THIRD DIVISION

[G.R. No. 188539. March 12, 2014.]

MARIANO LIM , petitioner, vs . SECURITY BANK CORPORATION , *

respondent.

DECISION

PERALTA , J : p

This deals with the Petition for Review on Certiorari under Rule 45 of the Rules of
Court praying that the Decision 1 of the Court of Appeals (CA), promulgated on July 30,
2008, and the Resolution 2 dated June 1, 2009, denying petitioner's motion for
reconsideration thereof, be reversed and set aside.
Petitioner executed a Continuing Suretyship in favor of respondent to secure "any
and all types of credit accommodation that may be granted by the bank hereinto and
hereinafter" in favor of Raul Arroyo for the amount of P2,000,000.00 which is covered by a
Credit Agreement/Promissory Note. 3 Said promissory note stated that the interest on the
loan shall be 19% per annum, compounded monthly, for the rst 30 days from the date
thereof, and if the note is not fully paid when due, an additional penalty of 2% per month of
the total outstanding principal and interest due and unpaid, shall be imposed.
In turn, the Continuing Suretyship 4 executed by petitioner stipulated that:
3. Liability of the Surety. — The liability of the Surety is solidary and not
contingent upon the pursuit of the Bank of whatever remedies it may have
against the Debtor or the collaterals/liens it may possess. If any of the
Guaranteed Obligations is not paid or performed on due date (at
stated maturity or by acceleration), the Surety shall, without need
for any notice, demand or any other act or deed, immediately
become liable therefor and the Surety shall pay and perform the
same . 5

Guaranteed Obligations are defined in the same document as follows:

a) "Guaranteed Obligations" — the obligations of the Debtor arising
from all credit accommodations extended by the Bank to the Debtor, including
increases, renewals, roll-overs, extensions, restructurings, amendments or
novations thereof, as well as (i) all obligations of the Debtor presently or
hereafter owing to the Bank, as appears in the accounts, books and
records of the Bank, whether direct or indirect, and (ii) any and all
expenses which the Bank may incur in enforcing any of its rights,
powers and remedies under the Credit Instruments as de ned
hereinbelow . 6

The debtor, Raul Arroyo, defaulted on his loan obligation. Thereafter, petitioner
received a Notice of Final Demand dated August 2, 2001, informing him that he was liable
to pay the loan obtained by Raul and Edwina Arroyo, including the interests and penalty
fees amounting to P7,703,185.54, and demanding payment thereof. For failure of
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 petitioner to comply with said demand, respondent led a complaint for collection of sum
of money against him and the Arroyo spouses. Since the Arroyo spouses can no longer be
located, summons was not served on them, hence, only petitioner actively participated in
the case.
After trial, the Regional Trial Court of Davao (RTC) rendered judgment against
petitioner. 7 The dispositive portion of the RTC Decision reads as follows:
Wherefore, judgment is hereby rendered ordering defendant Lim to pay the
following sums.

1. The principal sum of two million pesos plus nineteen percent

interest of the outstanding principal interest due and unpaid to be
computed from January 28, 1997 until fully paid, plus two percent
interest per month as penalty to be computed from February 28,
1997 until fully paid.

2. Four hundred thousand pesos as attorney's fees.

3. Thirty thousand pesos as litigation expenses.

SO ORDERED. 8

Petitioner appealed to the CA, but the appellate court, in its Decision dated July 30,
2008, a rmed the RTC judgment with the modi cation that interest be computed from
August 1, 1997; the penalty should start only from August 28, 1997; the award of
attorney's fees is set at 10% of the total amount due; and the award for litigation expenses
increased to P92,321.10. 9 Petitioner's motion for reconsideration of the CA Decision was
denied per Resolution dated June 1, 2009.
Petitioner then elevated the matter to this Court via a petition for review on
certiorari, where the main issue is whether petitioner may validly be held liable for the
principal debtor's loan obtained six months after the execution of the Continuing
Suretyship. CcSTHI

