G.R. No.

138544 October 3, 2000 The facts are narrated by the Court of Appeals as follows: 5

SECURITY BANK AND TRUST COMPANY, Inc., petitioner, "The antecedent material and relevant facts are that defendant-
vs. appellant Sta. Ines Melale (‘Sta. Ines’) is a corporation engaged
RODOLFO M. CUENCA, respondent. in logging operations. It was a holder of a Timber License
Agreement issued by the Department of Environment and
DECISION Natural Resources (‘DENR’).

PANGANIBAN, J.: "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]llion [p]esos (₱8,000,000.00) to
Being an onerous undertaking, a surety agreement is strictly assist the latter in meeting the additional capitalization
construed against the creditor, and every doubt is resolved in requirements of its logging operations.
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 "The Credit Approval Memorandum expressly stated that the
notify it thereof. Hence, petitioner bank cannot hold herein ₱8M Credit Loan Facility shall be effective until 30 November
respondent liable for loans obtained in excess of the amount or 1981:
beyond the period stipulated in the original agreement, absent
any clear stipulation showing that the latter waived his right to ‘JOINT CONDITIONS:
be notified thereof, or to give consent thereto. This is especially
true where, as in this case, respondent was no longer the ‘1. Against Chattel Mortgage on logging trucks and/or
principal officer or major stockholder of the corporate debtor at inventories (except logs) valued at 200% of the lines plus JSS
the time the later obligations were incurred. He was thus no of Rodolfo M. Cuenca.
longer in a position to compel the debtor to pay the creditor and
had no more reason to bind himself anew to the subsequent
obligations. ‘2. Submission of an appropriate Board Resolution authorizing
the borrowings, indicating therein the company’s duly authorized
signatory/ies;
The Case
‘3. Reasonable/compensating deposit balances in current
This is the main principle used in denying the present Petition account shall be maintained at all times; in this connection, a
for Review under Rule 45 of the Rules of Court. Petitioner Makati account shall be opened prior to availment on lines;
assails the December 22, 1998 Decision 1 of the Court of
Appeals (CA) in CA-GR CV No. 56203, the dispositive portion of
which reads as follows: ‘4. Lines shall expire on November 30, 1981; and

"WHEREFORE, the judgment appealed from is hereby ‘5. The bank reserves the right to amend any of the
amended in the sense that defendant-appellant Rodolfo M. aforementioned terms and conditions upon written notice to the
Cuenca [herein respondent] is RELEASED from liability to pay Borrower.’ (Emphasis supplied.)
any amount stated in the judgment.
"To secure the payment of the amounts drawn by appellant
"Furthermore, [Respondent] Rodolfo M. Cuenca’s counterclaim SIMC from the above-mentioned credit line, SIMC executed a
is hereby DISMISSED for lack of merit. 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,
"In all other respect[s], the decision appealed from [Respondent] Rodolfo M. Cuenca executed an Indemnity
is AFFIRMED."2 Agreement dated 17 December 1980 (Exhibit ‘B’) in favor of
[Petitioner] SBTC whereby he solidarily bound himself with
Also challenged is the April 14, 1999 CA Resolution,3 which SIMC as follows:
denied petitioner’s Motion for Reconsideration.
xxx xxx xxx
Modified by the CA was the March 6, 1997 Decision 4 of the
Regional Trial Court (RTC) of Makati City (Branch 66) in Civil ‘Rodolfo M. Cuenca x x x hereby binds himself x x x jointly and
Case No. 93-1925, which disposed as follows: severally with the client (SIMC) in favor of the bank for the
payment, upon demand and without the benefit of excussion of
"WHEREFORE, judgment is hereby rendered ordering whatever amount x x x the client may be indebted to the bank x
defendants Sta. Ines Melale Corporation and Rodolfo M. x x by virtue of aforesaid credit accommodation(s) including the
Cuenca to pay, jointly and severally, plaintiff Security Bank & substitutions, renewals, extensions, increases,
Trust Company the sum of ₱39,129,124.73 representing the amendments, conversions and revivals of the aforesaid
balance of the loan as of May 10, 1994 plus 12% interest per credit accommodation(s) x x x .’ (Emphasis supplied).
annum until fully paid, and the sum of ₱100,000.00 as attorney’s
fees and litigation expenses and to pay the costs. "On 26 November 1981, four (4) days prior to the expiration of
the period of effectivity of the ₱8M-Credit Loan Facility, appellant
SO ORDERED." 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
The Facts [p]esos (₱6,100,000.00). To cover said drawdown, SIMC duly
executed promissory Note No. TD/TLS-3599-81 for said amount PROMISSORY NOTE NO. AMOUNT
(Exhibit ‘C’).
RL/74/596/88 ₱8,800,000.00
"Sometime in 1985, [Respondent] Cuenca resigned as RL/74/597/88 ₱3,400,000.00
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 TOTAL ₱12,200,000.00
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 (Exhibits ‘H’ and ‘I’, Expediente, at Vol. II, pp. 338 to 343).
the highest bidder during the public auction.
"To formalize their agreement to restructure the loan obligations
"Subsequently, appellant SIMC repeatedly availed of its credit of defendant-appellant Sta. Ines, [Petitioner] Security Bank and
line and obtained six (6) other loan[s] from [Petitioner] SBTC in defendant-appellant Sta. Ines executed a Loan Agreement
the aggregate amount of [s]ix [m]illion [t]hree [h]undred [s]ixty- dated 31 October 1989 (Exhibit ‘5-Cuenca’, Expediente, at Vol.
