ISSUES:
1. Whether or not interest rate stipulated was void
Yes, stipulated interest rate is void because it contravenes on the principle of mutuality of contracts and it violates the Truth in
lending Act.
The provision stating that the interest shall be at the “rate indicative of DBD retail rate or as determined by the Branch Head” is
indeed dependent solely on the will of petitioner UCPB. Under such provision, petitioner UCPB has two choices on what the
interest rate shall be: (1) a rate indicative of the DBD retail rate; or (2) a rate as determined by the Branch Head. As UCPB is given
this choice, the rate should be categorically determinable in both choices. If either of these two choices presents an opportunity for
UCPB to fix the rate at will, the bank can easily choose such an option, thus making the entire interest rate provision violative of
the principle of mutuality of contracts.
In addition, the promissory notes, the copies of which were presented to the spouses Beluso after execution, are not sufficient
notification from UCPB. As earlier discussed, the interest rate provision therein does not sufficiently indicate with particularity
the interest rate to be applied to the loan covered by said promissory notes which is required in TRuth in Lending Act
2. Whether or not Spouses Beluso are subject to 12% interest and compounding interest stipulations even if declared
amount by UCPB was excessive.
Yes. Default commences upon judicial or extrajudicial demand.[26] The excess amount in such a demand does not nullify the
demand itself, which is valid with respect to the proper amount. There being a valid demand on the part of UCPB, albeit excessive,
the spouses Beluso are considered in default with respect to the proper amount and, therefore, the interests and the penalties began
to run at that point. As regards the award of 12% legal interest in favor of petitioner, the RTC actually recognized that said legal
interest should be imposed, thus: “There being no valid stipulation as to interest, the legal rate of interest shall be charged.”[27] It
seems that the RTC inadvertently overlooked its non-inclusion in its computation. It must likewise uphold the contract stipulation
providing the compounding of interest. The provisions in the Credit Agreement and in the promissory notes providing for the
compounding of interest were neither nullified by the RTC or the Court of Appeals, nor assailed by the spouses Beluso in their
petition with the RTC. The compounding of interests has furthermore been declared by this Court to be legal.
3. Whether or not foreclosure was void
No. The foreclosure proceedings are valid since there was a valid demand made by UCPB upon the spouses Beluso. Despite being
excessive, the spouses Beluso are considered in default with respect to the proper amount of their obligation to UCPB and, thus,
the property they mortgaged to secure such amounts may be foreclosed. Consequently, proceeds of the foreclosure sale should be
applied to the extent of the amounts to which UCPB is rightfully entitled.
After the execution of the contract, two (2) renter’s key were given to Aguirre, and Pugaos. A key guard remained with the bank.
The safety deposit box has two key holes and can be opened with the use of both keys. Petitioner claims that the CTC were placed
inside the said box.
Thereafter, a certain Mrs. Ramos offered to buy from the petitioner the two (2) lots at a price of P225 per sqm. Mrs. Ramose
demanded the execution of a deed of sale which necessarily entailed the production of the CTC. Aguirre and Pugaos then proceeded
to the bank to open the safety deposit box. However, when opened in the presence of bank’s representative, the box yielded no
certificates. Because of the delay in reconstitution of title, Mrs. Ramos withdrew her earlier offer and as a consequence petitioner
failed to realize the expected profit of P280 , 500. Hence, the latter filed a complaint for damages.
RTC: Dismissed the complaint
CA: Affirmed
Issue:
Whether or not the contractual relation between a commercial bank and another party in the contract of rent of a safety
deposit box is one of bailor and bailee.
Ruling:
Yes.
The contract in the case at bar is a special kind of deposit. It cannot be characterized as an ordinary contract of lease under
Article 1643 because the full and absolute possession and control of the safety deposit box was not given to the joint renters – the
petitioner and Pugaos.
American Jurisprudence:
The prevailing rule is that the relation between a bank renting out safe-deposit boxes and its customer with respect to the
contents of the box is that of a bail or bailee, the bailment being for hire and mutual benefit.
Our provisions on safety deposit boxes are governed by Section 72 (a) of the General Banking Act, and this primary function
is still found within the parameters of a contract of deposit like the receiving in custody of funds, documents and other valuable
objects for safekeeping. The renting out of the safety deposit boxes is not independent from, but related to or in conjunction with,
this principal function. Thus, depositary’s liability is governed by our civil code rules on obligation and contracts, and thus the
SBTC would be liable if, in performing its obligation, it is found guilty of fraud, negligence, delay or contravention of the tenor of
the agreement.
Short Version:
Facts:
Noah issued quedans to its vendees who in turn negotiated it to PNB. When PNB tried to demand the sugar covered by the
quedans, Noah refused because the check its vendees issued for the quedans were dishonoured.
Held:
Noah should deliver the quedans to PNB. The fact that Noah was not paid does not make the negotiation to PNB invalid since
PNB paid value in good faith.
