SBTC v. Cuenca

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VOL. 341, OCTOBER 3, 2000
781
Security Bank and Trust Company, Inc. vs. Cuenca

*
G.R. No. 138544. October 3, 2000.
SECURITY BANK AND TRUST COMPANY, INC.,

petitioner, vs. RODOLFO M. CUENCA, respondent.
Actions; Motions for Reconsideration; Pleadings and Practice;
A motion for reconsideration is not pro forma just because it
reiterated the arguments earlier passed upon and rejected by the
court.Respondent contends that petitioners Motion for
Reconsideration of the CA Decision, in merely rehashing the
arguments already passed upon by the appellate court, was pro
forma; that as such, it did not toll the period for filing the present
Petition for Review. Consequently, the Petition was filed out of time.
We disagree. A motion for reconsideration is not pro forma just
because it reiterated the arguments earlier passed upon and
rejected by the appellate court. The Court has explained that a
movant may raise the same arguments, precisely to convince the
court that its ruling was erroneous.
Same; Same; Same; Where the circumstances of a case do not
show an intent on the part of the movant merely to delay the
proceedings, the Supreme Court has refused to characterize the
motion as simply pro forma.There is no clear showing of intent on
the part of petitioner to delay the proceedings. In Marikina Valley
Development Corporation vs. Flojo, the Court explained that a pro
forma motion had no other purpose than to gain time and to delay
or impede the proceedings. Hence, where the circumstances of a
case do not show an intent on the part of the movant merely to
delay the proceedings, our Court has refused to characterize the
motion as simply pro forma. It held: We note finally that because
the doctrine relating to pro forma motions for reconsideration
impacts upon the reality and substance of the statutory right of
appeal, that doctrine should be applied reasonably, rather than
literally. The right to appeal,
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_______________
*
THIRD DIV ISION.
782
782
SUPREME COURT REPORTS ANNOTATED

where it exists, is an important and valuable right. Public policy

would be better served by according the appellate court an effective
opportunity to review the decision of the trial court on the merits,
rather than by aborting the right to appeal by a literal application
of the procedural rules relating to pro forma motions for
reconsideration.
Pleadings and Practice; Service of Pleadings; The explanation
that service was done by registered mail in lieu of personal service
due to limitations in time and distance sufficiently shows that
personal service was not practicable.The Petition does state that it
was served on the respective counsels of Sta. Ines and Cuenca by
registered mail in lieu of personal service due to limitations in time
and distance. This explanation sufficiently shows that personal
service was not practicable. In any event, we find no adequate
reason to reject the contention of petitioner and thereby deprive it of
the opportunity to fully argue its cause.
Novation; Requisites; In the absence of an express agreement,
novation takes place only when the old and the new obligations are
incompatible on every point.Novation of a contract is never
presumed. It has been held that [i]n the absence of an express
agreement, novation takes place only when the old and the new
obligations are incompatible on every point. Indeed, the following
requisites must be established: (1) there is a previous valid
obligation; (2) the parties concerned agree to a new contract; (3) the
old contract is extinguished; and (4) there is a valid new contract.
Same; Loans; That a subsequent loan agreement extinguished
an obligation earlier obtained under a credit accommodation could
be evidenced by its explicit provision to liquidate the principal
and the interest of the earlier indebtedness.We reject these
contentions. Clearly, the requisites of novation are present in this
case. The 1989 Loan Agreement extinguished the obligation
obtained under the 1980 credit accommodation. This is evident from
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its explicit provision to liquidate the principal and the interest of

the earlier indebtedness, as the following shows: 1.02. Purpose. The
First Loan shall be applied to liquidate the principal portion of the
Borrowers present total outstanding Indebtedness to the Lender
(the Indebtedness) while the Second Loan shall be applied to
liquidate the past due interest and penalty portion of the
Indebtedness. (Italics supplied.) The testimony of an officer of the
bank that the proceeds of the 1989 Loan Agreement were used to
pay-off the original indebtedness serves to strengthen this ruling.
783
783

Same; Same; Where the subsequent loan agreement
extinguished the original credit accommodation, the Indemnity
Agreement, an accessory obligation, was also necessarily
extinguished.Since the 1989 Loan Agreement had extinguished
the original credit accommodation, the Indemnity Agreement, an
accessory obligation, was necessarily extinguished also, pursuant to
Article 1296 of the Civil Code, which provides: ART. 1296. When
the principal obligation is extinguished in consequence of a
novation, accessory obligations may subsist only insofar as they
may benefit third persons who did not give their consent.
Loans; Guaranty; An extension granted to the debtor by the
creditor without the consent of the guarantor extinguishes the
guaranty; Rationale.To begin with, the 1989 Loan Agreement
expressly stipulated that its purpose was to liquidate, not to renew
or extend, the outstanding indebtedness. Moreover, respondent did
not sign or consent to the 1989 Loan Agreement, which had
allegedly extended the original P8 million credit facility. Hence, his
obligation as a surety should be deemed extinguished, pursuant to
Article 2079 of the Civil Code, which specifically states that [a]n
extension granted to the debtor by the creditor without the consent
of the guarantor extinguishes the guaranty, x x x. In an earlier
case, the Court explained the rationale of this provision in this wise:
The theory behind Article 2079 is that an extension of time given
to the principal debtor by the creditor without the suretys consent
would deprive the surety of his right to pay the creditor and to be
immediately surrogated to the creditors remedies against the
principal debtor upon the maturity date. The surety is said to be
entitled to protect himself against the contingency of the principal
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debtor or the indemnitors becoming insolvent during the extended

period.
Same; Same; Suretyship; An essential alteration in the terms of
a Loan Agreement without the consent of the surety extinguishes the
latters obligation.At the outset, we should emphasize that an
essential alteration in the terms of the Loan Agreement without the
consent of the surety extinguishes the latters obligation. As the
Court held in National Bank v. Veraguth , [i]t is fundamental in
the law of suretyship that any agreement between the creditor and
the principal debtor which essentially varies the terms of the
principal contract, without the consent of the surety, will release the
surety from liability.
Same; Same; Same; Even as a surety held himself liable for the
credit accommodation or any modification thereof, such clause
should be understood in the context of the loan limit and the term.
While respondent held himself liable for the credit accommodation
or any modification thereof,
784
784