[n]ine [t]housand [n]ineteen and 50/100 [p]esos I, pp. 33 to 41). Section 1.01 of the said Loan Agreement dated
(₱6,369,019.50). Accordingly, SIMC executed Promissory 31 October 1989 provides:
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 ‘1.01 Amount - The Lender agrees to grant loan to the Borrower
amounts of the abovementioned additional loans against the in the aggregate amount of TWELVE MILLION TWO HUNDRED
credit line. THOUSAND PESOS (₱12,200,000.00), Philippines [c]urrency
(the ‘Loan’). The loan shall be released in two (2) tranches of
"Appellant SIMC, however, encountered difficulty6 in making the ₱8,800,000.00 for the first tranche (the ‘First Loan’) and
amortization payments on its loans and requested [Petitioner] ₱3,400,000.00 for the second tranche (the ‘Second Loan’) to be
SBTC for a complete restructuring of its indebtedness. SBTC applied in the manner and for the purpose stipulated
accommodated appellant SIMC’s request and signified its hereinbelow.
approval in a letter dated 18 February 1988 (Exhibit ‘G’) wherein
SBTC and defendant-appellant Sta. Ines, without notice to or the ‘1.02. Purpose - The First Loan shall be applied to liquidate the
prior consent of [Respondent] Cuenca, agreed to restructure the principal portion of the Borrower’s present total outstanding
past due obligations of defendant-appellant Sta. Ines. indebtedness to the Lender (the ‘indebtedness’) while the
[Petitioner] Security Bank agreed to extend to defendant- Second Loan shall be applied to liquidate the past due interest
appellant Sta. Ines the following loans: and penalty portion of the Indebtedness.’ (Underscoring
supplied.) (cf. p. 1 of Exhibit ‘5-Cuenca’, Expediente, at Vol. I, p.
a. Term loan in the amount of [e]ight [m]illion [e]ight [h]undred 33)
[t]housand [p]esos (₱8,800,000.00), to be applied to liquidate
the principal portion of defendant-appellant Sta. Ines[‘] total "From 08 April 1988 to 02 December 1988, defendant-appellant
outstanding indebtedness to [Petitioner] Security Bank (cf. P. 1 Sta. Ines made further payments to [Petitioner] Security Bank in
of Exhibit ‘G’, Expediente, at Vol. II, p. 336; Exhibit ‘5-B-Cuenca’, the amount of [o]ne [m]illion [s]even [h]undred [f]ifty-[s]even
Expediente, et Vol I, pp. 33 to 34) and [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)
b. Term loan in the amount of [t]hree [m]illion [f]our [h]undred
[t]housand [p]esos (₱3,400,000.00), to be applied to liquidate "Appellant SIMC defaulted in the payment of its restructured
the past due interest and penalty portion of the indebtedness of loan obligations to [Petitioner] SBTC despite demands made
defendant-appellant Sta. Ines to [Petitioner] Security Bank (cf. upon appellant SIMC and CUENCA, the last of which were
Exhibit ‘G’, Expediente, at Vol. II, p. 336; Exhibit ‘5-B-Cuenca’, made through separate letters dated 5 June 1991 (Exhibit ‘K’)
Expediente, at Vol. II, p. 33 to 34).’ and 27 June 1991 (Exhibit ‘L’), respectively.

"It should be pointed out that in restructuring defendant- "Appellants individually and collectively refused to pay the
appellant Sta. Ines’ obligations to [Petitioner] Security Bank, [Petitioner] SBTC. Thus, SBTC filed a complaint for collection of
Promissory Note No. TD-TLS-3599-81 in the amount of [s]ix sum of money on 14 June 1993, resulting after trial on the merits
[m]illion [o]ne [h]undred [t]housand [p]esos (₱6,100,000.00), in a decision by the court a quo, x x x from which [Respondent]
which was the only loan incurred prior to the expiration of the Cuenca appealed."
P8M-Credit Loan Facility on 30 November 1981 and the only
one covered by the Indemnity Agreement dated 19 December Ruling of the Court of Appeals
1980 (Exhibit ‘3-Cuenca’, 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, In releasing Respondent Cuenca from liability, the CA ruled that
DLS/74/28/86 and DLS/74/47/86 (Exhibits ‘D’, ‘E’, and ‘F’, the 1989 Loan Agreement had novated the 1980 credit
Expediente, at Vol. II, pp. 333 to 335) obtained by defendant- accommodation earlier granted by the bank to Sta. Ines.
appellant Sta. Ines which were not secured by said Indemnity Accordingly, such novation extinguished the Indemnity
Agreement. 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
"Pursuant to the agreement to restructure its past due credit accommodation. It noted that the 1989 Loan Agreement
obligations to [Petitioner] Security Bank, defendant-appellant had been executed without notice to, much less consent from,
Sta. Ines thus executed the following promissory notes, both Cuenca who at the time was no longer a stockholder of the
dated 09 March 1988 in favor of [Petitioner] Security Bank: corporation.
The appellate court also noted that the Credit Approval C. Whether or not petitioner’s Motion for Reconsideration was
Memorandum had specified that the credit accommodation was pro-forma;
for a total amount of ₱8 million, and that its expiry date was
November 30, 1981. Hence, it ruled that Cuenca was liable only D. Whether or not service of the Petition by registered mail
for loans obtained prior to November 30, 1981, and only for an sufficiently complied with Section 11, Rule 13 of the 1997 Rules
amount not exceeding ₱8 million. of Civil Procedure."

