malicious, baseless, and unlawfully instituted since
there was already a pending insolvency proceedings,
although Great Asian subsequently withdrew its petition
for voluntary insolvency. Great Asian further raised the
alleged lack of authority of Arsenio to sign the Deeds of
Assignment as well as the absence of consideration and
consent of all the parties to the Surety Agreements
signed by Tan Chong Lin.
Ruling of the Trial Court
The trial court rendered its decision on January 26,
1988 with the following findings and conclusions:
"From the foregoing facts and circumstances, the Court
finds that the plaintiff has established its causes of
action against the defendants. The Board Resolution
(Exh "T"), dated March 17, 1981, authorizing Arsenio
Lim Piat, Jr., general manager and treasurer of the
defendant Great Asian to apply and negotiate for a loan
accommodation or credit line with the plaintiff Bancasia
in an amount not exceeding One Million Pesos
(P1,000,000.00), and the other Board Resolution
approved on February 10, 1982, authorizing Arsenio Lim
Piat, Jr., to obtain for defendant Asian Center a
discounting line with Bancasia at prevailing discounting
rates in an amount not to exceed Two Million Pesos
(P2,000,000.00), both of which were intended to secure
money from the plaintiff financing firm to finance the
business operations of defendant Great Asian, and
pursuant to which Arsenio Lim Piat, Jr. was able to have
the aforementioned fifteen (15) checks totaling
P1,042,005.00 discounted with the plaintiff, which
transactions were obviously known by the beneficiary
thereof, defendant Great Asian, as in fact, in its
aforementioned Schedule and Inventory of Liabilities and
Creditors (Exh. DD, DD-1) attached to its Verified
Petition for Insolvency, dated May 12, 1982 (pp. 50-56),
the defendant Great Asian admitted an existing liability
to the plaintiff, in the amount of P1,243,632.00, secured
by it, by way of 'financing accommodation,' from the said
financing institution Bancasia Finance and Investment
Corporation, plaintiff herein, sufficiently establish the
liability of the defendant Great Asian to the plaintiff for
the amount of P1,042,005.00 sought to be recovered by
the latter in this case. 5
xxx xxx xxx
WHEREFORE, judgment is hereby rendered in favor of
the plaintiff and against the two (2) defendants ordering
the latter, jointly and severally, to pay the former:
(a) The amount of P1,042,005.00, plus interest
thereon at the legal rate from the filing of the complaint
until the same is fully paid;
(b) Attorney's fees equivalent to twenty per cent
(20%) of the total amount due; and
(c) The costs of suit. SO ORDERED." 6
Ruling of the Court of Appeals
On appeal, the Court of Appeals sustained the decision
of the lower court, deleting only the award of attorney's
fees, as follows:
"As against appellants' bare denial of it, the Court is
more inclined to accept the appellee's version, to the
effect that the subject deeds of assignment are but
individual transactions which being collectively
evidentiary of the loan accommodation and/or credit line
it granted the appellant corporation should not be
taken singly and distinct therefrom. In addition to its
plausibility, the proposition is, more importantly,
adequately backed by the documentary evidence on
record. Aside from the aforesaid Deeds of Assignment
(Exhs. "A", "D", "I", and "R") and the Board Resolutions of
the appellant corporation's Board of Directors (Exhs. "T",
"U" and "V"), the appellee consistent with its theory
interposed the Surety Agreements the appellant Tan
Chong Lin executed (Exhs. "W" and "X"), as well as the
demand letters it served upon the latter as surety (Exhs.
"Y" and "Z"). It bears emphasis that the second
Resolution of the appellant corporation's Board of
Directors (Exh. "V") even closely coincides with the
execution of the February 11, 1982 and March 5, 1982
Deeds of Assignment (Exhs. "I" and "R"). Were the
appellants' posturings true, it seems rather strange that
the appellant Tan Chong Lin did not even protest or, at
least, make known to the appellee what he together
with the appellant corporation represented to be a
corporate larceny to which all of them supposedly fell
prey. In the petition for voluntary insolvency it filed, the
appellant corporation, instead, indirectly acknowledged
its indebtedness in terms of financing accommodations
to the appellee, in an amount which, while not exactly
matching the sum herein sought to be collected,
approximates the same (Exhs. "CC", "DD" and "DD-1 ,).