and the November 30, 1981 term. It did not give the bank or Sta.
Ines any license to modify the nature and scope of the original
credit accommodation, without informing or getting the consent of
respondent who was solidarily liable. Taking the banks submission
to the extreme, respondent (or his successors) would be liable for
loans even amounting to, say, P100 billion obtained 100 years after
the expiration of the credit accommodation, on the ground that he
consented to all alterations and extensions thereof.
Same; Same; Same; It is a well-settled legal principle that if
there is any doubt on the terms and conditions of the surety
agreement, the doubt should be resolved in favor of the surety; In
the absence of an unequivocal provision that the surety waived his
right to be notified of or to give consent to any alteration of the
credit accommodation, waiver could not be presumed.It has been
held that a contract of surety cannot extend to more than what is
stipulated. It is strictly construed against the creditor, every doubt
being resolved against enlarging the liability of the surety.
Likewise, the Court has ruled that it is a well-settled legal principle
that if there is any doubt on the terms and conditions of the surety
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agreement, the doubt should be resolved in favor of the surety x x

x. Ambiguous contracts are construed against the party who caused
the ambiguity. In the absence of an unequivocal provision that
respondent waived his right to be notified of or to give consent to
any alteration of the credit accommodation, we cannot sustain
petitioners view that there was such a waiver.
Same; Same; Same; The submission that only the borrower, not
the surety, is entitled to be notified of any modification in the
original loan accommodation is untenablesuch theory is contrary
to the principle that a surety cannot assume an obligation more
onerous than that of the principal.We reject petitioners
submission that only Sta. Ines as the borrower, not respondent, was
entitled to be notified of any modification in the original loan
accommodation. Following the banks reasoning, such modification
would not be valid as to Sta. Ines if no notice were given; but would
still be valid as to respondent to whom no notice need be given. The
latters liability would thus be more burdensome than that of the
former. Such untenable theory is contrary to the principle that a
surety cannot assume an obligation more onerous than that of the
principal.
Same; Same; Same; Continuing Sureties; Words and Phrases;
That the Indemnity Agreement is a continuing surety does not
authorize the lender to extend the scope of the principal obligation
inordinately; A continuing guaranty is one which covers all
transactions, including those
785
785

arising in the future, which are within the description or
contemplation of the contract of guaranty, until the expiration or
termination thereof That the Indemnity Agreement is a
continuing surety does not authorize the bank to extend the scope
of the principal obligation inordinately. In Dino v. CA, the Court
held that a continuing guaranty is one which covers all
transactions, including those arising in the future, which are within
the description or contemplation of the contract of guaranty, until
the expiration or termination thereof To repeat, in the present case,
the Indemnity Agreement was subject to the two limitations of the
credit accommodation: (1) that the obligation should not exceed P8
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million, and (2) that the accommodation should expire not later
than November 30, 1981. Hence, it was a continuing surety only in
regard to loans obtained on or before the aforementioned expiry
date and not exceeding the total of P8 million.
Same; Same; Same; Same; Comprehensive or continuing surety
agreements are in fact quite commonplace in present day financial
and commercial practice.In Atok Finance Corp. v. CA , 222 SCRA
232, 245, May 18, 1993, per Feliciano, J., the Court explained the
nature of a continuing surety in this wise: Comprehensive or
continuing surety agreements are in fact quite commonplace in
present day financial and commercial practice. A bank or financing
company which anticipates entering into a series of credit
transactions with a particular company, commonly requires the
projected principal debtor to execute a continuing surety agreement
along with its sureties. By executing such an agreement, the
principal places itself in a position to enter into the projected series
of transactions with its creditor; with such suretyship agreement,
there would be no need to execute a separate surety contract or
bond for each financing or credit accommodation extended to the
principal debtor.
Same; Same; Same; Banks and Banking; It is a common
banking practice to require the JSS (joint and solidary signature)
of a major stockholder or corporate officer, as an additional security
for loans granted to corporations.It is a common banking practice
to require the JSS (joint and solidary signature) of a major
stockholder or corporate officer, as an additional security for loans
granted to corporations. There are at least two reasons for this.
First, in case of default, the creditors recourse, which is normally
limited to the corporate properties under the veil of separate
corporate personality, would extend to the personal assets of the
surety. Second, such surety would be compelled to ensure that the
loan would be used for the purpose agreed upon, and that it would
be paid by the corporation.
786
786

Same; Same; Same; There is no reason or logic for the lender or

the borrower to assume that a former principal officer or stockholder
would still agree to act as surety in a subsequent loan agreement, if
at such later time, he was no longer an officer or a stockholder of the
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debtorcorporation.Following this practice, it was therefore logical

and reasonable for the bank to have required the JSS of
respondent, who was the chairman and president of Sta. Ines in
1980 when the credit accommodation was granted. There was no
reason or logic, however, for the bank or Sta. Ines to assume that he
would still agree to act as surety in the 1989 Loan Agreement,
because at that time, he was no longer an officer or a stockholder of
the debtor-corporation. Verily, he was not in a position then to
ensure the payment of the obligation. Neither did he have any
reason to bind himself further to a bigger and more onerous
obligation.
PETITION for review on certiorari of a decision of the Court

of Appeals.
The facts are stated in the opinion of the Court.
De Borja, Medialdea, Bello, Gueuarra & Gerodias for
petitioner.
Carpio, Villaraza & Cruz for respondent R. Cuenca.
Beltran, De Grano, Mendoza & Sarmiento for Sta.
Ines-Melale Corporation.
PANGANIBAN, J .:
Being an onerous undertaking, a surety agreement is
strictly construed against the creditor, and every doubt is
resolved in favor of the solidary debtor. The fundamental
rules of fair play require the creditor to obtain the consent of
the surety to any material alteration in the principal loan
agreement, or at least to notify it thereof. Hence, petitioner
bank cannot hold herein respondent liable for loans
obtained in excess of the amount or beyond the period
stipulated in the original agreement, absent any clear
stipulation showing that the latter waived his right to be
notified thereof, or to give consent thereto. This is especially
true where, as in this case, respondent was no longer the
principal officer or major stockholder of the corporate debtor,
the time the later obligations were incurred. He was thus no
longer in a position to compel the
787
787
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debtor to pay the creditor and had no more reason to bind

himself anew to the subsequent obligations.
The Case
This is the main principle used in denying the present
Petition for Review under Rule 45 of the Rules of1 Court.
Petitioner assails the December 22, 1998 Decision of the
Court of Appeals (CA) in CA-GR CV No. 56203, the
dispositive portion of which reads as follows:
WHEREFORE, the judgment appealed from is hereby amended in
the sense that defendant-appellant Rodolfo M. Cuenca [herein
respondent] is RELEASED from liability to pay any amount stated
in the judgment.
Furthermore, [Respondent] Rodolfo M. Cuencas counterclaim is
hereby DISMISSED for lack of merit.
In all other respect[s], the decision appealed from is AFFIRMED.
2
Also challenged is the April 14, 1999 CA Resolution, which

denied petitioners Motion for Reconsideration.
4
Modified by the CA was the March 6, 1997 Decision of
the Regional Trial Court (RTC) of Makati City (Branch 66)
in Civil Case No. 93-1925, which disposed as follows:
WHEREFORE, judgment is hereby rendered ordering defendants
Sta. Ines Melale Corporation and Rodolfo M. Cuenca to pay, jointly
and severally, plaintiff Security Bank & Trust Company the sum of
P39,129,124.73 representing the balance of the loan as of May 10,
1994 plus 12% interest per annum until fully paid, and the sum of
P100,000.00 as attorneys fees and litigation expenses and to pay
the costs.
SO ORDERED.
_______________
1
Written by Justice Jorge S. Imperial (Division chairman), with the
concurrence of Justices Hector L. Hofilea and Omar U. Amin

(members).
2
CA Decision, pp. 32-33; rollo, pp. 52-53.
Rollo, p. 56. Penned by Justice Amin with the concurrence of Justices
Hofilea and Marina L. Buzon.