It further held that the restructuring of Sta. Ines’ obligation under Distilling the foregoing, the Court will resolve the following
the 1989 Loan Agreement was tantamount to a grant of an issues: (a) whether the 1989 Loan Agreement novated the
extension of time to the debtor without the consent of the surety. original credit accommodation and Cuenca’s liability under the
Under Article 2079 of the Civil Code, such extension Indemnity Agreement; and (b) whether Cuenca waived his right
extinguished the surety. to be notified of and to give consent to any substitution, renewal,
extension, increase, amendment, conversion or revival of the
The CA also opined that the surety was entitled to notice, in case said credit accommodation. As preliminary matters, the
the bank and Sta. Ines decided to materially alter or modify the procedural questions raised by respondent will also be
principal obligation after the expiry date of the credit addressed.
accommodation.
The Court’s Ruling
Hence, this recourse to this Court.7
The Petition has no merit.
The Issues
Preliminary Matters: Procedural Questions
In its Memorandum, petitioner submits the following for our
consideration:8 Motion for Reconsideration Not Pro Forma

"A. Whether or not the Honorable Court of Appeals erred in Respondent contends that petitioner’s Motion for
releasing Respondent Cuenca from liability as surety under the Reconsideration of the CA Decision, in merely rehashing the
Indemnity Agreement for the payment of the principal amount of arguments already passed upon by the appellate court, was pro
twelve million two hundred thousand pesos (₱12,200,000.00) forma; that as such, it did not toll the period for filing the present
under Promissory Note No. RL/74/596/88 dated 9 March 1988 Petition for Review.9 Consequently, the Petition was filed out of
and Promissory Note No. RL/74/597/88 dated 9 March 1988, time.10
plus stipulated interests, penalties and other charges due
thereon;
We disagree. A motion for reconsideration is not pro forma just
because it reiterated the arguments earlier passed upon and
i. Whether or not the Honorable Court of rejected by the appellate court. The Court has explained that a
Appeals erred in ruling that Respondent movant may raise the same arguments, precisely to convince
Cuenca’s liability under the Indemnity the court that its ruling was erroneous.11
Agreement covered only availments on
SIMC’s credit line to the extent of eight million
pesos (P8,000,000.00) and made on or Moreover, there is no clear showing of intent on the part of
before 30 November 1981; petitioner to delay the proceedings. In Marikina Valley
Development Corporation v. Flojo,12 the Court explained that a
pro forma motion had no other purpose than to gain time and to
ii. Whether or not the Honorable Court of delay or impede the proceedings. Hence, "where the
Appeals erred in ruling that the restructuring circumstances of a case do not show an intent on the part of the
of SIMC’s indebtedness under the ₱8 million movant merely to delay the proceedings, our Court has refused
credit accommodation was tantamount to an to characterize the motion as simply pro forma." It held:
extension granted to SIMC without
Respondent Cuenca’s consent, thus
extinguishing his liability under the Indemnity "We note finally that because the doctrine relating to pro forma
Agreement pursuant to Article 2079 of the motions for reconsideration impacts upon the reality and
Civil Code; 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
iii. Whether or not the Honorable Court of would be better served by according the appellate court an
appeals erred in ruling that the restructuring effective opportunity to review the decision of the trial court on
of SIMC’s indebtedness under the ₱8 million the merits, rather than by aborting the right to appeal by a literal
credit accommodation constituted a novation application of the procedural rules relating to pro forma motions
of the principal obligation, thus extinguishing for reconsideration."
Respondent Cuenca’s liability under the
indemnity agreement;
Service by Registered Mail Sufficiently Explained
B. Whether or not Respondent Cuenca’s liability under the
Indemnity Agreement was extinguished by the payments made Section 11, Rule 13 of the 1997 Rules of Court, provides as
by SIMC; follows:
"SEC. 11. Priorities in modes of service and filing. -- Whenever The testimony of an officer20 of the bank that the proceeds of the
practicable, the service and filing of pleadings and other papers 1989 Loan Agreement were used "to pay-off" the original
shall be done personally. Except with respect to papers indebtedness serves to strengthen this ruling. 21
emanating from the court, a resort to other modes must be
accompanied by a written explanation why the service or filing Furthermore, several incompatibilities between the 1989
was not done personally. A violation of this Rule may be cause Agreement and the 1980 original obligation demonstrate that the
to consider the paper as not filed." two cannot coexist. While the 1980 credit accommodation had
stipulated that the amount of loan was not to exceed ₱8
Respondent maintains that the present Petition for Review does million,22 the 1989 Agreement provided that the loan was ₱12.2
not contain a sufficient written explanation why it was served by million. The periods for payment were also different.
registered mail.
Likewise, the later contract contained conditions, "positive
We do not think so. The Court held in Solar Entertainment v. covenants" and "negative covenants" not found in the earlier
Ricafort13 that the aforecited rule was mandatory, and that "only obligation. As an example of a positive covenant, Sta. Ines
when personal service or filing is not practicable may resort to undertook "from time to time and upon request by the Lender,
other modes be had, which must then be accompanied by a [to] perform such further acts and/or execute and deliver such
written explanation as to why personal service or filing was not additional documents and writings as may be necessary or
practicable to begin with." proper to effectively carry out the provisions and purposes of this
Loan Agreement."23 Likewise, SIMC agreed that it would not
In this case, the Petition does state that it was served on the create any mortgage or encumbrance on any asset owned or
respective counsels of Sta. Ines and Cuenca "by registered mail hereafter acquired, nor would it participate in any merger or
in lieu of personal service due to limitations in time and consolidation.24
distance."14 This explanation sufficiently shows that personal
service was not practicable. In any event, we find no adequate Since the 1989 Loan Agreement had extinguished the original
reason to reject the contention of petitioner and thereby deprive credit accommodation, the Indemnity Agreement, an accessory
it of the opportunity to fully argue its cause. obligation, was necessarily extinguished also, pursuant to Article
1296 of the Civil Code, which provides:
First Issue: Original Obligation Extinguished by Novation
"ART. 1296. When the principal obligation is extinguished in
An obligation may be extinguished by novation, pursuant to consequence of a novation, accessory obligations may subsist
Article 1292 of the Civil Code, which reads as follows: only insofar as they may benefit third persons who did not give
their consent."