Facts:
· In accordance with the Warehouse Receipts Law, Noah's Ark Sugar Refinery (Noah) issued on several dates warehouse receipts
(quedans) to Rosa Sy, RNS Merchandising (Rosa Ng Sy) and St. Therese Merchandising
· RNS and St Therese Merchandising negotiated and indorsed its quedans to Luis T. Ramos and Cresencia Zoleta
· Zoleta and Ramos then used the quedans as security for loans obtained by them from PNB in the amounts of P23.5 million and
P15.6 million, respectively. These quedans they indorsed to the bank.
· Both Zoleta and Ramos failed to pay their loans upon maturity
· PNB wrote to Noah demanding delivery of the sugar covered by the quedans
· Noah's Ark refused to comply with the demand
· PNB filed with the RTC a verified complaint for "Specific Performance with Damages and Application for Writ of Attachment"
against Noah's Ark, Alberto T. Looyuko, Jimmy T. Go, and Wilson T. Go, the last three being identified as "the Sole Proprietor,
Managing Partner and Executive Vice President of Noah, respectively."
· RTC denied the application for preliminary attachment
· Noah and its co-defendants claimed that they are still the legal owners of the quedans and the sugar represented thereon
because:
— the P63M check issued by Rosa Ng Sy of RNS and Teresita Ng of St. Therese Merchandising for the quedans were dishonoured
by reason of "payment stopped" and "drawn against insufficient funds
— Since the vendees and first indorsers of quedans did not acquire ownership, the subsequent indorsers and PNB did not acquire a
better right of ownership than the original vendees/first indorsers.
— That quedans are not negotiable instruments within the purview of the Warehouse Receipts Law but simply an internal guarantee
of defendants in the sale of their stocks of sugar.
· Noah also asked that the quedans be delivered or returned to them
· Rosa Ng Sy and Teresita Ng claims that the transaction between them and Noah was "bogus and simulated complex banking
schemes and financial maneuvers and that it was to avoid payment of taxes considering that Noah is under sequestration by the
PCGG
· PNB filed a "Motion for Summary Judgment and prayed for the delivery of the sugar stocks covered by the Warehouse
Receipts/Quedans which are now in the PNB’s possession as holder for value and in due course; or alternatively, for payment of
actual damages of P39.1M to pay plaintiff attorney's fees, litigation expenses and judicial costs estimated at no less than P1M and
such other reliefs just and equitable under the premises.
· RTC denied the motion for summary judgment on the ground:
— that there exists conflicting claims among the parties relative to the ownership of the sugar quedans as to whether or not the
quedans falls within the coverage of the Warehouse Receipt Law and whether or not the transaction between PNB and third party
defendants (Sy ans Ng) is governed by contract of pledge that would require PNB’s compliance with Art. 2112, Civil Code as
regards the disposition of the quedans
· PNB filed a petition for certiorari with the CA
· CA nullified RTC order and ordered that "summary judgment be rendered in favor of the PNB
· CA ruled that "questions of law should be resolved after and not before, the questions of fact.
· Noah moved for reconsideration, but their motion was denied by the CA
· RTC rendered judgment, but not in accordance with the decision of the CA since it dismissed PNB’s complaint for lack of cause
of action
Issue:
1. Whether the non-payment of the purchase price for the quedans by the original vendees rendered invalid the negotiation by
vendees/first indorsers to indorsers and the subsequent negotiation of Ramos and Zoleta to PNB.
2. Whether or not PNB as indorsee/ pledgee of quedans was entitled to delivery of sugar stocks from the warehouseman, Noah's
Ark."
Ruling:
1. The non-payment of the purchase price does not render the subsequent negotiation invalid. The validity of the negotiation in
favour of PNB cannot be impaired even if the negotiation between Noah and its first vendees was in breach of faith on the part of
the vendees or by the fact that Noah was deprived of the possession of the same by fraud, mistake or conversion if PNB paid
value in good faith without notice of such breach of duty, fraud, mistake or conversion. (Article 1518, New Civil Code).
2. PNB is entitled to the delivery of the sugar covered by the quedans. PNB whose debtor was the owner of the quedan shall be
entitled to such aid from the court of appropriate jurisdiction attaching such document or in satisfying the claim by means as is
allowed by law or in equity in regard to property which cannot be readily attached or levied upon by ordinary process. (See Art.
1520, New Civil Code). If the quedans were negotiable in form and duly indorsed to PNB (the creditor), the delivery of the
quedans to PNB makes the PNB the owner of the property covered by said quedans and on deposit with Noah, the
warehouseman. PNB's right to enforce the obligation of Noah as a warehouseman, to deliver the sugar stock to PNB as holder of
the quedans, does not depend on the outcome of the third-party complaint because the validity of the negotiation transferring title
to the goods to PNB as holder of the quedans is not affected by an act of RNS Merchandising and St. Therese Merchandising, in
breach of trust, fraud or conversion against Noah's Ark.