7
xxx xxx xxx
The appellants contend that the foregoing warranties
enlarged or increased the surety's risk, such that
appellant Tan Chong Lin should be released from his
liabilities (pp. 37-44, Appellant's Brief). Without saying
more, the appellants' position is, however, soundly
debunked by the undertaking expressed in the
Comprehensive and Continuing Surety Agreements
(Exhs. "W" and "X"), to the effect that the ". . . surety/ies,
jointly and severally among themselves and likewise with
the principal, hereby agree/s and bind/s himself to pay
at maturity all the notes, drafts, bills of exchange,
overdrafts and other obligations which the principal may
now or may hereafter owe the creditor . . . ." With the
possible exception of the fixed ceiling for the amount of
loan obtainable, the surety undertaking in the case at
bar is so comprehensive as to contemplate each and
every condition, term or warranty which the principal
parties may have or may be minded to agree on. Having
affixed his signature thereto, the appellant Tan Chong
Lin is expected to have, at least, read and understood
the same.
xxx xxx xxx
With the foregoing disquisition, the Court sees little or
no reason to go into the appellants' remaining
assignments of error, save the matter of attorney's fees.
For want of a statement of the rationale therefore in the
body of the challenged decision, the trial court's award of
attorney's fees should be deleted and disallowed (Abrogar
vs. Intermediate Appellate Court, 157 SCRA 57).
WHEREFORE, the decision appealed from is MODIFIED,
to delete the trial court's award of attorney's fees. The
rest is AFFIRMED in toto.
SO ORDERED." 8
The Issues
The petition is anchored on the following assigned
errors:
"1. The respondent Court erred in not holding that
the proper parties against whom this action for collection
should be brought are the drawers and indorser of the
checks in question, being the real parties in interest, and
not the herein petitioners.
2. The respondent Court erred in not holding that
the petitioner-corporation is discharged from liability for
failure of the private respondent to comply with the
provisions of the Negotiable Instruments Law on the
dishonor of the checks.
3. The respondent Court erred in its appreciation
and interpretation of the effect and legal consequences of
the signing of the deeds of assignment and the
subsequent indorsement of the checks by Arsenio Lim
Piat, Jr. in his individual and personal capacity and
without stating or indicating the name of his supposed
principal.
4. The respondent Court erred in holding that the
assignment of the checks is a loan accommodation or
credit line accorded by the private respondent to
petitioner-corporation, and not a purchase and sale
thereof.
5. The respondent Court erred in not holding that
there was a material alteration of the risk assumed by
the petitioner-surety under his surety agreement by the
terms, conditions, warranties and obligations assumed
by the assignor Arsenio Lim Piat, Jr. under the deeds of
assignment or receivables.
6. The respondent Court erred in holding that the
petitioner-corporation impliedly admitted its liability to
private respondent when the former included the latter
as one of its creditors in its petition for voluntary
insolvency, although no claim was filed and proved by
the private respondent in the insolvency court.
7. The respondent Court erred in holding the
petitioners liable to private respondent on the
transactions in question." 9
The issues to be resolved in this petition can be
summarized into three:
1. WHETHER ARSENIO HAD AUTHORITY TO
EXECUTE THE DEEDS OF ASSIGNMENT AND THUS
BIND GREAT ASIAN;
2. WHETHER GREAT ASIAN IS LIABLE TO
BANCASIA UNDER THE DEEDS OF ASSIGNMENT FOR
BREACH OF CONTRACT PURSUANT TO THE CIVIL
CODE, INDEPENDENT OF THE NEGOTIABLE
INSTRUMENTS LAW;
3. WHETHER TAN CHONG LIN IS LIABLE TO
GREAT ASIAN UNDER THE SURETY AGREEMENTS.
The Court's Ruling
The petition is bereft of merit.
First Issue: Authority of Arsenio to Sign the Deeds of
Assignment
Great Asian asserts that Arsenio signed the Deeds of
Assignment and indorsed the checks in his personal
capacity. The primordial question that must be resolved
is whether Great Asian authorized Arsenio to sign the
Deeds of Assignment. If Great Asian so authorized
Arsenio, then Great Asian is bound by the Deeds of
Assignment and must honor its terms.
The Corporation Code of the Philippines vests in the
board of directors the exercise of the corporate powers of
the corporation, save in those instances where the Code
requires stockholders' approval for certain specific acts.
Section 23 of the Code provides:
"SEC. 23. The Board of Directors or Trustees.
Unless otherwise provided in this Code, the corporate
powers of all corporations formed under this Code shall
be exercised, all business conducted and all property of
such corporations controlled and held by the board of
directors or trustees . . ."