The other issues, such as the proper computation of the total indebtedness and the
amount of litigation expenses are factual matters that had been satisfactorily addressed
by the CA, to wit: (1) the CA ruled that respondent should recompute the total amount due,
since the proceeds from the foreclosure of the real estate and chattel mortgages were
deducted only on June 20, 2001, when the public auctions were conducted on August 26,
1998 and September 7, 1999, respectively, thus, the amount of the proceeds from the
foreclosure of the mortgaged properties should have been deducted from the amount of
indebtedness on the date the public auction was held; and (2) the CA likewise pointed out
that as can be seen from the Legal Fees Form, 1 0 the litigation expense incurred by
respondent was P92,321.10, the amount it paid as ling fee. It is hornbook principle that
this Court is not a trier of facts, hence, such issues will not be revisited by this Court in the
present petition. With regard to the propriety of making petitioner a hostile witness,
respondent is correct that the issue cannot be raised for the rst time on appeal. Thus, the
Court will no longer address these issues which had been improperly raised in this petition
for review on certiorari.
The main issue deserves scant consideration, but the matter of the award of
attorney's fees deserves reexamination.
The nature of a suretyship is elucidated in Philippine Charter Insurance Corporation
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 v. Petroleum Distributors & Service Corporation 1 1 in this wise:
A contract of suretyship is an agreement whereby a party, called the surety,
guarantees the performance by another party, called the principal or obligor, of an
obligation or undertaking in favor of another party, called the obligee. Although
the contract of a surety is secondary only to a valid principal obligation, the surety
becomes liable for the debt or duty of another although it possesses no direct or
personal interest over the obligations nor does it receive any bene t therefrom.
This was explained in the case of Stronghold Insurance Company, Inc. v.
Republic-Asahi Glass Corporation, where it was written:
The surety's obligation is not an original and direct one for the
performance of his own act, but merely accessory or collateral to the
obligation contracted by the principal. Nevertheless, although the
contract of a surety is in essence secondary only to a valid
principal obligation, his liability to the creditor or promisee of the
principal is said to be direct, primary and absolute; in other
words, he is directly and equally bound with the principal .

xxx xxx xxx

Thus, suretyship arises upon the solidary binding of a person deemed the
surety with the principal debtor for the purpose of ful lling an obligation. A
surety is considered in law as being the same party as the debtor in
relation to whatever is adjudged touching the obligation of the latter,
and their liabilities are interwoven as to be inseparable . . . . . 1 2

In this case, what petitioner executed was a Continuing Suretyship, which the Court
described in Saludo, Jr. v. Security Bank Corporation 1 3 as follows:
The essence of a continuing surety has been highlighted in the case of
Totanes v. China Banking Corporation in this wise:
Comprehensive or continuing surety agreements are, in fact, quite
commonplace in present day nancial and commercial practice. A bank
or nancing company which anticipates entering into a series of
credit transactions with a particular company, normally 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 nancing or credit
accommodation extended to the principal debtor . 1 4

The terms of the Continuing Suretyship executed by petitioner, quoted earlier, are
very clear. It states that petitioner, as surety, shall, without need for any notice, demand or
any other act or deed, immediately become liable and shall pay "all credit
accommodations extended by the Bank to the Debtor, including increases, renewals, roll-
overs, extensions, restructurings, amendments or novations thereof, as well as (i) all
obligations of the Debtor presently or hereafter owing to the Bank, as appears
in the accounts, books and records of the Bank, whether direct or indirect , and
(ii) any and all expenses which the Bank may incur in enforcing any of its rights, powers and
remedies under the Credit Instruments as de ned hereinbelow." 1 5 Such stipulations are
valid and legal and constitute the law between the parties, as Article 2053 of the Civil Code
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 provides that "[a] guaranty may also be given as security for future debts, the amount of
which is not yet known; . . . ." Thus, petitioner is unequivocally bound by the terms of the
Continuing Suretyship. There can be no cavil then that petitioner is liable for the principal of
the loan, together with the interest and penalties due thereon, even if said loan was
obtained by the principal debtor even after the date of execution of the Continuing
Suretyship.
With regard to the award of attorney's fees, it should be noted that Article 2208 of
the Civil Code does not prohibit recovery of attorney's fees if there is a stipulation in the
contract for payment of the same. Thus, in Asian Construction and Development
Corporation v. Cathay Paci c Steel Corporation (CAPASCO) , 1 6 the Court, citing Titan
Construction Corporation v. Uni-Field Enterprises, Inc., 1 7 expounded as follows: DcIHSa