"ART. 1292. In order that an obligation may be extinguished by
another which substitute the same, it is imperative that it be so Alleged Extension
declared in unequivocal terms, or that the old and the new
obligations be on every point incompatible with each other." Petitioner insists that the 1989 Loan Agreement was a mere
renewal or extension of the ₱8 million original accommodation;
Novation of a contract is never presumed. It has been held that it was not a novation.25
"[i]n the absence of an express agreement, novation takes place
only when the old and the new obligations are incompatible on This argument must be rejected. To begin with, the 1989 Loan
every point."15 Indeed, the following requisites must be Agreement expressly stipulated that its purpose was to
established: (1) there is a previous valid obligation; (2) the "liquidate," not to renew or extend, the outstanding
parties concerned agree to a new contract; (3) the old contract indebtedness. Moreover, respondent did not sign or consent to
is extinguished; and (4) there is a valid new contract. 16 the 1989 Loan Agreement, which had allegedly extended the
original ₱8 million credit facility. Hence, his obligation as a surety
Petitioner contends that there was no absolute incompatibility should be deemed extinguished, pursuant to Article 2079 of the
between the old and the new obligations, and that the latter did Civil Code, which specifically states that "[a]n extension granted
not extinguish the earlier one. It further argues that the 1989 to the debtor by the creditor without the consent of the guarantor
Agreement did not change the original loan in respect to the extinguishes the guaranty. x x x." In an earlier case, 26 the Court
parties involved or the obligations incurred. It adds that the terms explained the rationale of this provision in this wise:
of the 1989 Contract were "not more onerous." 17 Since the
original credit accomodation was not extinguished, it concludes "The theory behind Article 2079 is that an extension of time
that Cuenca is still liable under the Indemnity Agreement. given to the principal debtor by the creditor without the surety’s
consent would deprive the surety of his right to pay the creditor
We reject these contentions. Clearly, the requisites of novation and to be immediately subrogated to the creditor’s remedies
are present in this case. The 1989 Loan Agreement against the principal debtor upon the maturity date. The surety
extinguished the obligation18 obtained under the 1980 credit is said to be entitled to protect himself against the contingency
accomodation. This is evident from its explicit provision to of the principal debtor or the indemnitors becoming insolvent
"liquidate" the principal and the interest of the earlier during the extended period."
indebtedness, as the following shows:
Binding Nature of the Credit Approval Memorandum
"1.02. Purpose. The First Loan shall be applied to liquidate the
principal portion of the Borrower’s present total outstanding As noted earlier, the appellate court relied on the provisions of
Indebtedness to the Lender (the "Indebtedness") while the the Credit Approval Memorandum in holding that the credit
Second Loan shall be applied to liquidate the past due interest accommodation was only for ₱8 million, and that it was for a
and penalty portion of the Indebtedness."19 (Italics supplied.) period of one year ending on November 30, 1981. Petitioner
objects to the appellate court’s reliance on that document, and delivered by the CLIENT in favor of the BANK
contending that it was not a binding agreement because it was hereby bind(s) himself/themselves jointly and severally with the
not signed by the parties. It adds that it was merely for its internal CLIENT in favor of the BANK for the payment , upon demand
use. and without benefit of excussion of whatever amount or amounts
the CLIENT may be indebted to the BANK under and by virtue
We disagree. It was petitioner itself which presented the said of aforesaid credit accommodation(s) including the
document to prove the accommodation. Attached to the substitutions, renewals, extensions, increases, amendment,
Complaint as Annex A was a copy thereof "evidencing the conversions and revivals of the aforesaid credit
accommodation."27 Moreover, in its Petition before this Court, it accommodation(s), as well as of the amount or amounts of such
alluded to the Credit Approval Memorandum in this wise: 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
"4.1 On 10 November 1980, Sta. Ines Melale Corporation expenses arising from any agreement or agreements that may
("SIMC") was granted by the Bank a credit line in the aggregate have heretofore been made, or may hereafter be executed by
amount of Eight Million Pesos (P8,000,000.00) to assist SIMC in and between the parties thereto, including the substitutions,
meeting the additional capitalization requirements for its logging renewals, extensions, increases, amendments, conversions and
operations. For this purpose, the Bank issued a Credit Approval revivals of the aforesaid credit accommodation(s), and further
Memorandum dated 10 November 1980." bind(s) himself/themselves with the CLIENT in favor of the
BANK for the faithful compliance of all the terms and conditions
Clearly, respondent is estopped from denying the terms and contained in the aforesaid credit accommodation(s), all of which
conditions of the ₱8 million credit accommodation as contained are incorporated herein and made part hereof by reference."
in the very document it presented to the courts. Indeed, it cannot
take advantage of that document by agreeing to be bound only While respondent held himself liable for the credit
by those portions that are favorable to it, while denying those accommodation or any modification thereof, such clause should
that are disadvantageous. be understood in the context of the ₱8 million limit and the
November 30, 1981 term. It did not give the bank or Sta. Ines
Second Issue: Alleged Waiver of Consent any license to modify the nature and scope of the original credit
accommodation, without informing or getting the consent of
Pursuing another course, petitioner contends that Respondent respondent who was solidarily liable. Taking the bank’s
Cuenca "impliedly gave his consent to any modification of the submission to the extreme, respondent (or his successors)
credit accommodation or otherwise waived his right to be would be liable for loans even amounting to, say, ₱100 billion
notified of, or to give consent to, the same." 28 Respondent’s obtained 100 years after the expiration of the credit
consent or waiver thereof is allegedly found in the Indemnity accommodation, on the ground that he consented to all
Agreement, in which he held himself liable for the "credit alterations and extensions thereof.