SC also held that the quedans were negotiable documents and had been duly negotiated to the PNB which acquired the rights set
out in Article 1513 of the Civil Code:
1. Such title to the goods as the person negotiating the documents to him had or had ability to convey to a purchaser in good faith
for value and also such title to the goods as the person to whose order the goods were to be delivered by the terms of the
document had or had ability to convey to a purchaser in good faith for value; and
2. The direct obligation of the bailee issuing the document to hold possession of the goods for him according to the terms of the
document as fully as if such bailee had contracted directly with him.
PHILIPPINE NATIONAL BANK, petitioner, vs. HON. PRES. JUDGE BENITO C. SE, JR., RTC, BR. 45, MANILA;
NOAH’S ARK SUGAR REFINERY; ALBERTO T. LOOYUKO, JIMMY T. GO and WILSON T. GO, respondents.
G.R. No. 119231. April 18, 1996
A prior judgment holding that a party is a warehouseman obligated to deliver sugar stocks covered by the warehouse
receipts does not necessarily carry with it a denial of its lien over the same sugar stocks. Thus where the judgment
creditor (in this case PNB) makes an unconditional presentment of warehouse receipts for delivery of sugar stocks against
the warehouseman (Noah’s Ark), it thereby admits the existence and validity of the terms, conditions and stipulations
written on the face of the warehouse receipts, including the unqualified recognition of the payment of warehouseman’s
lien for storage fees and preservation expenses. Thus, PNB may not retrieve the sugar stocks without paying the
warehouseman’s lien.
The warehouseman need not file a separate action to enforce payment of storage fees. He may enforce his lien before
delivering the sugar stocks covered by the warehouse receipts.
FACTS:
• In accordance with Act No. 2137, the Warehouse Receipts Law, Noah’s Ark Sugar Refinery issued on several dates, 5
Warehouse Receipts (Quedans).
• They were endorsed and negotiated to Ramos and Zoleta. They failed to pay their loans upon maturity. So, PNB wrote to
Noah’s Ark Sugar Refinery demanding delivery of the sugar stocks covered by the quedans endorsed to it by Zoleta and Ramos.
• Noah’s Ark Sugar Refinery refused. So, PNB filed a complaint for “Specific Performance with Damages and Application for
Writ of Attachment”.
• Respondent Judge Benito C. Se, Jr., in whose sala the case was raffled, denied the Application for Preliminary Attachment.
HELD: Under the subject Warehouse Receipts provision, storage fees are chargeable. PNB is legally bound to stand by the
express terms and conditions on the face of the Warehouse Receipts as to the payment of storage fees. Even in the absence of
such a provision, law and equity dictate the payment of the warehouseman’s lien pursuant to Sections 27 and 31 of the
Warehouse Receipts Law (R.A. 2137), to wit:
SECTION 27. What claims are included in the warehouseman’s lien. – Subject to the provisions of section thirty, a
warehouseman shall have lien on goods deposited or on the proceeds thereof in his hands, for all lawful charges for storage and
preservation of the goods; also for all lawful claims for money advanced, interest, insurance, transportation, labor, weighing
coopering and other charges and expenses in relation to such goods; also for all reasonable charges and expenses for notice, and
advertisement of sale, and for sale of the goods where default has been made in satisfying the warehouseman’s lien.
SECTION 31. Warehouseman need not deliver until lien is satisfied. – A warehouseman having a lien valid against the person
demanding the goods may refuse to deliver the goods to him until the lien is satisfied.
After being declared as the warehouseman, PRs cannot legally be deprived of their right to enforce their claim for
warehouseman’s lien, for reasonable storage fees and preservation expenses. Pursuant to Section 31 which we quote earlier, the
goods under storage may not be delivered until said lien is satisfied.
• Considering that PNB does not deny the existence, validity and genuineness of the Warehouse Receipts on which it anchors its
claim for payment against PRs, it cannot disclaim liability for the payment of the storage fees stipulated therein.
PNB is in estoppel in disclaiming liability for the payment of storage fees due the PRs as warehouseman while claiming to be
entitled to the sugar stocks covered by the subject Warehouse Receipts on the basis of which it anchors its claim for payment or
delivery of the sugar stocks. The unconditional presentment of the receipts by PNB for payment against PRs on the strength of
the provisions of the Warehouse Receipts Law (R.A. 2137) carried with it the admission of the existence and validity of the
terms, conditions and stipulations written on the face of the Warehouse Receipts, including the unqualified recognition of the
payment of warehouseman’s lien for storage fees and preservation expenses. PNB may not now retrieve the sugar stocks without
paying the lien due PRs as warehouseman.
RULE: While the PNB is entitled to the stocks of sugar as the endorsee of the quedans, delivery to it shall be effected only upon
payment of the storage fees.