The law allows a party to recover attorney's fees under a written

agreement. In Barons Marketing Corporation v. Court of Appeals , the Court ruled
that:

[T]he attorney's fees here are in the nature of liquidated damages

and the stipulation therefor is aptly called a penal clause. It has been said
that so long as such stipulation does not contravene law, morals, or public
order, it is strictly binding upon defendant. The attorney's fees so provided
are awarded in favor of the litigant, not his counsel.
On the other hand, the law also allows parties to a contract to stipulate on
liquidated damages to be paid in case of breach. A stipulation on liquidated
damages is a penalty clause where the obligor assumes a greater liability in case
of breach of an obligation. The obligor is bound to pay the stipulated amount
without need for proof on the existence and on the measure of damages caused
by the breach. 1 8

However, even if such attorney's fees are allowed by law, the courts still have the
power to reduce the same if it is unreasonable. In Trade & Investment Corporation of the
Philippines v. Roblett Industrial Construction Corp. , 1 9 the Court equitably reduced the
amount of attorney's fees to be paid since interests and penalties had ballooned to thrice
as much as the principal debt. That is also the case here. The award of attorney's fees
amounting to ten percent (10%) of the principal debt, plus interest and penalty charges,
would de nitely exceed the principal amount; thus, making the attorney's fees manifestly
exorbitant. Hence, we reduce the amount of attorney's fees to ten percent (10%) of the
principal debt only.
WHEREFORE , the petition is PARTIALLY GRANTED . The Decision of the Court of
Appeals, dated July 30, 2008, in CA-G.R. CV No. 00462, is AFFIRMED with
MODIFICATION in that the award of attorney's fees is reduced to ten percent (10%) of
the principal debt only.
SO ORDERED.
Velasco, Jr., Abad, Mendoza and Leonen, JJ., concur.

Footnotes
* Per Resolution dated August 19, 2009, the Court resolved to exclude the Court of Appeals
as respondent in the title of this case, pursuant to Section 4 (a), Rule 45 of the 1997
Rules of Civil Procedure.
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 1. Penned by Associate Justice Edgardo T. Lloren, with Associate Justices Edgardo A.
Camello and Jane Aurora C. Lantion, concurring, rollo, pp. 50-57.
2. Id. at 100.
3. Exhibit "A," records, p. 98.
4. Exhibit "B," id. at 99.

5. Id. (Emphasis supplied.)

6. Id. (Emphasis supplied.)
7. Rollo, pp. 139-142.
8. Id. at 142.
9. Id. at 57.
10. Records, p. 1.
11. G.R. No. 180898, April 18, 2012, 670 SCRA 166.

12. Id. at 179-180. (Emphasis supplied)

13. G.R. No. 184041, October 13, 2010, 633 SCRA 247.

14. Id. at 254. (Emphasis supplied)

15. Emphasis and underscoring supplied.
16. G.R. No. 167942, June 29, 2010, 622 SCRA 122.

17. 546 Phil. 12, 20-21 (2007).

18. Asian Construction and Development Corporation v. Cathay Paci c Steel Corporation
(CAPASCO), supra note 16, at 130. (Citation omitted)
19. 511 Phil. 127, 160 (2005).

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