In the ordinary course of business, a corporation can
borrow funds or dispose of assets of the corporation only
on authority of the board of directors. The board of
directors normally designates one or more corporate
officers to sign loan documents or deeds of assignment
for the corporation.
To secure a credit accommodation from Bancasia, the
board of directors of Great Asian adopted two board
resolutions on different dates, the first on March 17,
1981, and the second on February 10, 1982. These two
board resolutions, as certified under oath by Great
Asian's Corporate Secretary Mario K. Tan, state:
First Board Resolution
"RESOLVED, that the Treasurer of the corporation, Mr.
Arsenio Lim Piat, Jr., be authorized as he is authorized
to apply for and negotiate for a loan accommodation or
credit line in the amount not to exceed ONE MILLION
PESOS (P1,000,000.00), with Bancasia Finance and
Investment Corporation, and likewise to sign any and all
papers, documents, and/or promissory notes in
connection with said loan accommodation or credit line,
including the power to mortgage such properties of the
corporation as may be needed to effectuate the same." 10
(Italics supplied)
Second Board Resolution
"RESOLVED that Great Asian Sales Center Corp. obtain
a discounting line with BANCASIA FINANCE &
INVESTMENT CORPORATION, at prevailing discounting
rates, in an amount not to exceed ** TWO MILLION
PESOS ONLY (P2,000,000), ** Philippine Currency.
RESOLVED FURTHER, that the corporation secure such
other forms of credit lines with BANCASIA FINANCE &
INVESTMENT CORPORATION in an amount not to
exceed ** TWO MILLION PESOS ONLY (P2,000,000.00),
** PESOS, under such terms and conditions as the
signatories may deem fit and proper.
RESOLVED FURTHER, that the following persons be
authorized individually, jointly or collectively to sign,
execute and deliver any and all instruments, documents,
checks, sureties, etc. necessary or incidental to secure
any of the foregoing obligation:
(signed)
Specimen Signature
1. ARSENIO LIM PIAT, JR.
2. ____________________
3. ____________________
4. ____________________
PROVIDED FINALLY that this authority shall be valid,
binding and effective until revoked by the Board of
Directors in the manner prescribed by law, and that
BANCASIA FINANCE & INVESTMENT CORPORATION
shall not be bound by any such revocation until such
time as it is noticed in writing of such revocation." 11
(Italics supplied)
The first board resolution expressly authorizes Arsenio,
as Treasurer of Great Asian, to apply for a "loan
accommodation or credit line" with Bancasia for not
more than P1.0 million. Also, the first resolution
explicitly authorizes Arsenio to sign any document,
paper or promissory note, including mortgage deeds over
properties of Great Asian, to secure the loan or credit
line from Bancasia.
The second board resolution expressly authorizes Great
Asian to secure a "discounting line" from Bancasia for
not more than P2.0 million. The second board resolution
also expressly empowers Arsenio, as the authorized
signatory of Great Asian, "to sign, execute and deliver
any and all documents, checks . . . necessary or
incidental to secure" the discounting line. The second
board resolution specifically authorizes Arsenio to secure
the discounting line "under such terms and conditions
as (he) . . . may deem fit and proper."
As plain as daylight, the two board resolutions clearly
authorize Great Asian to secure a loan or discounting
line from Bancasia. The two board resolutions also
categorically designate Arsenio as the authorized
signatory to sign and deliver all the implementing
documents, including checks, for Great Asian. There is
no iota of doubt whatsoever about the purpose of the two
board resolutions, and about the authority of Arsenio to
act and sign for Great Asian. The second board
resolution even gave Arsenio full authority to agree with
Bancasia on the terms and conditions of the discounting
line. Great Asian adopted the correct and proper board
resolutions to secure a loan or discounting line from
Bancasia, and Bancasia had a right to rely on the two
board resolutions of Great Asian. Significantly, the two
board resolutions specifically refer to Bancasia as the
financing institution from whom Great Asian will secure
the loan accommodation or discounting line.
Armed with the two board resolutions, Arsenio signed
the Deeds of Assignment selling, and endorsing, the
fifteen checks of Great Asian to Bancasia. On the face of
the Deeds of Assignment, the contracting parties are
indisputably Great Asian and Bancasia as the names of
these entities are expressly mentioned therein as the
assignor and assignee, respectively. Great Asian claims
that Arsenio signed the Deeds of Assignment in his
personal capacity because Arsenio signed above his
printed name, below which was the word "Assignor",
thereby making Arsenio the assignor. Great Asian
conveniently omits to state that the first paragraph of
the Deeds expressly contains the following words: "the
ASSIGNOR, Great Asian Sales Center, a domestic
corporation . . . herein represented by its Treasurer
Arsenio Lim Piat, Jr." The assignor is undoubtedly Great
Asian, represented by its Treasurer, Arsenio. The only
issue to determine is whether the Deeds of Assignment
are indeed the transactions the board of directors of
Great Asian authorized Arsenio to sign under the two
board resolutions.