Imperative is the right of the warehouseman to demand payment of his lien at this juncture, because, in accordance with Section 29 of
the Warehouse Receipts Law, the warehouseman loses his lien upon goods by surrendering possession thereof. In other words,
the lien may be lost where the warehouseman surrenders the possession of the goods without requiring payment of his lien,
because a warehouseman’s lien is possessory in nature
ROMULO MACHETTI, plaintiff-appellee, vs. HOSPICIO DE SAN JOSE, defendant and appellee, and FIDELITY &
SURETY COMPANY OF THE PHILIPPINE ISLANDS, defendant-appellant.
Facts:
Romulo Machetti, by a written agreement, undertook to construct a building for the Hospicio de San Jose, the contract price
being P64,000
One of the conditions of the agreement was that the contractor should obtain the "guarantee" of the Fidelity and Surety Company
of the Philippine Islands to the amount of P12,800 and the following endorsement in the English language appears upon the
contract
- Machetti constructed the building under the supervision of architects representing the Hospicio de San Jose.
- Subsequently it was found that the work had not been carried out in accordance with the specifications which formed part of the
contract and that the workmanship was not of the standard required, and the Hospicio de San Jose therefore refused to pay the
balance of the contract price.
- Machetti thereupon brought this action
- the Hospicio de San J ose answered the complaint and presented a counterclaim for damages for the partial noncompliance with
the terms of the agreement, in the total sum of P71,350.
- Machetti was declared insolvent under Insolvency law.
- The Hospicio de San Jose filed a motion asking that the Fidelity and Surety Company be made cross-defendant to the exclusion
of Machetti and that the proceedings be continued as to said company, but still remain suspended as to Machetti. This motion was
granted[1].
- The Hospicio filed a complaint against the Fidelity and Surety Company asking for a judgment for P12,800 against the company
upon its guaranty.
CFI rendered judgment against the Fidelity and Surety Company (FSC) for P12,800 in accordance with the complaint. FSC appealed.
Ruling:
- the court below erred in proceeding with the case against the guarantor while the proceedings were suspended as to the principal.
The guaranty in the present case was for a future debt of unknown amount and even regarding the guaranty as an ordinary fianza
under the Civil Code, the surety cannot be held responsible until the debt is liquidated. (Civil Code, art. 1825.)
- But in this instance the guarantor's case is even stronger than that of an ordinary surety. In English the term "guarantor" implies
an undertaking of guaranty, as distinguished from suretyship.
- Now, while a surety undertakes to pay if the principal does not pay, the guarantor only binds himself to pay if the principal
cannot pay. The one is the insurer of the debt, the other an insurer of the solvency of the debtor. This latter liability is what the
Fidelity and Surety Company assumed in the present case.
FSC, being a guarantor, cannot be compelled to pay until it is shown that Machetti is unable to pay
- The Fidelity and Surety Company having bound itself to pay only in the event its principal, Machetti, cannot pay it follows that
it cannot be compelled to pay until it is shown that Machetti is unable to pay. Such inability may be proven by the return of a writ
of execution unsatisfied or by other means, but is not sufficiently established by the mere fact that he has been declared insolvent
in insolvency proceedings under our statutes, in which the extent of the insolvent's inability to pay is not determined until the
final liquidation of his estate.
Severino v Severino
[G.R. No. 34642, September 24, 1931]
STREET, J.
FACTS:
Melecio Severino upon his death, left considerable properties. To end litigation among heirs, a compromise was effected where
defendant Guillermo (son of MS) took over the property of deceased and agreed to pay installment of 100K to plaintiff (wife of
MS) payable first in 40K cash upon execution of document in 3 equal installments. Enrique Echauz became guarantor.
Upon failure to pay the balance, plaintiff filed and action against the defendant and Echauz. Enchauz contends that he received
nothing from affixing his signature in the document and the contract lacked the consideration as to him.
ISSUE: WON there is a consideration for the guaranty?
HELD:
The proof shows that the money claimed in this action has never been paid and is still owing to the plaintiff; and the only defense
worth noting in this decision is the assertion on the part of Enrique Echaus that he received nothing for affixing his signature as
guarantor to the contract which is the subject of suit and that in effect the contract was lacking in consideration as to him.
The guarantor or surety is bound by the same consideration that makes the contract effective between the principal parties
thereto.
The compromise and dismissal of a lawsuit is recognized in law as a valuable consideration; and the dismissal of the action
which Felicitas Villanueva and Fabiola Severino had instituted against Guillermo Severino was an adequate consideration to
support the promise on the part of Guillermo Severino to pay the sum of money stipulated in the contract which is the subject of
this action. The promise of the appellant Echaus as guarantor therefore binding.
It is neither necessary that guarantor or surety should receive any part of the benefit, if such there be accruing to his principal.
Thus, judgment affirmed.
Petitioners herein appealed to the CA. Following the filing of its and Geronimo’s joint appellants’ brief, Gateway filed on a
petition for voluntary insolvency6 with the RTC in Imus, Cavite, which was granted. CA affirmed the decision of the lower court. MR denied, hence this petition for review
under Rule 45.
ISSUE: is Geronimo discharged from liability because of the insolvency of Gateway, the principal
Surety vs. Guaranty; A.2080, NCC does not apply where the liability is as a surety, not as a guarantor.