4
Written by Judge Eriberto U. Rosario, Jr. (now a member of the
Court of Appeals).
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788
788

The Facts
5
The facts are narrated by the Court of Appeals as follows:
The antecedent material and relevant facts are that defendantappellant Sta. Ines Melale (Sta. Ines) is a corporation engaged in
logging operations. It was a holder of a Timber License Agreement
issued by the Department of Environment and Natural Resources
(DENR).
On 10 November 1980, [Petitioner] Security Bank and Trust Co.
granted appellant Sta. Ines Melale Corporation [SIMC] a credit line
in the amount of [e]ight [m]illion [p]esos (P8,000,000.00) to assist
the latter in meeting the additional capitalization requirements of
its logging operations.
The Credit Approval Memorandum expressly stated that the
P8M Credit Loan Facility shall be effective until 30 November 1981:
JOINT CONDITIONS:
1. Against Chattel Mortgage on logging trucks and/or
inventories (except logs) valued at 200% of the lines plus
JSS of Rodolfo M. Cuenca;
2. Submission of an appropriate Board Resolution authorizing
the borrowings, indicating therein the companys duly
authorized signatory/ies;
3. Reasonable/compensating deposit balances in current
account shall be maintained at all times; in this connection,
a Makati account shall be opened prior to availment on
lines;
4. Lines shall expire on November 30, 1981; and
5. The bank reserves the right to amend any of the
aforementioned terms and conditions upon written notice to
the Borrower. (Emphasis supplied.)
To secure the payment of the amounts drawn by appellant
SIMC from the above-mentioned credit line, SIMC executed a
Chattel Mortgage dated 23 December 1980 (Exhibit A) over some
of its machinery and equipment in favor of [Petitioner] SBTC. As
additional security for the payment of the loan, [Respondent]
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Rodolfo M. Cuenca executed an Indemnity Agreement dated 17

December 1980 (Exhibit B) in favor of [Petitioner] SBTC whereby
he solidarily bound himself with SIMC as follows:
xxx
xxx
xxx
_______________
5
CA Decision, pp. 4-9; rollo, pp. 24-29.

789
789

Rodolfo M. Cuenca x x x hereby binds himself x x x jointly and severally
with the client (SIMC) in favor of the bank for the payment, upon demand
and without the benefit of excussion of whatever amount x x x the client
may be indebted to the bank x x x by virtue of aforesaid credit
accommodation(s) including the substitutions, renewals, extensions,
increases, amendments, conversions and revivals of the aforesaid credit
accommodation(s) x x x. (Emphasis supplied).
On 26 November 1981, four (4) days prior to the expiration of the

period of effectivity of the P8M-Credit Loan Facility, appellant
SIMC made a first drawdown from its credit line with [Petitioner]
SBTC in the amount of [s]ix [m]illion [o]ne [h]undred [t]housand
[p]esos (P6,100,000.00). To cover said drawdown, SIMC duly
executed promissory Note No. TD/TLS-3599-81 for said amount
(Exhibit C).
Sometime in 1985, [Respondent] Cuenca resigned as President
and Chairman of the Board of Directors of defendant-appellant Sta.
Ines. Subsequently, the shareholdings of [Respondent] Cuenca in
defendant-appellant Sta. Ines were sold at a public auction relative
to Civil Case No. 18021 entitled Adolfo A. Angala vs. Universal
Holdings, Inc. and Rodolfo M. Cuenca. Said shares were bought by
Adolfo Angala who was the highest bidder during the public
auction.
Subsequently, appellant SIMC repeatedly availed of its credit
line and obtained six (6) other loan[s] from [Petitioner] SBTC in the
aggregate amount of [s]ix [m]illion [t]hree [h]undred [s]ixty-[n]ine
[t]housand [n]ineteen and 50/100 [p]esos (P6,369,019.50).
Accordingly, SIMC executed Promissory Notes Nos. DLS/74/760/85,
DLS/74773/85, DLS/74/78/85, DLS/74/760/85, DLS/74/12/86, and
DLS/74/47/86 to cover the amounts of the abovementioned
additional loans against the credit line.
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6
Appellant SIMC, however, encountered difficulty in making the

amortization payments on its loans and requested [Petitioner] SBTC
for a complete restructuring of its indebtedness. SBTC
accommodated appellant SIMCs request and signified its approval
in a letter dated 18 February 1988 (Exhibit G) wherein SBTC and
defendant-appellant Sta. Ines, without notice to or the prior consent
of [Respondent] Cuenca, agreed to restructure the past due
obligations of defendant-appellant Sta.
_______________
6
According to the RTC, Sta. Ines Timber License Agreement, which was
supposed to expire on July 15, 1998, was suspended by the Department of

Environment and Natural Resources on December 6, 1989 and eventually
cancelled on May 4, 1990. (RTC Decision, p. 3; rollo, p. 12.)
790
790