Under the Deeds of Assignment, Great Asian sold fifteen
postdated checks at a discount, over three months, to
Bancasia. The Deeds of Assignment uniformly state that
Great Asian,
". . . for valuable consideration received, does hereby
SELL, TRANSFER, CONVEY, and ASSIGN, unto . the
ASSIGNEE, BANCASIA FINANCE & INVESTMENT
CORP., a domestic corporation . . . , the following
ACCOUNTS RECEIVABLES due and payable to it, having
an aggregate face value of . . ."
The Deeds of Assignment enabled Great Asian to
generate instant cash from its fifteen checks, which were
still not due and demandable then. In short, instead of
waiting for the maturity dates of the fifteen postdated
checks, Great Asian sold the checks to Bancasia at less
than the total face value of the checks. In exchange for
receiving an amount less than the face value of the
checks, Great Asian obtained immediately much needed
cash. Over three months, Great Asian entered into four
transactions of this nature with Bancasia, showing that
Great Asian availed of a discounting line with Bancasia.
In the financing industry, the term "discounting line"
means a credit facility with a financing company or
bank, which allows a business entity to sell, on a
continuing basis, its accounts receivable at a discount.
12 The term "discount" means the sale of a receivable at
less than its face value. The purpose of a discounting
line is to enable a business entity to generate instant
cash out of its receivables which are still to mature at
future dates. The financing company or bank which
buys the receivables makes its profit out of the difference
between the face value of the receivable and the
discounted price. Thus, Section 3 (a) of the Financing
Company Act of 1998 provides:
"Financing companies" are corporations . . . primarily
organized for the purpose of extending credit facilities to
consumers and to industrial, commercial or agricultural
enterprises by discounting or factoring commercial
papers or accounts receivable, or by buying and selling
contracts, leases, chattel mortgages, or other evidences
of indebtedness, or by financial leasing of movable as
well as immovable property." (Italics supplied)
This definition of "financing companies" is substantially
the same definition as in the old Financing Company Act
(R.A. No. 5980). 13
Moreover, Section 1 (h) of the New Rules and Regulations
adopted by the Securities and Exchange Commission to
implement the Financing Company Act of 1998 states:
"Discounting" is a type of receivables financing whereby
evidences of indebtedness of a third party, such as
installment contracts, promissory notes and similar
instruments, are purchased by, or assigned to, a
financing company in an amount or for a consideration
less than their face value." (Italics supplied)
Likewise, this definition of "discounting" is an exact
reproduction of the definition of "discounting" in the
implementing rules of the old Finance Company Act.
Clearly, the discounting arrangements entered into by
Arsenio under the Deeds of Assignment were the very
transactions envisioned in the two board resolutions of
Great Asian to raise funds for its business. Arsenio acted
completely within the limits of his authority under the
two board resolutions. Arsenio did exactly what the
board of directors of Great Asian directed and authorized
him to do.
Arsenio had all the proper and necessary authority from
the board of directors of Great Asian to sign the Deeds of
Assignment and to endorse the fifteen postdated checks.
Arsenio signed the Deeds of Assignment as agent and
authorized signatory of Great Asian under an authority
expressly granted by its board of directors. The signature
of Arsenio on the Deeds of Assignment is effectively also
the signature of the board of directors of Great Asian,
binding on the board of directors and on Great Asian
itself. Evidently, Great Asian shows its bad faith in
disowning the Deeds of Assignment signed by its own
Treasurer, after receiving valuable consideration for the
checks assigned under the Deeds.
Second Issue: Breach of Contract by Great Asian
Bancasia's complaint against Great Asian is founded on
the latter's breach of contract under the Deeds of
Assignment. The Deeds of Assignment uniformly
stipulate 14 as follows:
"If for any reason the receivables or any part thereof
cannot be paid by the obligor/s, the ASSIGNOR
unconditionally and irrevocably agrees to pay the same,
assuming the liability to pay, by way of penalty three per
cent (3%) of the total amount unpaid, for the period of
delay until the same is fully paid.