FACTS: Respondent Spouses Claveria, doing business under the name “ Agro Brokers”, applied for a loan with respondent
Consolidated Bank & Trust Corp. (now SOLID BANK) amounting to P2.875M. The loan was granted subject to the condition
that respondent spouses execute a chattel mortgage over the 3 vessels to be acquired and that a continuing guarantee be executed
by Ayala International Phils., Inc., now herein petitioner E.Zobel, Inc. in SOLID BANK’s favor. The Claverias defaulted in the
payment of the entire obligation upon maturity. Petitioner moved to dismiss the complaint asserting that its liability as guarantor
of the loan was extinguished pursuant to A.2080, NCC. It argued that it has lost its right to be subrogated to the first chattel
mortgage in view of SOLIDBANK’s failure to register the chattel mortgage with the appropriate government agency.
SOLIDBANK meantime claimed that A.2080 is not applicable because petitioner is not a guarantor but a surety.
HELD: In the contract executed by petitioner in SOLIDBANK’s favor, albeit denominated as a “Continuing Guaranty”, is in fact
a contract of surety. The contract’s terms obligates petitioner as “surety” to induce SOLIDBANK to extend credit to the Claverias.
The contract clearly disclose that petitioner assumed liability to SOLIDBANK, as a regular party the undertaking and obligated
itself as an original promissory. It bound itself jointly and severally to the obligation with the Claverias. In fact, SOLIDBANK
need not resort to all other legal remedies or exhaust the Claverias’ properties before it can hold petitioner liable for the obligation.
Since the petitioner is a surety, A.2080, NCC is inapplicable. Said article applies where the liability is as a guaranty not as a surety.
Conflict of Laws Digest: Phil. Export and Foreign Loan Guarantee Corp. v. V.P. Eusebio Construction Inc. (2004)
G.R. No. 140047 March 31, 2003
Lessons Applicable: No conflicts rule on essential validity of contracts (conflicts of law)
FACTS:
November 8, 1980: State Organization of Buildings (SOB), Ministry of Housing and Construction, Baghdad, Iraq, awarded the
construction of the Institute of Physical Therapy–Medical Rehabilitation Center, Phase II, in Baghdad, Iraq, (Project) to Ajyal
Trading and Contracting Company (Ajyal), a firm duly licensed with the Kuwait Chamber of Commerce for ID5,416,089/046 (or
about US$18,739,668)
March 7, 1981: 3-Plex International, Inc. represented by Spouses Eduardo and Iluminada Santos a local contractor engaged in
construction business, entered into a joint venture agreement with Ajyal. However since it was not accredited under the
Philippine Overseas Construction Board (POCB), it had to assign and transfer all its right to VPECI.
VPECI entered into an agreement that the execution of the project will be under their joint management.
To comply with the requirements of performance bond of ID271,808/610 and an an advance payment bond of ID541,608/901, 3-
Plex and VPECI applied for the issuance of a guarantee with Philguarantee, a government financial institution empowered to
issue guarantees for qualified Filipino contractors to secure the performance of approved service contracts abroad.
Subsequently, letters of guarantee were issued by Philguarantee to the Rafidain Bank of Baghdad. Al Ahli Bank of Kuwait was,
therefore, engaged to provide a counter-guarantee to Rafidain Bank, but it required a similar counter-guarantee in its favor from
the Philguarantee
The Surety Bond was later amended to increase the amount of coverage from P6.4 million to P6.967 million and to change the
bank in whose favor the petitioner's guarantee was issued, from Rafidain Bank to Al Ahli Bank of Kuwait
SOB and the joint venture VPECI and Ajyal executed the service contract for the construction of the Institute of Physical
Therapy – Medical Rehabilitation Center, Phase II, in Baghdad, Iraq. It commenced only on the last week of August 1981
instead of the June 2 1981
Prior to the deadline, upon foreseeing the impossibility to meet it, the surety bond was also extended for more than 12 times until
May 1987 and the Advance Payment Guarantee was extended three times more until it was cancelled for reimbursement
On 26 October 1986, Al Ahli Bank of Kuwait sent a telex call to the petitioner demanding full payment of its performance bond
counter-guarantee
VPECI requested Iraq Trade and Economic Development Minister Mohammad Fadhi Hussein to recall the telex call on the
performance guarantee for being a drastic action in contravention of its mutual agreement that (1) the imposition of penalty
would be held in abeyance until the completion of the project; and (2) the time extension would be open, depending on the
developments on the negotiations for a foreign loan to finance the completion of the project.