[Petitioner] Security Bank agreed to extend to defendant-appellant

Sta. Ines the following loans:
a. Term loan in the amount of [e]ight [m]illion [e]ight
[h]undred [t]housand [p]esos (P8,800,000.00), to be applied
to liquidate the principal portion of defendant-appellant Sta.
InesF] total outstanding indebtedness to [Petitioner]
Security Bank (cf. P. 1 of Exhibit G, Expedient, at Vol. II,
p. 336; Exhibit 5-B-Cuenca, Expediente, et Vol. I, pp. 33 to
34) and
b. Term loan in the amount of [t]hree [m]illion [f]our
[h]undred [t]housand [p]esos (P3,400,000.00), to be applied
to liquidate the past due interest and penalty portion of the
indebtedness of defendant-appellant Sta. Ines to [Petitioner]
Security Bank (cf. Exhibit G, Expediente, at Vol. II, p. 336;
Exhibit 5-B-Cuenca, Expediente, at Vol. II, pp. 33 to 34).
It should be pointed out that in restructuring defendantappellant Sta. Ines obligations to [Petitioner] Security Bank,
Promissory Note No. TD-TLS-3599-81 in the amount of [s]ix
[m]illion [o]ne [h]undred [t]housand [p]esos (P6,100,000.00), which
was the only loan incurred prior to the expiration of the P8M-Credit
Loan Facility on 30 November 1981 and the only one covered by the
Indemnity Agreement dated 19 December 1980 (Exhibit 3-Cuenca,
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Expediente, at Vol. II, p. 331), was not segregated from, but was
instead lumped together with, the other loans, i.e., Promissory Notes
Nos. DLS/74/12/86, DLS/74/28/86 and DLS/74/47/86 (Exhibits D,
E, and F, Expediente, at Vol. II, pp. 333 to 335) obtained by
defendant-appellant Sta. Ines which were not secured by said
Indemnity Agreement.
Pursuant to the agreement to restructure its past due
obligations to [Petitioner] Security Bank, defendant-appellant Sta.
Ines thus executed the following promissory notes, both dated 09
March 1988 in favor of [Petitioner] Security Bank:
PROMISSORY NOTE NO.
AMOUNT
RL74/596/88
P 8,800,000.00
RL74/597/88
P 3,400,000.00
TOTAL
P12,200,000.00
(Exhibits H and I, Expediente, at Vol. II, pp. 338 to 343).

To formalize their agreement to restructure the loan obligations
of defendant-appellant Sta. Ines, [Petitioner] Security Bank and
defendant-appellant Sta. Ines executed a Loan Agreement dated 31
October 1989 (Exhibit 5-Cuenca, Expediente, at Vol. I, pp. 33 to
41). Section 1.01 of the said Loan Agreement dated 31 October 1989
provides:
791
791

1.01 AmountThe Lender agrees to grant loan to the Borrower in the
aggregate
amount
of
TWELVE
MILLION
THOUSAND PESOS (P12,200,000.00),
TWO
HUNDRED
Philippines [c]urrency
(the
Loan). The loan shall be released in two (2) tranches of P8,800,000.00 for
the first tranche (the First Loan) and P3,400,000.00 for the second
tranche (the Second Loan) to be applied in the manner and for the
purpose stipulated hereinbelow.
1.02 PurposeThe First Loan shall be applied to liquidate the
principal portion of the Borrowers present total outstanding indebtedness
to the Lender (the indebtedness) while the Second Loan shall be applied
to liquidate the past due interest and penalty portion of the Indebtedness.
(Italics supplied.) (cf. p. 1 of Exhibit 5-Cuenca, Expediente, at Vol. I, p.
33)
From 08 April 1988 to 02 December 1988, defendant-appellant Sta.

Ines made further payments to [Petitioner] Security Bank in the
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amount of [o]ne [m]illion [s]even [h]undred [f]ifty-[s]even

[t]housand [p]esos (P1,757,000.00) (Exhibits 8, 9-P-SIMC up to
9-GG-SIMC, Expediente, at Vol. II, pp. 38, 70 to 165)
Appellant SIMC defaulted in the payment of its restructured
loan obligations to [Petitioner] SBTC despite demands made upon
appellant SIMC and CUENCA, the last of which were made
through separate letters dated 5 June 1991 (Exhibit K) and 27
June 1991 (Exhibit L), respectively.
Appellants individually and collectively refused to pay the
[Petitioner] SBTC. Thus, SBTC filed a complaint for collection of
sum of money on 14 June 1993, resulting after trial on the merits in
a decision by the court a quo, x x x from which [Respondent]
Cuenca appealed.
Ruling of the Court of Appeals

In releasing Respondent Cuenca from liability, the CA
ruled that the 1989 Loan Agreement had novated the 1980
credit accommodation earlier granted by the bank to Sta.
Ines. Accordingly, such novation extinguished the
Indemnity Agreement, by which Cuenca, who was then the
board chairman and president of Sta. Ines, had bound
himself solidarily liable for the payment of the loans secured
by that credit accommodation. It noted that the 1989 Loan
Agreement had been executed without notice to, much less
consent from, Cuenca who at the time was no longer a
stockholder of the corporation.
792
792

The appellate court also noted that the Credit Approval

Memorandum had specified that the credit accommodation
was for a total amount of P8 million, and that its expiry date
was November 30, 1981. Hence, it ruled that Cuenca was
liable only for loans obtained prior to November 30, 1981,
and only for an amount not exceeding P8 million.
It further held that the restructuring of Sta. Ines
obligation under the 1989 Loan Agreement was tantamount
to a grant of an extension of time to the debtor without the
consent of the surety. Under Article 2079 of the Civil Code,
such extension extinguished the surety.
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The CA also opined that the surety was entitled to notice,

in case the bank and Sta. Ines decided to materially alter or
modify the principal obligation after the expiry date of the
credit accommodation.
7
Hence, this recourse to this Court.
The Issues
In its Memorandum,
petitioner submits the following for our
8
consideration:
A. Whether or not the Honorable Court of Appeals erred in
releasing Respondent Cuenca from liability as surety under the
Indemnity Agreement for the payment of the principal amount of
twelve million two hundred thousand pesos (P12,200,000.00) under
Promissory Note No. RL/74/596/88 dated 9 March 1988 and
Promissory Note No. RL/74/597/88 dated 9 March 1988, plus
stipulated interests, penalties and other charges due thereon;
_______________
7
This case was deemed submitted for decision on May 8, 2000, upon
receipt by this Court of respondents Reply Memorandum signed by Attys.

Elvira C. Oquendo and Vissia Concepcion C. Calderon of Carpio Villaraza
& Cruz. Filed earlier on March 3, 2000, was petitioners Memorandum,
signed by Attys. Menardo I. Guevarra, Adrian Ferdinand S. Sugay and
Ma. Jazmin B. Banal of De Borja Medialdea Bello Guevarra & Gerodias.
8
Petitioners Memorandum, pp. 9-10; rollo, pp. 320-321. All in upper
case in the original.