In case of any litigation which the ASSIGNEE may
institute to enforce the terms of this agreement, the
ASSIGNOR shall be liable for all the costs, plus
attorney's fees equivalent to twenty-five (25%) per cent of
the total amount due. Further thereto, the ASSIGNOR
agrees that any and all actions which may be instituted
relative hereto shall be filed before the proper courts of
the City of Manila, all other appropriate venues being
hereby waived.
The last Deed of Assignment 15 contains the following
added stipulation:
". . . Likewise, it is hereby understood that the
warranties which the ASSIGNOR hereby made are
deemed part of the consideration for this transaction,
such that any violation of any one, some, or all of said
warranties shall be deemed as deliberate
misrepresentation on the part of the ASSIGNOR. In such
event, the monetary obligation herein conveyed unto the
ASSIGNEE shall be conclusively deemed defaulted,
giving rise to the immediate responsibility on the part of
the ASSIGNOR to make good said obligation, and
making the ASSIGNOR liable to pay the penalty
stipulated hereinabove as if the original obligor/s of the
receivables actually defaulted. . . . "
Obviously, there is one vital suspensive condition in the
Deeds of Assignment. That is, in case the drawers fail to
pay the checks on maturity, Great Asian obligated itself
to pay Bancasia the full face value of the dishonored
checks, including penalty and attorney's fees. The failure
of the drawers to pay the checks is a suspensive
condition, 16 the happening of which gives rise to
Bancasia's right to demand payment from Great Asian.
This conditional obligation of Great Asian arises from its
written contracts with Bancasia as embodied in the
Deeds of Assignment. Article 1157 of the Civil Code
provides that
"Obligations arise from:
(1) Law;
(2) Contracts;
(3) Quasi-contracts;
(4) Acts or omissions punished by law; and
(5) Quasi-delicts."
By express provision in the Deeds of Assignment, Great
Asian unconditionally obligated itself to pay Bancasia
the full value of the dishonored checks. In short, Great
Asian sold the postdated checks on with recourse basis
against itself. This is an obligation that Great Asian is
bound to faithfully comply because it has the force of law
as between Great Asian and Bancasia. Article 1159 of
the Civil Code further provides that
"Obligations arising from contracts have the force of law
between the contracting parties and should be complied
with in good faith."
Great Asian and Bancasia agreed on this specific with
recourse stipulation, despite the fact that the receivables
were negotiable instruments with the endorsement of
Arsenio. The contracting parties had the right to adopt
the with recourse stipulation which is separate and
distinct from the warranties of an endorser under the
Negotiable Instruments Law. Article 1306 of the Civil
Code provides that
"The contracting parties may establish such stipulations,
clauses, terms and conditions as they may deem
convenient, provided they are not contrary to law,
morals, good customs, public order, or public policy."
The explicit with recourse stipulation against Great
Asian effectively enlarges, by agreement of the parties,
the liability of Great Asian beyond that of a mere
endorser of a negotiable instrument. Thus, whether or
not Bancasia gives notice of dishonor to Great Asian, the
latter remains liable to Bancasia because of the with
recourse stipulation which is independent of the
warranties of an endorser under the Negotiable
Instruments Law.
There is nothing in the Negotiable Instruments Law or in
the Financing Company Act (old or new), that prohibits
Great Asian and Bancasia parties from adopting the with
recourse stipulation uniformly found in the Deeds of
Assignment. Instead of being negotiated, a negotiable
instrument may be assigned. 17 Assignment of a
negotiable instrument is actually the principal mode of
conveying accounts receivable under the Financing
Company Act. Since in discounting of receivables the
assignee is subrogated as creditor of the receivable, the
endorsement of the negotiable instrument becomes
necessary to enable the assignee to collect from the
drawer. This is particularly true with checks because
collecting banks will not accept checks unless endorsed
by the payee. The purpose of the endorsement is merely
to facilitate collection of the proceeds of the checks.
The purpose of the endorsement is not to make the
assignee finance company a holder in due course
because policy considerations militate against according
finance companies the rights of a holder in due course.
18 Otherwise, consumers who purchase appliances on
installment, giving their promissory notes or checks to
the seller, will have no defense against the finance
company should the appliances later turn out to be
defective. Thus, the endorsement does not operate to
make the finance company a holder in due course. For
its own protection, therefore, the finance company
usually requires the assignor, in a separate and distinct
contract, to pay the finance company in the event of
dishonor of the notes or checks.