accommodation including [its] substitutions, renewals,
extensions, increases, amendments, conversions and revival." Indeed, it has been held that a contract of surety "cannot extend
It explains that the novation of the original credit accommodation to more than what is stipulated. It is strictly construed against the
by the 1989 Loan Agreement is merely its "renewal," which creditor, every doubt being resolved against enlarging the
"connotes cessation of an old contract and birth of another one liability of the surety."31 Likewise, the Court has ruled that "it is a
x x x."29 well-settled legal principle that if there is any doubt on the terms
and conditions of the surety agreement, the doubt should be
At the outset, we should emphasize that an essential alteration resolved in favor of the surety x x x. Ambiguous contracts are
in the terms of the Loan Agreement without the consent of the construed against the party who caused the ambiguity." 32 In the
surety extinguishes the latter’s obligation. As the Court held absence of an unequivocal provision that respondent waived his
in National Bank v. Veraguth,30 "[i]t is fundamental in the law of right to be notified of or to give consent to any alteration of the
suretyship that any agreement between the creditor and the credit accommodation, we cannot sustain petitioner’s view that
principal debtor which essentially varies the terms of the there was such a waiver.
principal contract, without the consent of the surety, will release
the surety from liability." It should also be observed that the Credit Approval
Memorandum clearly shows that the bank did not have absolute
In this case, petitioner’s assertion - that respondent consented authority to unilaterally change the terms of the loan
to the alterations in the credit accommodation -- finds no support accommodation. Indeed, it may do so only upon notice to the
in the text of the Indemnity Agreement, which is reproduced borrower, pursuant to this condition:
hereunder:
"5. The Bank reserves the right to amend any of the
"Rodolfo M. Cuenca of legal age, with postal address c/o Sta. aforementioned terms and conditions upon written notice to the
Ines Malale Forest Products Corp., Alco Bldg., 391 Buendia Borrower."33
Avenue Ext., Makati Metro Manila for and in consideration of the
credit accommodation in the total amount of eight million pesos We reject petitioner’s submission that only Sta. Ines as the
(₱8,000,000.00) granted by the SECURITY BANK AND TRUST borrower, not respondent, was entitled to be notified of any
COMPANY, a commercial bank duly organized and existing modification in the original loan accommodation.34 Following the
under and by virtue of the laws of the Philippine, 6778 Ayala bank’s reasoning, such modification would not be valid as to Sta.
Avenue, Makati, Metro Manila hereinafter referred to as the Ines if no notice were given; but would still be valid as to
BANK in favor of STA. INES MELALE FOREST PRODUCTS respondent to whom no notice need be given. The latter’s
CORP., x x x ---- hereinafter referred to as the CLIENT, with the liability would thus be more burdensome than that of the former.
stipulated interests and charges thereon, evidenced by Such untenable theory is contrary to the principle that a surety
that/those certain PROMISSORY NOTE[(S)], made, executed
cannot assume an obligation more onerous than that of the No similar provision is found in the present case. On the
principal.35 contrary, respondent’s liability was confined to the 1980 credit
accommodation, the amount and the expiry date of which were
The present controversy must be distinguished from Philamgen set down in the Credit Approval Memorandum.
v. Mutuc,36 in which the Court sustained a stipulation whereby
the surety consented to be bound not only for the specified Special Nature of the JSS
period, "but to any extension thereafter made, an extension x x
x that could be had without his having to be notified." It is a common banking practice to require the JSS ("joint and
solidary signature") of a major stockholder or corporate officer,
In that case, the surety agreement contained this unequivocal as an additional security for loans granted to corporations. There
stipulation: "It is hereby further agreed that in case of any are at least two reasons for this. First, in case of default, the
extension of renewal of the bond, we equally bind ourselves to creditor’s recourse, which is normally limited to the corporate
the Company under the same terms and conditions as herein properties under the veil of separate corporate personality,
provided without the necessity of executing another indemnity would extend to the personal assets of the surety. Second, such
agreement for the purpose and that we hereby equally waive our surety would be compelled to ensure that the loan would be used
right to be notified of any renewal or extension of the bond which for the purpose agreed upon, and that it would be paid by the
may be granted under this indemnity agreement." corporation.

In the present case, there is no such express Following this practice, it was therefore logical and reasonable
stipulation.1âwphi1 At most, the alleged basis of respondent’s for the bank to have required the JSS of respondent, who was
waiver is vague and uncertain. It confers no clear authorization the chairman and president of Sta. Ines in 1980 when the credit
on the bank or Sta. Ines to modify or extend the original accommodation was granted. There was no reason or logic,
obligation without the consent of the surety or notice thereto. 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
Continuing Surety 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
Contending that the Indemnity Agreement was in the nature of reason to bind himself further to a bigger and more onerous
a continuing surety, petitioner maintains that there was no need obligation.
for respondent to execute another surety contract to secure the
1989 Loan Agreement.
Indeed, the stipulation in the 1989 Loan Agreement providing for
the surety of respondent, without even informing him, smacks of
This argument is incorrect. That the Indemnity Agreement is a negligence on the part of the bank and bad faith on that of the
continuing surety does not authorize the bank to extend the principal debtor. Since that Loan Agreement constituted a new
scope of the principal obligation inordinately. 37 In Dino v. indebtedness, the old loan having been already liquidated, the
CA,38 the Court held that "a continuing guaranty is one which spirit of fair play should have impelled Sta. Ines to ask somebody
covers all transactions, including those arising in the else to act as a surety for the new loan.
future, which are within the description or contemplation of the
contract of guaranty, until the expiration or termination thereof."