793
793

i. Whether or not the Honorable Court of Appeals erred in
ruling that Respondent Cuencas liability under the
Indemnity Agreement covered only availments on SIMCs
credit line to the extent of eight million pesos
(P8,000,000.00) and made on or before 30 November 1981;
ii. Whether or not the Honorable Court of Appeals erred in
ruling that the restructuring of SIMCs indebtedness under
the P8 million credit accommodation was tantamount to an
extension granted to SIMC without Respondent Cuencas
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consent, thus extinguishing his liability under the

Indemnity Agreement pursuant to Article 2079 of the Civil
Code;
iii. Whether or not the Honorable Court of appeals erred in
ruling that the restructuring of SIMCs indebtedness under
the P8 million credit accommodation constituted a novation
of the principal obligation, thus extinguishing Respondent
Cuencas liability under the indemnity agreement;
B. Whether or not Respondent Cuencas liability uncter the
Indemnity Agreement was extinguished by the payments
made by SIMC;
C. Whether or not petitioners Motion for Reconsideration was
pro forma;
D. Whether or not service of the Petition by registered mail
sufficiently complied with Section 11, Rule 13 of the 1997
Rules of Civil Procedure.
Distilling the foregoing, the Court will resolve the following issues:
(a) whether the 1989 Loan Agreement novated the original credit
accommodation and Cuencas liability under the Indemnity
Agreement; and (b) whether Cuenca waived his right to be notified
of and to give consent to any substitution, renewal, extension,
increase, amendment, conversion or revival of the said credit
accommodation. As preliminary matters, the procedural questions
raised by respondent will also be addressed.
The Courts Ruling

The Petition has no merit.
794
794

Preliminary Matters: Procedural Questions

Motion for Reconsideration
Not Pro Forma
Respondent
contends
that
petitioners
Motion
for
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Reconsideration of the CA Decision, in merely rehashing

the arguments already passed upon by the appellate court,
was pro forma; that as such, it did not9 toll the period for
filing the present Petition for
Review. Consequently, the
10
Petition was filed out of time.
We disagree. A motion for reconsideration is not pro
forma just because it reiterated the arguments earlier
passed upon and rejected by the appellate court. The Court
has explained that a movant may raise the same
arguments, precisely
to convince the court that its ruling
11
was erroneous.
Moreover, there is no clear showing of intent on the part
of petitioner to delay the proceedings.
In Marikina Valley
12
Development Corporation vs. Flojo, the Court explained
that a pro forma motion had no other purpose than to gain
time and to delay or impede the proceedings. Hence, where
the circumstances of a case do not show an intent on the
part of the movant merely to delay the proceedings, our
Court has refused to characterize the motion as simply pro
forma. It held:
We note finally that because the doctrine relating to pro forma
motions for reconsideration impacts upon the reality and substance
of the statutory right of appeal, that doctrine should be applied
reasonably, rather than literally. The right to appeal, where it
exists, is an important and valuable right. Public policy would be
better served by according the appellate court an effective
opportunity to review the decision of the trial court on the merits,
rather than by aborting the right to appeal by a literal
_______________
9
2, Rule 37 of the Rules of Court, provides that [a] pro forma motion for
new trial or reconsideration shall not toll the reglementary period of appeal.
10
Respondents Memorandum, pp. 114-115; rollo, pp. 480-481.
11
See Guerra Enterprises v. CFI, 32 SCRA 314, April 17, 1970.
12
251 SCRA 87, December 8, 1995, per Feliciano, J.
795
795

application of the procedural rules relating to pro forma motions for
reconsideration.
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Section 11, Rule 13 of the 1997 Rules of Court, provides as

follows:
SEC. 11. Priorities in modes of service and filing.Whenever
practicable, the service and filing of pleadings and other papers
shall be done personally. Except with respect to papers emanating
from the court, a resort to other modes must be accompanied by a
written explanation why the service or filing was not done
personally. A violation of this Rule may be cause to consider the
paper as not filed.
Respondent maintains that the present Petition for Review

does not contain a sufficient written explanation why it was
served by registered mail.
We do not think so.13 The Court held in Solar
Entertainment v. Ricafort that the aforecited rule was
mandatory, and that only when personal service or filing is
not practicable may resort to other modes be had, which
must then be accompanied by a written explanation as to
why personal service or filing was not practicable to begin
with.
In this case, the Petition does state that it was served on
the respective counsels of Sta. Ines and Cuenca by
registered mail in lieu of personal service due to limitations
in time and distance.14 This explanation sufficiently shows
that personal service was not practicable. In any event, we
find no adequate reason to reject the contention of petitioner
and thereby deprive it of the opportunity to fully argue its
cause.
_______________
13
293 SCRA 661, August 5, 1998, per Davide, J. (now CJ).
14
Petition for Review, p. 29; rollo, p. 92.

796
796

First Issue: Original Obligation Extinguished by

Novation
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An obligation may be extinguished by novation, pursuant to

Article 1292 of the Civil Code, which reads as follows:
ART. 1292. In order that an obligation may be extinguished by
another which substitute the same, it is imperative that it be so
declared in unequivocal terms, or that the old and the new
obligations be on every point incompatible with each other.
Novation of a contract is never presumed. It has been held

that [i]n the absence of an express agreement, novation
takes place only when the old and
the new obligations are
15
incompatible on every point. Indeed, the following
requisites must be established: (1) there is a previous valid
obligation; (2) the parties concerned agree to a new contract;
(3) the old contract
is extinguished; and (4) there is a valid
16
new contract.
Petitioner contends that there was no absolute
incompatibility between the old and the new obligations,
and that the latter did not extinguish the earlier one. It
further argues that the 1989 Agreement did not change the
original loan in respect to the parties involved or the
obligations incurred. It adds that
the terms of the 1989
17
Contract were not more onerous. Since the original credit
accomodation was not extinguished, it concludes that
Cuenca is still liable under the Indemnity Agreement.
We reject these contentions. Clearly, the requisites of
novation are present in this case.18 The 1989 Loan
Agreement extinguished the obligation obtained under the
1980 credit accomodation. This is evident from its explicit
provision to liquidate the principal and the interest of the
earlier indebtedness, as the following shows:
_______________
15
16
Lim Tay v . CA, 293 SCRA 364, August 5, 1998, per Panganiban, J.
Cruz v . CA, 293 SCRA 239, July 27, 1998; citing Vitug,
Compendium of Civil Law and Jurisprudence, 1993 ed., p. 528.

17
Petitioners Memorandum, pp. 25-26; rollo, pp. 336-337.
18
As will be shown later, only one loan was obtained before the expiry
date of the 1980 credit accommodation.