As endorsee of Great Asian, Bancasia had the option to
proceed against Great Asian under the Negotiable
Instruments Law. Had it so proceeded, the Negotiable
Instruments Law would have governed Bancasia's cause
of action. Bancasia, however, did not choose this route.
Instead, Bancasia decided to sue Great Asian for breach
of contract under the Civil Code, a right that Bancasia
had under the express with recourse stipulation in the
Deeds of Assignment.
The exercise by Bancasia of its option to sue for breach
of contract under the Civil Code will not leave Great
Asian holding an empty bag. Great Asian, after paying
Bancasia, is subrogated back as creditor of the
receivables. Great Asian can then proceed against the
drawers who issued the checks. Even if Bancasia failed
to give timely notice of dishonor, still there would be no
prejudice whatever to Great Asian. Under the Negotiable
Instruments Law, notice of dishonor is not required if
the drawer has no right to expect or require the bank to
honor the check, or if the drawer has countermanded
payment. 19 In the instant case, all the checks were
dishonored for any of the following reasons: "account
closed", "account under garnishment", insufficiency of
funds", or "payment stopped". In the first three
instances, the drawers had no right to expect or require
the bank to honor the checks, and in the last instance,
the drawers had countermanded payment.
Moreover, under common law, delay in notice of
dishonor, where such notice is required, discharges the
drawer only to the extent of the loss caused by the delay.
20 This rule finds application in this jurisdiction
pursuant to Section 196 of the Negotiable Instruments
Law which states, "Any case not provided for in this Act
shall be governed by the provisions of existing
legislation, or in default thereof, by the rules of the Law
Merchant." Under Section 186 of the Negotiable
Instruments Law, delay in the presentment of checks
discharges the drawer. However, Section 186 refers only
to delay in presentment of checks but is silent on delay
in giving notice of dishonor. Consequently, the common
law or Law Merchant can supply this gap in accordance
with Section 196 of the Negotiable Instruments Law.
One other issue raised by Great Asian, that of lack of
consideration for the Deeds of Assignment, is completely
unsubstantiated. The Deeds of Assignment uniformly
provide that the fifteen postdated checks were assigned
to Bancasia "for valuable consideration." Moreover,
Article 1354 of the Civil Code states that, "Although the
cause is not stated in the contract, it is presumed that it
exists and is lawful, unless the debtor proves the
contrary." The record is devoid of any showing on the
part of Great Asian rebutting this presumption. On the
other hand, Bancasia's Loan Section Manager, Cynthia
Maclan, testified that Bancasia paid Great Asian a
consideration at the discount rate of less than 24% of
the face value of the postdated checks. 21 Moreover, in
its verified petition for voluntary insolvency, Great Asian
admitted its debt to Bancasia when it listed Bancasia as
one of its creditors, an extra-judicial admission that
Bancasia proved when it formally offered in evidence the
verified petition for insolvency. 22 The Insolvency Law
requires the petitioner to submit a schedule of debts that
must "contain a full and true statement of all his debts
and liabilities." 23 The Insolvency Law even requires the
petitioner to state in his verification that the schedule of
debts contains "a full, correct and true discovery of all
my debts and liabilities . . ." 24 Great Asian cannot now
claim that the listing of Bancasia as a creditor was not
an admission of its debt to Bancasia but merely an
acknowledgment that Bancasia had sent a demand letter
to Great Asian.
Great Asian, moreover, claims that the assignment of the
checks is not a loan accommodation but a sale of the
checks. With the sale, ownership of the checks passed to
Bancasia, which must now, according to Great Asian,
sue the drawers and indorser of the check who are the
parties primarily liable on the checks. Great Asian
forgets that under the Deeds of Assignment, Great Asian
expressly undertook to pay the full value of the checks in
case of dishonor. Again, we reiterate that this obligation
of Great Asian is separate and distinct from its
warranties as indorser under the Negotiable Instruments
Law.
Great Asian is, however, correct in saying that the
assignment of the checks is a sale, or more properly a
discounting, of the checks and not a loan
accommodation. However, it is precisely because the
transaction is a sale or a discounting of receivables,
embodied in separate Deeds of Assignment, that the
relevant provisions of the Civil Code are applicable and
not the Negotiable Instruments Law.
At any rate, there is indeed a fine distinction between a
discounting line and a loan accommodation. If the
accounts receivable, like postdated checks, are sold for a
consideration less than their face value, the transaction
is one of discounting, and is subject to the provisions of
the Financing Company Act. The assignee is immediately
subrogated as creditor of the accounts receivable.