In the same vein, a little prudence should have impelled the bank
to insist on the JSS of one who was in a position to ensure the
To repeat, in the present case, the Indemnity Agreement was payment of the loan. Even a perfunctory attempt at credit
subject to the two limitations of the credit accommodation: (1) investigation would have revealed that respondent was no
that the obligation should not exceed ₱8 million, and (2) that the longer connected with the corporation at the time. As it is, the
accommodation should expire not later than November 30, bank is now relying on an unclear Indemnity Agreement in order
1981. Hence, it was a continuing surety only in regard to loans to collect an obligation that could have been secured by a fairly
obtained on or before the aforementioned expiry date and not obtained surety. For its defeat in this litigation, the bank has only
exceeding the total of ₱8 million. itself to blame.

Accordingly, the surety of Cuenca secured only the first loan of In sum, we hold that the 1989 Loan Agreement extinguished by
₱6.1 million obtained on November 26, 1991. It did not secure novation the obligation under the 1980 ₱8 million credit
the subsequent loans, purportedly under the 1980 credit accommodation. Hence, the Indemnity Agreement, which had
accommodation, that were obtained in 1986. Certainly, he could been an accessory to the 1980 credit accommodation, was also
not have guaranteed the 1989 Loan Agreement, which was extinguished. Furthermore, we reject petitioner’s submission
executed after November 30, 1981 and which exceeded the that respondent waived his right to be notified of, or to give
stipulated P8 million ceiling. consent to, any modification or extension of the 1980 credit
accommodation.
Petitioner, however, cites the Dino ruling in which the Court
found the surety liable for the loan obtained after the payment of In this light, we find no more need to resolve the issue of whether
the original one, which was covered by a continuing surety the loan obtained before the expiry date of the credit
agreement. At the risk of being repetitious, we hold that in Dino, accommodation has been paid.
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 WHEREFORE, the Petition is DENIED and the assailed
been notified of such revocation, the surety was held liable even Decision AFFIRMED. Costs against petitioner.
for the subsequent obligations of the principal borrower.
SO ORDERED.
G.R. No. 151953 June 29, 2007 impleading SURETIES therein for contribution, indemnity,
subrogation or other relief in respect to any of the claims of
SALVADOR P. ESCAÑO and MARIO M. SILOS, petitioner, PDCP and/or PAIC; and
vs.
RAFAEL ORTIGAS, JR., respondent. c. In the event that any of [the] OBLIGORS is for any reason
made to pay any amount to PDCP and/or PAIC, SURETIES
DECISION shall reimburse OBLIGORS for said amount/s within seven (7)
calendar days from such payment;
TINGA, J.:
4. OBLIGORS hereby waive in favor of SURETIES any and all
fees which may be due from FALCON arising out of, or in
The main contention raised in this petition is that petitioners are connection with, their said guarantees[sic].8
not under obligation to reimburse respondent, a claim that can
be easily debunked. The more perplexing question is whether
this obligation to repay is solidary, as contended by respondent Falcon eventually availed of the sum of US$178,655.59 from the
and the lower courts, or merely joint as argued by petitioners. credit line extended by PDCP. It would also execute a Deed of
Chattel Mortgage over its personal properties to further secure
the loan. However, Falcon subsequently defaulted in its
On 28 April 1980, Private Development Corporation of the payments. After PDCP foreclosed on the chattel mortgage, there
Philippines (PDCP)1 entered into a loan agreement with Falcon remained a subsisting deficiency of ₱5,031,004.07, which
Minerals, Inc. (Falcon) whereby PDCP agreed to make available Falcon did not satisfy despite demand.9
and lend to Falcon the amount of US$320,000.00, for specific
purposes and subject to certain terms and conditions. 2 On the
same day, three stockholders-officers of Falcon, namely: On 28 April 1989, in order to recover the indebtedness, PDCP
respondent Rafael Ortigas, Jr. (Ortigas), George A. Scholey and filed a complaint for sum of money with the Regional Trial Court
George T. Scholey executed an Assumption of Solidary Liability of Makati (RTC) against Falcon, Ortigas, Escaño, Silos, Silverio
whereby they agreed "to assume in [their] individual capacity, and Inductivo. The case was docketed as Civil Case No. 89-
solidary liability with [Falcon] for the due and punctual payment" 5128. For his part, Ortigas filed together with his answer a cross-
of the loan contracted by Falcon with PDCP.3 In the meantime, claim against his co-defendants Falcon, Escaño and Silos, and
two separate guaranties were executed to guarantee the also manifested his intent to file a third-party complaint against
payment of the same loan by other stockholders and officers of the Scholeys and Matti.10 The cross-claim lodged against
Falcon, acting in their personal and individual capacities. One Escaño and Silos was predicated on the 1982 Undertaking,
Guaranty4 was executed by petitioner Salvador Escaño wherein they agreed to assume the liabilities of Ortigas with
(Escaño), while the other5 by petitioner Mario M. Silos (Silos), respect to the PDCP loan.