797
797

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1.02. Purpose. The First Loan shall be applied to liquidate the

principal portion of the Borrowers present total outstanding
Indebtedness to the Lender (the Indebtedness) while the Second
Loan shall be applied to liquidate
the past due interest and penalty
19
portion of the Indebtedness. (Italics supplied.)
20
The testimony of an officer of the bank that the proceeds of

the 1989 Loan Agreement were used to pay-off
the original
21
indebtedness serves to strengthen this ruling.
Furthermore, several incompatibilities between the 1989
Agreement and the 1980 original obligation demonstrate
that the two cannot coexist. While the 1980 credit
accommodation had stipulated
that the amount of loan was
22
not to exceed P8 million, the 1989 Agreement provided
that the loan was P12.2 million. The periods for payment
were also different.
Likewise, the later contract contained conditions,
positive covenants and negative covenants not found in
the earlier obligation. As an example of a positive covenant,
Sta. Ines undertook from time to time and upon request by
the Lender, [to] perform such further acts and/or execute
and deliver such additional documents and writings as may
be necessary or proper to effectively carry23out the provisions
and purposes of this Loan Agreement. Likewise, SIMC
agreed that it would not create any mortgage or
encumbrance on any asset owned or hereafter acquired,
nor
24
would it participate in any merger or consolidation.
Since the 1989 Loan Agreement had extinguished the
original credit accommodation, the Indemnity Agreement,
an accessory obligation, was necessarily extinguished also,
pursuant to Article 1296 of the Civil Code, which provides:
_______________
19
Rollo, p. 125.
20
Carmen Comia, former manager of the banks Loans and Discounts
Department.
21
Respondents Memorandum, pp. 67-68; rollo, pp. 433-434; citing
TSN, June 17, 1994, pp. 21, 90, 95-96.

22
Credit Approval Memorandum, p. 1; rollo, p. 109.
23
1989 Loan Agreement, p. 4; rollo, p. 128.
24
Ibid.
798
798
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ART. 1296. When the principal obligation is extinguished in
consequence of a novation, accessory obligations may subsist only
insofar as they may benefit third persons who did not give their
consent.
Alleged Extension
Petitioner insists that the 1989 Loan Agreement was a mere
renewal or extension of the P8
million original
25
accommodation; it was not a novation.
This argument must be rejected. To begin with, the 1989
Loan Agreement expressly stipulated that its purpose was
to liquidate, not to renew or extend, the outstanding
indebtedness. Moreover, respondent did not sign or consent
to the 1989 Loan Agreement, which had allegedly extended
the original P8 million credit facility. Hence, his obligation
as a surety should be deemed extinguished, pursuant to
Article 2079 of the Civil Code, which specifically states that
[a]n extension granted to the debtor by the creditor without
the consent of the guarantor
extinguishes the guaranty, x x
26
x. In an earlier case, the Court explained the rationale of
this provision in this wise:
The theory behind Article 2079 is that an extension of time given
to the principal debtor by the creditor without the suretys consent
would deprive the surety of his right to pay the creditor and to be
immediately surrogated to the creditors remedies against the
principal debtor upon the maturity date. The surety is said to be
entitled to protect himself against the contingency of the principal
debtor or the indemnitors becoming insolvent during the extended
period.
Binding Nature of the

Credit Approval Memorandum
As noted earlier, the appellate court relied on the provisions
of the Credit Approval Memorandum in holding that the
credit accommodation was only for P8 million, and that it
was for a period of one year ending on November 30, 1981.
Petitioner objects to the
_______________
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25
Petitioners Memorandum, p. 28; rollo, p. 339.
26
Cochingyan; Jr. v. R & B Surety and Insurance Co., 151 SCRA 339,
352, June 30, 1987, per Feliciano, J.

799
799

appellate courts reliance on that document, contending that
it was not a binding agreement because it was not signed by
the parties. It adds that it was merely for its internal use.
We disagree. It was petitioner itself which presented the
said document to prove the accommodation. Attached to the
Complaint as Annex
A was a copy thereof evidencing the
27
accommodation. Moreover, in its Petition before this
Court, it alluded to the Credit Approval Memorandum in
this wise:
4.1 On 10 November 1980, Sta. Ines Melale Corporation (SIMC)
was granted by the Bank a credit line in the aggregate amount of
Eight Million Pesos (P8,000,000.00) to assist SIMC in meeting the
additional capitalization requirements for its logging operations. For
this purpose, the Bank issued a Credit Approval Memorandum
dated 10 November 1980.
Clearly, respondent is estopped from denying the terms and

conditions of the P8 million credit accommodation as
contained in the very document it presented to the courts.
Indeed, it cannot take advantage of that document by
agreeing to be bound only by those portions that are
favorable to it, while denying those that are
disadvantageous.
Second Issue: Alleged Waiver of Consent
Pursuing another course, petitioner contends that
Respondent Cuenca impliedly gave his consent to any
modification of the credit accommodation or otherwise
waived28 his right to be notified of, or to give consent to, the
same. Respondents consent or waiver thereof is allegedly
found in the Indemnity Agreement, in which he held
himself liable for the credit accommodation including [its]
substitutions, renewals, extensions, increases, amendments,
conversions and revival. It explains that the novation of
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the original credit accommodation by the 1989 Loan

Agreement is
_______________
27
Complaint, p. 2; rollo, p. 135.
28

800
800

merely its renewal, which connotes 29cessation of an old

contract and birth of another one x x x.
At the outset, we should emphasize that an essential
alteration in the terms of the Loan Agreement without the
consent of the surety extinguishes the latters obligation.
As
30
the Court held in National Bank v. Veraguth, [i]t is
fundamental in the law of suretyship that any agreement
between the creditor and the principal debtor which
essentially varies the terms of the principal contract,
without the consent of the surety, will release the surety
from liability.
In this case, petitioners assertionthat respondent
consented to the alterations in the credit accommodation
finds no support in the text of the Indemnity Agreement,
which is reproduced hereunder:
Rodolfo M. Cuenca of legal age, with postal address c/o Sta. Ines
Malale Forest Products Corp., Alco Bldg., 391 Buendia Avenue Ext.,
Makati Metro Manila for and in consideration of the credit
accommodation in the total amount of eight million pesos
(P8,000,000.00) granted by the SECURITY BANK AND TRUST
COMPANY, a commercial bank duly organized and existing under
and by virtue of the laws of the Philippine, 6778 Ayala Avenue,
Makati, Metro Manila hereinafter referred to as the BANK in favor
of STA. INES MELALE FOREST PRODUCTS CORP., x x x
hereinafter referred to as the CLIENT, with the stipulated interests
and charges thereon,
evidenced by
that/those certain
PROMISSORY NOTE[(S)], made, executed and delivered by the
CLIENT in favor of the BANK hereby bind(s) himself/themselves
jointly and severally with the CLIENT in favor of the BANK for the
payment, upon demand and without benefit of excussion of
whatever amount or amounts the CLIENT may be indebted to the
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BANK under and by virtue of aforesaid credit accommodation(s)

including the substitutions, renewals, extensions, increases,
amendment, conversions and revivals of the aforesaid credit
accommodation(s), as well as of the amount or amounts of such
other obligations that the CLIENT may owe the BANK, whether
direct or indirect, principal or secondary, as appears in the accounts,
books and records of the BANK, plus interest and expenses arising
from any agreement or agreements that may have heretofore been
made, or may hereafter be executed by and
_______________
29
30
50 Phil. 253, 257, April 1, 1927, per V illamor, J.
801
801