o VPECI advised the Philguarantee not to pay yet Al Ahli Bank because efforts were being exerted for the amicable settlement of
the Project
o VPECI received another telex message from Al Ahli Bank stating that it had already paid to Rafidain Bank the sum of
US$876,564 under its letter of guarantee, and demanding reimbursement by Philguarantee
VPECI requested the Central Bank to hold in abeyance the payment by the Philguarantee "to allow the diplomatic machinery to
take its course, for otherwise, the Philippine government , through the Philguarantee and the Central Bank, would become
instruments of the Iraqi Government in consummating a clear act of injustice and inequity committed against a Filipino
contractor
Central Bank authorized the remittance to Al Ahli Bank
Philguarantee informed VPECI that it would remit US$876,564 to Al Ahli Bank, and reiterated the joint and solidary obligation
of the respondents to reimburse the Philguarantee for the advances made on its counter-guarantee but they failed to pay so a case
was filed in the RTC
RTC and CA: Against Philguarantee since no cause of action since it was expired because VPECI. Inequity to allow the
Philguarantee to pass on its losses to the Filipino contractor VPECI which had sternly warned against paying the Al Ahli Bank
and constantly apprised it of the developments in the Project implementation.
ISSUE: W/N the Philippine laws should be applied in determining VPECI's default in the performance of its obligations under
the service contract
HELD: YES.
No conflicts rule on essential validity of contracts is expressly provided for in our laws
o The rule followed by most legal systems, however, is that the intrinsic validity of a contract must be governed by the lex
contractus or "proper law of the contract." This is the law voluntarily agreed upon by the parties (the lex loci voluntatis) or the
law intended by them either expressly or implicitly (the lex loci intentionis) - none in this case
In this case, the laws of Iraq bear substantial connection to the transaction, since one of the parties is the Iraqi Government and
the place of performance is in Iraq. Hence, the issue of whether respondent VPECI defaulted in its obligations may be determined
by the laws of Iraq. However, since that foreign law was not properly pleaded or proved, the presumption of identity or
similarity, otherwise known as the processual presumption, comes into play. Where foreign law is not pleaded or, even if
pleaded, is not proved, the presumption is that foreign law is the same as ours
In the United States and Europe, the two rules that now seem to have emerged as "kings of the hill" are (1) the parties may
choose the governing law; and (2) in the absence of such a choice, the applicable law is that of the State that "has the most
significant relationship to the transaction and the parties Another authority proposed that all matters relating to the time, place,
and manner of performance and valid excuses for non-performance are determined by the law of the place of performance or lex
loci solutionis, which is useful because it is undoubtedly always connected to the contract in a significant way
In this case, the laws of Iraq bear substantial connection to the transaction, since one of the parties is the Iraqi Government and
the place of performance is in Iraq. Hence, the issue of whether respondent VPECI defaulted in its obligations may be determined
by the laws of Iraq. However, since that foreign law was not properly pleaded or proved, the presumption of identity or
similarity, otherwise known as the processual presumption, comes into play. Where foreign law is not pleaded or, even if
pleaded, is not proved, the presumption is that foreign law is the same as ours
delay or the non-completion of the Project was caused by factors not imputable to the respondent contractor such as the war in
Iraq
petitioner as a guarantor is entitled to the benefit of excussion, that is, it cannot be compelled to pay the creditor SOB unless the
property of the debtor VPECI has been exhausted and all legal remedies against the said debtor have been resorted to by the
creditor. It could also set up compensation as regards what the creditor SOB may owe the principal debtor VPECI. In this case,
however, the petitioner has clearly waived these rights and remedies by making the payment of an obligation that was yet to be
shown to be rightfully due the creditor and demandable of the principal debtor.
Facts:
On April 28, 1980, Private Development Corporation of the Philippines (PDCP) entered into a loanagreement with Falcon
Minerals, Inc. (Falcon) amounting to $320,000.00 subject to terms and conditions.[“Nagpautang ang PDCP sa Falcon ng
$320K ]On the same day, 3 stockholders-officers of Falcon: Ortigas Jr., George A. Scholey, and George T. Scholey executed an
Assumption of Solidary Liability “to assume in [their] individual capacity, solidary liability with[Falcon] for due and punctual
payment” of the loan contracted by Falcon with PDCP. Two (2) separate guaranties were executed to guarantee payment of the
same loan by other stockholders and officers of Falcon, acting in their personal and individual capacities. One guaranty was
executed byEscaño, Silos, Silverio, Inductivo and Rodriguez. Two years later, an agreement developed to cede control of Falcon
to Escaño, Silos and Matti. Contracts were executed whereby Ortigas, George A. Scholey, Inductivo and the heirs of then already
deceased George T. Scholey assigned their shares of stock in Falcon to Escaño, Silos and Matti. An Undertaking dated June 11,
1982 was executed by the concerned parties, namely: with Escaño, Silos and Matti as “SURETIES” and Ortigas, Inductivo and
Scholeys as “OBLIGORS” Falcon eventually availed of the sum of $178,655.59 from the credit line extended by PDCP. It
would alsoexecute a Deed of Chattel Mortgage over its personal properties to further secure the loan.
However,Falcon subsequently defaulted in its payments. After PDCP foreclosed on the chattel mortgage,
thereremained a subsisting deficiency of Php 5,031,004.07 which falcon did not satisfy despite demand.