Ricardo C. Silverio (Silverio), Carlos L. Inductivo (Inductivo) and
Joaquin J. Rodriguez (Rodriguez). Escaño, Ortigas and Silos each sought to seek a settlement with
PDCP. The first to come to terms with PDCP was Escaño, who
Two years later, an agreement developed to cede control of in December of 1993, entered into a compromise agreement
Falcon to Escaño, Silos and Joseph M. Matti (Matti). Thus, whereby he agreed to pay the bank ₱1,000,000.00. In
contracts were executed whereby Ortigas, George A. Scholey, exchange, PDCP waived or assigned in favor of Escaño one-
Inductivo and the heirs of then already deceased George T. third (1/3) of its entire claim in the complaint against all of the
Scholey assigned their shares of stock in Falcon to Escaño, other defendants in the case.11 The compromise agreement was
Silos and Matti.6 Part of the consideration that induced the sale approved by the RTC in a Judgment12 dated 6 January 1994.
of stock was a desire by Ortigas, et al., to relieve themselves of
all liability arising from their previous joint and several Then on 24 February 1994, Ortigas entered into his own
undertakings with Falcon, including those related to the loan with compromise agreement13 with PDCP, allegedly without the
PDCP. Thus, an Undertaking dated 11 June 1982 was executed knowledge of Escaño, Matti and Silos. Thereby, Ortigas agreed
by the concerned parties,7 namely: with Escaño, Silos and Matti to pay PDCP ₱1,300,000.00 as "full satisfaction of the PDCP’s
identified in the document as "SURETIES," on one hand, and claim against Ortigas,"14 in exchange for PDCP’s release of
Ortigas, Inductivo and the Scholeys as "OBLIGORS," on the Ortigas from any liability or claim arising from the Falcon loan
other. The Undertaking reads in part: agreement, and a renunciation of its claims against Ortigas.

3. That whether or not SURETIES are able to immediately cause In 1995, Silos and PDCP entered into a Partial Compromise
PDCP and PAIC to release OBLIGORS from their said Agreement whereby he agreed to pay ₱500,000.00 in exchange
guarantees [sic], SURETIES hereby irrevocably agree and for PDCP’s waiver of its claims against him.15
undertake to assume all of OBLIGORs’ said guarantees [sic] to
PDCP and PAIC under the following terms and conditions: In the meantime, after having settled with PDCP, Ortigas
pursued his claims against Escaño, Silos and Matti, on the basis
a. Upon receipt by any of [the] OBLIGORS of any demand from of the 1982 Undertaking. He initiated a third-party complaint
PDCP and/or PAIC for the payment of FALCON’s obligations against Matti and Silos,16 while he maintained his cross-claim
with it, any of [the] OBLIGORS shall immediately inform against Escaño. In 1995, Ortigas filed a motion for Summary
SURETIES thereof so that the latter can timely take appropriate Judgment in his favor against Escaño, Silos and Matti. On 5
measures; October 1995, the RTC issued the Summary Judgment,
ordering Escaño, Silos and Matti to pay Ortigas, jointly and
b. Should suit be impleaded by PDCP and/or PAIC against any severally, the amount of ₱1,300,000.00, as well as ₱20,000.00
and/or all of OBLIGORS for collection of said loans and/or credit in attorney’s fees.17 The trial court ratiocinated that none of the
facilities, SURETIES agree to defend OBLIGORS at their own third-party defendants disputed the 1982 Undertaking, and that
expense, without prejudice to any and/or all of OBLIGORS "the mere denials of defendants with respect to non-compliance
of Ortigas of the terms and conditions of the Undertaking, guarantees [sic] to PDCP x x x under the following terms and
unaccompanied by any substantial fact which would be conditions."24
admissible in evidence at a hearing, are not sufficient to raise
genuine issues of fact necessary to defeat a motion for summary At the same time, it is clear that the assumption by petitioners of
judgment, even if such facts were raised in the pleadings." 18 In Ortigas’s "guarantees" [sic] to PDCP is governed by stipulated
an Order dated 7 March 1996, the trial court denied the motion terms and conditions as set forth in sub-paragraphs (a) to (c) of
for reconsideration of the Summary Judgment and awarded Paragraph 3. First, upon receipt by "any of OBLIGORS" of any
Ortigas legal interest of 12% per annum to be computed from 28 demand from PDCP for the payment of Falcon’s obligations with
February 1994.19 it, "any of OBLIGORS" was to immediately inform "SURETIES"
thereof so that the latter can timely take appropriate measures.
From the Summary Judgment, recourse was had by way of Second, should "any and/or all of OBLIGORS" be impleaded by
appeal to the Court of Appeals. Escaño and Silos appealed PDCP in a suit for collection of its loan, "SURETIES agree[d] to
jointly while Matti appealed by his lonesome. In a defend OBLIGORS at their own expense, without prejudice to
Decision20 dated 23 January 2002, the Court of Appeals any and/or all of OBLIGORS impleading SURETIES therein for
dismissed the appeals and affirmed the Summary Judgment. contribution, indemnity, subrogation or other relief"25 in respect
The appellate court found that the RTC did not err in rendering to any of the claims of PDCP. Third, if any of the "OBLIGORS is
the summary judgment since the three appellants did not for any reason made to pay any amount to [PDCP], SURETIES
effectively deny their execution of the 1982 Undertaking. The [were to] reimburse OBLIGORS for said amount/s within seven
special defenses that were raised, "payment and excussion," (7) calendar days from such payment."26
were characterized by the Court of Appeals as "appear[ing] to
be merely sham in the light of the pleadings and supporting Petitioners claim that, contrary to paragraph 3(c) of the
documents and affidavits."21 Thus, it was concluded that there Undertaking, Ortigas was not "made to pay" PDCP the amount
was no genuine issue that would still require the rigors of trial, now sought to be reimbursed, as Ortigas voluntarily paid PDCP
and that the appealed judgment was decided on the bases of the amount of ₱1.3 Million as an amicable settlement of the
the undisputed and established facts of the case. claims posed by the bank against him. However, the subject
clause in paragraph 3(c) actually reads "[i]n the event that any
Hence, the present petition for review filed by Escaño and of OBLIGORS is for any reason made to pay any amount to
Silos.22 Two main issues are raised. First, petitioners dispute PDCP x x x"27 As pointed out by Ortigas, the phrase "for any
that they are liable to Ortigas on the basis of the 1982 reason" reasonably includes any extra-judicial settlement of
Undertaking, a document which they do not disavow and have obligation such as what Ortigas had undertaken to pay to PDCP,
in fact annexed to their petition. Second, on the assumption that as it is indeed obvious that the phrase was incorporated in the
they are liable to Ortigas under the 1982 Undertaking, clause to render the eventual payment adverted to therein
petitioners argue that they are jointly liable only, and not unlimited and unqualified.