between the parties thereto, including the substitutions, renewals,
extensions, increases, amendments, conversions and revivals of the
aforesaid
credit
accommodation(s),
and
further
bind(s)
himself/themselves with the CLIENT in favor of the BANK for the
faithful compliance of all the terms and conditions contained in the
aforesaid credit accommodation(s), all of which are incorporated
herein and made part hereof by reference.
While respondent held himself liable for the credit

accommodation or any modification thereof, such clause
should be understood in the context of the P8 million limit
and the November 30, 1981 term. It did not give the bank or
Sta. Ines any license to modify the nature and scope of the
original credit accommodation, without informing or getting
the consent of respondent who was solidarily liable. Taking
the banks submission to the extreme, respondent (or his
successors) would be liable for loans even amounting to, say,
P100 billion obtained 100 years after the expiration of the
credit accommodation, on the ground that he consented to
all alterations and extensions thereof.
Indeed, it has been held that a contract of surety cannot
extend to more than what is stipulated. It is strictly
construed against the creditor, every doubt 31being resolved
against enlarging the liability of the surety. Likewise, the
Court has ruled that it is a wellsettled legal principle that if
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there is any doubt on the terms and conditions of the surety

agreement, the doubt should be resolved in favor of the
surety x x x. Ambiguous contracts are
construed against the
32
party who caused the ambiguity. In the absence of an
unequivocal provision that respondent waived his right to
be notified of or to give consent to any alteration of the
credit accommodation, we cannot sustain petitioners view
that there was such a waiver.
It should also be observed that the Credit Approval
Memorandum clearly shows that the bank did not have
absolute authority to unilaterally change the terms of the
loan accommodation. Indeed, it may do so only upon notice
to the borrower, pursuant to this condition:
_______________
31
Aguenza v. CA, 271 SCRA 1, April 7, 1997, per Hermosisima, J. See
also Zenith Insurance Corp. v. CA, 119 SCRA 485, December 29, 1982.
32
Garcia v. CA, 258 SCRA 446, 456, July 5, 1996, per Melo, J.
802
802

5. The Bank reserves the right to amend any of the aforementioned

33
terms and conditions upon written notice to the Borrower.
We reject petitioners submission that only Sta. Ines as the

borrower, not respondent, was entitled to be notified
of any
34
modification in the original loan accommodation. Following
the banks reasoning, such modification would not be valid
as to Sta. Ines if no notice were given; but would still be
valid as to respondent to whom no notice need be given. The
latters liability would thus be more burdensome than that
of the former. Such untenable theory is contrary to the
principle that a surety cannot assume
an obligation more
35
onerous than that of the principal.
The present controversy
must be distinguished from
36
Philamgen v. Mutuc in which the Court sustained a
stipulation whereby the surety consented to be bound not
only for the specified period, but to any extension
thereafter made, an extension x x x that could be had
without his having to be notified.
In that case, the surety agreement contained this
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unequivocal stipulation: It is hereby further agreed that in

case of any extension of renewal of the bond, we equally bind
ourselves to the Company under the same terms and
conditions as herein provided without the necessity of
executing another indemnity agreement for the purpose
and that we hereby equally waive our right to be notified of
any renewal or extension of the bond which may be granted
under this indemnity agreement.
In the present case, there is no such express stipulation.
At most, the alleged basis of respondents waiver is vague
and uncertain. It confers no clear authorization on the bank
or Sta. Ines to modify or extend the original obligation
without the consent of the surety or notice thereto.
_______________
33
Credit Approval Memorandum, p. 2; rollo, p. 110.
34
Petitioners Memorandum, pp. 24-25; rollo, pp. 335-336.
35
Article 2054, Civil Code.
36
61 SCRA 22, 26, November 13, 1974, per Fernando, J.

803
803
Continuing Surety
Contending that the Indemnity Agreement was in the
nature of a continuing surety, petitioner maintains that
there was no need for respondent to execute another surety
contract to secure the 1989 Loan Agreement.
This argument is incorrect. That the Indemnity
Agreement is a continuing surety does not authorize the
bank to extend
the scope of38 the principal obligation
37
inordinately. In Dino v. CA, the Court held that a
continuing guaranty is one which covers all transactions,
including those arising in the future, which are within the
description or contemplation of the contract of guaranty,
until the expiration or termination thereof.
To repeat, in the present case, the Indemnity Agreement
was subject to the two limitations of the credit
accommodation: (1) that the obligation should not exceed P8
million, and (2) that the accommodation should expire not
later than November 30, 1981. Hence, it was a continuing
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surety only in regard to loans obtained on or before the

aforementioned expiry date and not exceeding the total of
P8 million.
Accordingly, the surety of Cuenca secured only the first
loan of P6.1 million obtained on November 26, 1991. It did
not secure the
_______________
37
In Atok Finance Corp. v. CA, 222 SCRA 232, 245, May 18, 1993, per
Feliciano, J., the Court explained the nature of a continuing surety in

this wise:
Comprehensive or continuing surety agreements are in fact quite commonplace
in present day financial and commercial practice. A bank or financing company
which anticipates entering into a series of credit transactions with a particular
company, commonly requires the projected principal debtor to execute a
continuing surety agreement along with its sureties. By executing such an
agreement, the principal places itself in a position to enter into the projected
series of transactions with its creditor; with such suretyship agreement, there
would be no need to execute a separate surety contract or bond for each
financing or credit accommodation extended to the principal debtor.
38
216 SCRA 9, November 26, 1992, per Davide, J. (now CJ). See also
Fortune Motors v. CA, 267 SCRA 653, February 7, 1997.

804
804

subsequent loans, purportedly under the 1980 credit

accommodation, that were obtained in 1986. Certainly, he
could not have guaranteed the 1989 Loan Agreement,
which was executed after November 30, 1981 and which
exceeded the stipulated P8 million ceiling.
Petitioner, however, cites the Dino ruling in which the
Court found the surety liable for the loan obtained after the
payment of the original one, which was covered by a
continuing surety agreement. At the risk of being
repetitious, we hold that in Dino, the Surety Agreement
specifically provided that each suretyship is a continuing
one which shall remain in full force and effect until this
bank is notified of its revocation. Since the bank had not
been notified of such revocation, the surety was held liable
even for the subsequent obligations of the principal
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borrower.
No similar provision is found in the present case. On the
contrary, respondents liability was confined to the 1980
credit accommodation, the amount and the expiry date of
which were set down in the Credit Approval Memorandum.
Special Nature of the JSS
It is a common banking practice to require the JSS (joint
and solidary signature) of a major stockholder or corporate
officer, as an additional security for loans granted to
corporations. There are at least two reasons for this. First, in
case of default, the creditors recourse, which is normally
limited to the corporate properties under the veil of separate
corporate personality, would extend to the personal assets of
the surety. Second, such surety would be compelled to
ensure that the loan would be used for the purpose agreed
upon, and that it would be paid by the corporation.
Following this practice, it was therefore logical and
reasonable for the bank to have required the JSS of
respondent, who was the chairman and president of Sta.
Ines in 1980 when the credit accommodation was granted.
There was no reason or logic, however, for the bank or Sta.
Ines to assume that he would still agree to act as surety in
the 1989 Loan Agreement, because at that time, he was no
longer an officer or a stockholder of the debtor-corporation.
Verily, he was not in a position then to ensure the payment
of the
805
805