However, if the accounts receivable are merely used as
collateral for the loan, the transaction is only a simple
loan, and the lender is not subrogated as creditor until
there is a default and the collateral is foreclosed.
In summary, Great Asian's four contracts assigning its
fifteen postdated checks to Bancasia expressly stipulate
the suspensive condition that in the event the drawers of
the checks fail to pay, Great Asian itself will pay
Bancasia. Since the common condition in the contracts
had transpired, an obligation on the part of Great Asian
arose from the four contracts, and that obligation is to
pay Bancasia the full value of the checks, including the
stipulated penalty and attorney's fees.
Third Issue: The liability of surety Tan Chong Lin
Tan Chong Lin, the President of Great Asian, is being
sued in his personal capacity based on the Surety
Agreements he signed wherein he solidarily held himself
liable with Great Asian for the payment of its debts to
Bancasia. The Surety Agreements contain the following
common condition:
"Upon failure of the Principal to pay at maturity, with or
without demand, any of the obligations above
mentioned, or in case of the Principal's failure promptly
to respond to any other lawful demand made by the
Creditor, its successors, administrators or assigns, both
the Principal and the Surety/ies shall be considered in
default and the Surety/ies agree/s to pay jointly and
severally to the Creditor 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 by the
Surety/ies as correct and final for all legal intents and
purposes."
Indisputably, Tan Chong Lin explicitly and
unconditionally bound himself to pay Bancasia,
solidarily with Great Asian, if the drawers of the checks
fail to pay on due date. The condition on which Tan
Chong Lin's obligation hinged had happened. As surety,
Tan Chong Lin automatically became liable for the entire
obligation to the same extent as Great Asian.
Tan Chong Lin, however, contends that the following
warranties in the Deeds of Assignment enlarge or
increase his risks under the Surety Agreements:
"The ASSIGNOR warrants:
1. the soundness of the receivables herein
assigned;
2. that said receivables are duly noted in its books
and are supported by appropriate documents;
3. that said receivables are genuine, valid and
subsisting;
4. that said receivables represent bona fide sale of
goods, merchandise, and/or services rendered in the
ordinary course of its business transactions;
5. that the obligors of the receivables herein
assigned are solvent;
6. that it has valid and genuine title to and
indefeasible right to dispose of said accounts;
7. that said receivables are free from all liens and
encumbrances;
8. that the said receivables are freely and legally
transferable, and that the obligor/s therein will not
interpose any objection to this assignment, and has in
fact given his/their consent hereto."
Tan Chong Lin maintains that these warranties in the
Deeds of Assignment materially altered his obligations
under the Surety Agreements, and therefore he is
released from any liability to Bancasia. Under Article
1215 of the Civil Code, what releases a solidary debtor is
a "novation, compensation, confusion or remission of the
debt" made by the creditor with any of the solidary
debtors. These warranties, however, are the usual
warranties made by one who discounts receivables with
a financing company or bank. The Surety Agreements,
written on the letter head of "Bancasia Finance &
Investment Corporation," uniformly state that "Great
Asian Sales Center . . . has obtained and/or desires to
obtain loans, overdrafts, discounts and/or other forms of
credits from" Bancasia. Tan Chong Lin was clearly on
notice that he was holding himself as surety of Great
Asian which was discounting postdated checks issued by
its buyers of goods and merchandise. Moreover, Tan
Chong Lin, as President of Great Asian, cannot feign
ignorance of Great Asian's business activities or
discounting transactions with Bancasia. Thus, the
warranties do not increase or enlarge the risks of Tan
Chong Lin under the Surety Agreements. There is,
moreover, no novation of the debt of Great Asian that
would warrant release of the surety.
In any event, the provisions of the Surety Agreements
are broad enough to include the obligations of Great
Asian to Bancasia under the warranties. The first Surety
Agreement states that:
". . . herein Surety/ies, jointly and severally among
themselves and likewise with principal, hereby agree/s,
and bind/s himself/themselves to pay at maturity all the
notes, drafts, bills of exchange, overdraft and other
obligations of every kind which the Principal may now or
may hereafter owe the Creditor, including extensions or
renewals thereof in the sum *** ONE MILLION ONLY ***
PESOS (P1,000,000.00), Philippine Currency, plus
stipulated interest thereon at the rate of sixteen percent
(16%) per annum, or at such increased rate of interest
which the Creditor may charge on the Principal's
obligations or renewals or the reduced amount thereof,
plus all the costs and expenses which the Creditor may
incur in connection therewith.