Issue:
Whether the obligation to repay is solidary, as contended by respondent and the lower courts, ormerely joint as argued by
petitioners.
Held/Ruling:
In case, there is a concurrence of two or more creditors or of two or more debtors in one and thesame obligation, Article 1207 of
the Civil Code states that among them, “[t]here is a solidary liability only when the obligation expressly so states, or when the
law or the nature of the obligation requires solidarity.” Article 1210 supplies further caution against the broad interpretation of
solidarity by providing:“The indivisibility of an obligation does not necessarily give rise to solidarity. Nor does solidarity of itself
imply indivisibility.” These Civil Code provisions establish that in case of concurrence of two or morecreditors or of two or more
debtors in one and the same obligation, and in the absence of express andindubitable terms characterizing the obligation as
solidary, the presumption is that the obligation is only joint. It thus becomes incumbent upon the party alleging that the obligation
is indeed solidary in characterto prove such fact with a preponderance of evidence.Note that Article 2047 itself specifically calls
for the application of the provisions on joint andsolidary obligations to suretyship contracts. Article 1217 of the Civil Code thus
comes into play,recognizing the right of reimbursement from a co-debtor (the principal debtor, in case of suretyship) infavor of
the one who paid (
i.e.
, the surety).
[
However, a significant distinction still lies between a joint andseveral debtor, on one hand, and a surety on the other. Solidarity
signifies that the creditor can compelany one of the joint and several debtors or the surety alone to answer for the entirety of the
principal debt. The difference lies in the respective faculties of the joint and several debtor and the surety to seekreimbursement
for the sums they paid out to the creditor. In the case of joint and several debtors, Article1217 makes plain that the solidary
debtor who effected the payment to the creditor “may claim from hisco-debtors
only the share which corresponds to each,
with the interest for the payment alreadymade.” Such solidary debtor will not be able to recover from the co-debtors the full
amount already paid tothe creditor, because the right to recovery extends only to the proportional share of the other co-
debtors,and not as to the particular proportional share of the solidary debtor who already paid. In contrast, even asthe surety is
solidarily bound with the principal debtor to the creditor, the surety who does pay the creditorhas the right to recover the full
amount paid, and not just any proportional share, from the principal debtoror debtors. Such right to full reimbursement falls
within the other rights, actions and benefits which pertainto the surety by reason of the subsidiary obligation assumed by the
surety.
Rizal Commercial Banking Corporation, petitioner, vs. Hon. Jose P. Arro, Judge of the Court of First Instance of
Davao,and Residoro Chua, respondents. Date:31 July 1982 Ponente:De Castro,J
.Facts:
Private respondent Residoro Chua, with Enrique Go, Sr., executed a comprehensivesurety agreement to guaranty,above all, any
existing or future indebtedness of Davao Agricultural Industries Corporation (Daicor), and/or induce thebank at anytime or from
time to time to make loans or advances or to extend credit to saidDaicor, provided that theliability shall not exceed ay any time
Php100,000.00.A promissory note for Php100,000.00 (for additional capital to the charcoal buy andsell and the activated
carbonimportation business) was issued in favor of petitionerRCBC payable a month after execution. This was signed by Go
inhis personalcapacity and in behalf of Daicor. Respondent Chua did not sign in said promissorynote. As the note was notpaid
despite demands, RCBC filed a complaint for a sum of money against Daicor, Go and Chua.The complaint against Chua was
dismissed upon his motion, alleging that thecomplaint states no cause of actionagainst him as he was not a signatory to the
noteand hence he cannot be held liable. This was s
o despite RCBC’s
opposition, invokingthe comprehensive surety agreement which it holds to cover not just the note inquestion but alsoevery other
indebtedness that Daicor may incur from petitioner bank. RCBC moved for reconsideration of the dismissalbut to no avail.
Hence, this petition.
Issue:
WON respondent Chua may be held liable with Go and Daicor under the promissorynote, even if he was not asignatory to it, in
light of the provisions of thecomprehensive surety agreement wherein he bound himself with Go andDaicor, assolidary debtors,
to pay existing and future debts of said corporation.
Held:
Yes, he may be held liable. Order dismissing the complaint against respondent Chuareversed and set aside. Caseremanded to
court of origin with instruction to set asidemotion to dismiss and to require defendant Chua to answer thecomplaint.
Ratio:
The comprehensive surety agreement executed by Chua and Go, as president andgeneral manager, respectively,of Daicor, was to
cover existing as well as futureobligations which Daicor may incur with RCBC. This was only subject tothe provisothat their
liability shall not exceed at any one time the aggregate principal amount of Php100,000.00. (Par.1of said agreement).
The agreement was executed to induce petitioner Bank to grant any application for aloan Daicor would request for.According to
said agreement, the guaranty iscontinuing and shall remain in full force or effect until the bank is notifiedof itstermination.During
the time the loan under the promissory note was incurred, the agreement wasstill in full force and effect and isthus covered by the
latter agreement. Thus, even if Chua did not sign the promissory note, he is still liable by virtue of the suretyagreement. The only
condition necessary for him to be
liable under the agreementwas that Daicor “is or maybecome liable as maker, endorser, acceptor or otherwise.”