obligation. Neither did he have any reason to bind himself
further to a bigger and more onerous obligation.
Indeed, the stipulation in the 1989 Loan Agreement
providing for the surety of respondent, without even
informing him, smacks of negligence on the part of the bank
and bad faith on that of the principal debtor. Since that
Loan Agreement constituted a new indebtedness, the old
loan having been already liquidated, the spirit of fair play
should have impelled Sta. Ines to ask somebody else to act
as a surety for the new loan.
In the same vein, a little prudence should have impelled
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the bank to insist on the JSS of one who was in a position to

ensure the payment of the loan. Even a perfunctory attempt
at credit investigation would have revealed that respondent
was no longer connected with the corporation at the time. As
it is, the bank is now relying on an unclear Indemnity
Agreement in order to collect an obligation that could have
been secured by a fairly obtained surety. For its defeat in
this litigation, the bank has only itself to blame.
In sum, we hold that the 1989 Loan Agreement
extinguished by novation the obligation under the 1980 P8
million credit accommodation. Hence, the Indemnity
Agreement, which had been an accessory to the 1980 credit
accommodation, was also extinguished. Furthermore, we
reject petitioners submission that respondent waived his
right to be notified of, or to give consent to, any modification
or extension of the 1980 credit accommodation.
In this light, we find no more need to resolve the issue of
whether the loan obtained before the expiry date of the
credit accommodation has been paid.
WHEREFORE, the Petition is DENIED and the assailed
Decision AFFIRMED. Costs against petitioner.
SO ORDERED.
Melo (Chairman), Vitug, Purisima and GonzagaReyes, JJ., concur.
Petition denied, judgment affirmed.
Notes.The consideration necessary to support a surety
obligation need not pass directly to the surety, a
consideration moving to
806
806

Calvan vs. Court of Appeals
the principal alone being sufficienta guarantor or surety

is bound by the same consideration that makes the contract
effective between the principal parties thereto. (Willex
Plastic Industries Corporation vs. Court of Appeals, 256
SCRA 478 [1996])
The mere circumstance of the creditor receiving
payments from a third party who acquiesced to assume the
obligation of the debtor when there is clearly no agreement
to release the debtor from her responsibility does not
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constitute novationat most, it only creates a juridical

relation of co-debtorship or suretyship on the part of the
third party to the contractual obligation of the debtor, and
the creditor can still enforce the obligation against the
debtor. (Reyes vs. Court of Appeals, 264 SCRA 35 [1996])
By the contract of suretyship, it is not for the obligee to
see to it that the principal pays the debt or fulfills the
contract, but for the surety to see to it that the principal pay
or perform. (Paramount Insurance Corporation vs. Court of
Appeals, 310 SCRA 377 [1999])
o0o
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12/2/14

VOL. 341, OCTOBER 3, 2000

Security Bank and Trust Company, Inc. vs. Cuenca

G.R. No. 138544. October 3, 2000.

SECURITY BANK AND TRUST COMPANY, INC.,

THIRD DIV ISION.

SUPREME COURT REPORTS ANNOTATED

where it exists, is an important and valuable right. Public policy

its explicit provision to liquidate the principal and the interest of

VOL. 341, OCTOBER 3, 2000

Security Bank and Trust Company, Inc. vs. Cuenca

debtor or the indemnitors becoming insolvent during the extended

SUPREME COURT REPORTS ANNOTATED

agreement, the doubt should be resolved in favor of the surety x x

VOL. 341, OCTOBER 3, 2000

Security Bank and Trust Company, Inc. vs. Cuenca

SUPREME COURT REPORTS ANNOTATED

Same; Same; Same; There is no reason or logic for the lender or

debtorcorporation.Following this practice, it was therefore logical

PETITION for review on certiorari of a decision of the Court

VOL. 341, OCTOBER 3, 2000

Security Bank and Trust Company, Inc. vs. Cuenca

debtor to pay the creditor and had no more reason to bind

Also challenged is the April 14, 1999 CA Resolution, which

Written by Justice Jorge S. Imperial (Division chairman), with the

concurrence of Justices Hector L. Hofilea and Omar U. Amin

CA Decision, pp. 32-33; rollo, pp. 52-53.

Rollo, p. 56. Penned by Justice Amin with the concurrence of Justices

Hofilea and Marina L. Buzon.

Written by Judge Eriberto U. Rosario, Jr. (now a member of the

SUPREME COURT REPORTS ANNOTATED

The facts are narrated by the Court of Appeals as follows:

Rodolfo M. Cuenca executed an Indemnity Agreement dated 17

CA Decision, pp. 4-9; rollo, pp. 24-29.

VOL. 341, OCTOBER 3, 2000

Security Bank and Trust Company, Inc. vs. Cuenca

On 26 November 1981, four (4) days prior to the expiration of the

Appellant SIMC, however, encountered difficulty in making the

supposed to expire on July 15, 1998, was suspended by the Department of

SUPREME COURT REPORTS ANNOTATED

[Petitioner] Security Bank agreed to extend to defendant-appellant

(Exhibits H and I, Expediente, at Vol. II, pp. 338 to 343).

VOL. 341, OCTOBER 3, 2000

Security Bank and Trust Company, Inc. vs. Cuenca

THOUSAND PESOS (P12,200,000.00),

From 08 April 1988 to 02 December 1988, defendant-appellant Sta.

amount of [o]ne [m]illion [s]even [h]undred [f]ifty-[s]even

Ruling of the Court of Appeals

SUPREME COURT REPORTS ANNOTATED

The appellate court also noted that the Credit Approval

The CA also opined that the surety was entitled to notice,

receipt by this Court of respondents Reply Memorandum signed by Attys.

Petitioners Memorandum, pp. 9-10; rollo, pp. 320-321. All in upper

case in the original.

VOL. 341, OCTOBER 3, 2000

Security Bank and Trust Company, Inc. vs. Cuenca

consent, thus extinguishing his liability under the

The Courts Ruling