xxx xxx xxx
Upon failure of the Principal to pay at maturity, with or
without demand, any of the obligations above
mentioned, or in case of the Principal's failure promptly
to respond to any other lawful demand made by the
Creditor, its successors, administrators or assigns, both
the Principal and the Surety/ies shall be considered in
default and the Surety/ies agree/s to pay jointly and
severally to the Creditor 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 by the
Surety/ies as correct and final for all legal intents and
purposes. (Italics supplied)
The second Surety Agreement contains the following
provisions:
". . . herein Surety/ies, jointly and severally among
themselves and likewise with PRINCIPAL, hereby agree
and bind themselves to pay at maturity all the notes,
drafts, bills of exchange, overdraft and other obligations
of every kind which the PRINCIPAL may now or may
hereafter owe the Creditor, including extensions and/or
renewals thereof in the principal sum not to exceed TWO
MILLION (P2,000,000.00) PESOS, Philippine Currency,
plus stipulated interest thereon, or such increased or
decreased rate of interest which the Creditor may charge
on the principal sum outstanding pursuant to the rules
and regulations which the Monetary Board may from
time to time promulgate, together with all the cost and
expenses which the CREDITOR may incur in connection extrajudicial demand on Tan Chong Lin, the surety, but
therewith. not on the principal debtor, Great Asian. SIHCDA

If for any reason whatsoever, the PRINCIPAL should fail
to pay at maturity any of the obligations or amounts due
to the CREDITOR, or if for any reason whatsoever the
PRINCIPAL fails to promptly respond to and comply with
any other lawful demand made by the CREDITOR, or if
for any reason whatsoever any obligation of the
PRINCIPAL in favor of any person or entity should be
considered as defaulted, then both the PRINCIPAL and
the SURETY/IES shall be considered in default under
the terms of this Agreement. Pursuant thereto, the
SURETY/IES agree/s to pay jointly and severally with
the PRINCIPAL, all outstanding obligations of the
CREDITOR, whether due or not due, and whether owing
to the PRINCIPAL in its personal capacity or as agent of
any person, endorsee, assignee or transferee. . . . (Italics
supplied)
WHEREFORE, the assailed Decision of the Court of
Appeals in CA-G.R. CV No. 20167 is AFFIRMED with
MODIFICATION. Petitioners are ordered to pay,
solidarily, private respondent the following amounts: (a)
P1,042,005.00 plus 3% penalty thereon, (b) interest on
the total outstanding amount in item (a) at the legal rate
of 12% per annum from the filing of the complaint until
the same is fully paid, (c) attorney's fees equivalent to
25% of the total amount in item (a), including interest at
12% per annum on the outstanding amount of the
attorney's fees from the finality of this judgment until
the same is fully paid, and (c) costs of suit.
SO ORDERED.

Article 1207 of the Civil Code provides, ". . . There is a

solidary liability only when the obligation expressly so
states, or when the law or nature of the obligation
requires solidarity." The stipulations in the Surety
Agreements undeniably mandate the solidary liability of
Tan Chong Lin with Great Asian. Moreover, the
stipulations in the Surety Agreements are sufficiently
broad, expressly encompassing "all the notes, drafts,
bills of exchange, overdraft and other obligations of every
kind which the PRINCIPAL may now or may hereafter
owe the Creditor". Consequently, Tan Chong Lin must be
held solidarily liable with. Great Asian for the
nonpayment of the fifteen dishonored checks, including
penalty and attorney's fees in accordance with the Deeds
of Assignment.

The Deeds of Assignment stipulate that in case of suit

Great Asian shall pay attorney's fees equivalent to 25%
of the outstanding debt. The award of attorney's fees in
the instant case is justified, 25 not only because of such
stipulation, but also because Great Asian and Tan
Chong Lin acted in gross and evident bad faith in
refusing to pay Bancasia's plainly valid, just and
demandable claim. We deem it just and equitable that
the stipulated attorney's fee should be awarded to
Bancasia.

The Deeds of Assignment also provide for a 3% penalty

on the total amount due in case of failure to pay, but the
Deeds are silent on whether this penalty is a running
monthly or annual penalty. Thus, the 3% penalty can
only be considered as a one-time penalty. Moreover, the
Deeds of Assignment do not provide for interest if Great
Asian fails to pay. We can only award Bancasia legal
interest at 12% interest per annum, and only from the
time it filed the complaint because the records do not
show that Bancasia made a written demand on Great
Asian prior to filing the complaint. 26 Bancasia made an