The comprehensive surety agreement signed by Go and Chua was as an accessoryobligation dependent upon theprincipal
obligation, i.e., the loan obtained by Daicoras evidenced by the promissory note. The surety agreementunequivocally shows that
it was executed to guarantee futuredebts that may be incurred by Daicor with petitioner, asallowed under NCC Art.2053.
“A guaranty may also be given as se
curity for future debts, the amount of which isnot yet known; there can be no claim
against the guarantor until the debt isliquidated. A conditional obligation may also be secured.”
Inter-Resin Industrial Corporation opened a letter of credit with the Manila Banking Corporation. To secure payment of the credit
accommodation, Inter-Resin Industrial and the Investment and Underwriting Corporation of the Philippines (IUCP) executed two
documents, both entitled "Continuing Surety Agreement", whereby they bound themselves solidarily to pay Manilabank.
Thereafter, Inter-Resin Industrial, together with Willex Plastic Industries Corp., executed a "Continuing Guaranty" in favor of IUCP
whereby "For and in consideration of the sum or sums obtained and/or to be obtained by Inter-Resin Industrial Corporation"
from IUCP, Inter-Resin Industrial and Willex Plastic jointly and severally guarantee "the prompt and punctual payment at maturity
of the NOTE/S issued by the DEBTOR/S to the extent of the aggregate principal sum of FIVE MILLION PESOS (P5,000,000.00)
Philippine Currency and such interests, charges and penalties as hereafter may be specified."
Following demand upon it, IUCP paid to Manilabank the sum of P4,334,280.61 representing Inter-Resin Industrial's outstanding
obligation. Atrium Capital Corp., which in the meantime had succeeded IUCP, demanded from Inter-Resin Industrial and Willex
Plastic the payment of what it (IUCP) had paid to Manilabank. As neither one of the sureties paid, Atrium filed this case in the
court below against Inter-Resin Industrial and Willex Plastic.
Inter-Resin Industrial paid some of the amounts due. Willex Plastic denied the material allegations of the complaint. It argues
that under the "Continuing Guaranty," its liability is for sums obtained by Inter-Resin Industrial from Interbank, not for sums paid
by the latter to Manilabank for the account of Inter-Resin Industrial.
As already stated, the amount had been paid by Interbank's predecessor-in-interest, Atrium Capital, to Manilabank pursuant to
the "Continuing Surety Agreements" made on December 1, 1978. In denying liability to Interbank for the amount, Willex Plastic
argues that under the "Continuing Guaranty," its liability is for sums obtained by Inter-Resin Industrial from Interbank, not for
sums paid by the latter to Manilabank for the account of Inter-Resin Industrial.
Issue
Whether under the "Continuing Guaranty" signed on April 2, 1979, Willex Plastic may be held jointly and severally liable with
Inter-Resin Industrial for the amount by Interbank to Manilabank.
Held
Yes. Willex Plastic has overlooked is the fact that evidence aliunde was introduced in the trial court to explain that it was actually
to secure payment to Interbank (formerly IUCP) of amounts paid by the latter to Manilabank that the "Continuing Guaranty" was
executed.
Interbank adduced evidence to show that the "Continuing Guaranty" had been made to guarantee payment of amounts made
by it to Manilabank and not of any sums given by it as loan to Inter-Resin Industrial.
Accordingly, the trial court found that it was "to secure the guarantee made by plaintiff of the credit accommodation granted to
defendant IRIC [Inter-Resin Industrial] by Manilabank, [that] the plaintiff required defendant IRIC to execute a chattel mortgage
in its favor and a Continuing Guaranty which was signed by the defendant Willex Plastic Industries Corporation."
Similarly, the Court of Appeals found it to be an undisputed fact that "to secure the guarantee undertaken by plaintiff-appellee
[Interbank] of the credit accommodation granted to Inter-Resin Industrial by Manilabank, plaintiff-appellee required defendant-
appellants to sign a Continuing Guaranty.
Willex Plastic admitted that it was "to secure the aforesaid guarantee, that INTERBANK required principal debtor IRIC [Inter-Resin
Industrial] to execute a chattel mortgage in its favor, and so a 'Continuing Guaranty' was executed on April 2, 1979 by WILLEX
PLASTIC INDUSTRIES CORPORATION (WILLEX for brevity) in favor of INTERBANK for and in consideration of the loan obtained by
IRIC [Inter-Resin Industrial]."
Put in another way the consideration necessary to support a surety obligation need not pass directly to the surety, a
consideration moving to the principal alone being sufficient. For a "guarantor or surety is bound by the same consideration that
makes the contract effective between the principal parties thereto. . . . It is never necessary that a guarantor or surety should
receive any part or benefit, if such there be, accruing to his principal."