solidarily. Further assuming that they are liable, petitioners also
submit that they are not liable for interest and if at all, the proper The interpretation posed by petitioners would have held water
interest rate is 6% and not 12%. had the Undertaking made clear that the right of Ortigas to seek
reimbursement accrued only after he had delivered payment to
Interestingly, petitioners do not challenge, whether in their PDCP as a consequence of a final and executory judgment. On
petition or their memorandum before the Court, the the contrary, the clear intent of the Undertaking was for
appropriateness of the summary judgment as a relief favorable petitioners and Matti to relieve the burden on Ortigas and his
to Ortigas. Under Section 3, Rule 35 of the 1997 Rules of Civil fellow "OBLIGORS" as soon as possible, and not only after
Procedure, summary judgment may avail if the pleadings, Ortigas had been subjected to a final and executory adverse
supporting affidavits, depositions and admissions on file show judgment.
that, except as to the amount of damages, there is no genuine
issue as to any material fact and that the moving party is entitled Paragraph 1 of the Undertaking enjoins petitioners to "exert all
to a judgment as a matter of law. Petitioner have not attempted efforts to cause PDCP x x x to within a reasonable time release
to demonstrate before us that there existed a genuine issue as all the OBLIGORS x x x from their guarantees [sic] to PDCP x x
to any material fact that would preclude summary judgment. x"28 In the event that Ortigas and his fellow "OBLIGORS" could
Thus, we affirm with ease the common rulings of the lower courts not be released from their guaranties, paragraph 2 commits
that summary judgment is an appropriate recourse in this case. petitioners and Matti to cause the Board of Directors of Falcon
to make a call on its stockholders for the payment of their unpaid
The vital issue actually raised before us is whether petitioners subscriptions and to pledge or assign such payments to Ortigas,
were correctly held liable to Ortigas on the basis of the 1982 et al., as security for whatever amounts the latter may be held
Undertaking in this Summary Judgment. An examination of the liable under their guaranties. In addition, paragraph 1 also
document reveals several clauses that make it clear that the makes clear that nothing in the Undertaking "shall prevent
agreement was brought forth by the desire of Ortigas, Inductivo OBLIGORS, or any one of them, from themselves negotiating
and the Scholeys to be released from their liability under the loan with PDCP x x x for the release of their said guarantees [sic]." 29
agreement which release was, in turn, part of the consideration
for the assignment of their shares in Falcon to petitioners and There is no argument to support petitioners’ position on the
Matti. The whereas clauses manifest that Ortigas had bound import of the phrase "made to pay" in the Undertaking, other
himself with Falcon for the payment of the loan with PDCP, and than an unduly literalist reading that is clearly inconsistent with
that "amongst the consideration for OBLIGORS and/or their the thrust of the document. Under the Civil Code, the various
principals aforesaid selling is SURETIES’ relieving OBLIGORS stipulations of a contract shall be interpreted together, attributing
of any and all liability arising from their said joint and several to the doubtful ones that sense which may result from all of them
undertakings with FALCON."23 Most crucial is the clause in taken jointly.30 Likewise applicable is the provision that if some
Paragraph 3 of the Undertaking wherein petitioners "irrevocably stipulation of any contract should admit of several meanings, it
agree and undertake to assume all of OBLIGORs’ said shall be understood as bearing
that import which is most adequate to render it effectual.31 As a calendar days from such payment" 37 makes it clear that
means to effect the general intent of the document to relieve petitioners remain liable to reimburse Ortigas for the sums he
Ortigas from liability to PDCP, it is his interpretation, not that of paid PDCP.
petitioners, that holds sway with this Court.
We now turn to the set of arguments posed by petitioners, in the
Neither do petitioners impress us of the non-fulfillment of any of alternative, that is, on the assumption that they are indeed liable.
the other conditions set in paragraph 3, as they claim. Following
the general assertion in the petition that Ortigas violated the Petitioners submit that they could only be held jointly, not
terms of the Undertaking, petitioners add that Ortigas "paid solidarily, liable to Ortigas, claiming that the Undertaking did not
PDCP BANK the amount of ₱1.3 million without petitioners provide for express solidarity. They cite Article 1207 of the New
ESCANO and SILOS’s knowledge and consent." 32 Paragraph Civil Code, which states in part that "[t]here is a solidary liability
3(a) of the Undertaking does impose a requirement that any of only when the obligation expressly so states, or when the law or
the "OBLIGORS" shall immediately inform "SURETIES" if they the nature of the obligation requires solidarity."
received any demand for payment of FALCON’s obligations to
PDCP, but that requirement is reasoned "so that the
[SURETIES] can timely take appropriate Ortigas in turn argues that petitioners, as well as Matti, are jointly
measures"33 presumably to settle the obligation without having and severally liable for the Undertaking, as the language used
to burden the "OBLIGORS." This notice requirement in in the agreement "clearly shows that it is a surety
paragraph 3(a) is markedly way off from the suggestion of agreement"38 between the obligors (Ortigas group) and the
petitioners that Ortigas, after already having been impleaded as sureties (Escaño group). Ortigas points out that the Undertaking
a defendant in the collection suit, was obliged under the 1982 uses the word "SURETIES" although the document, in
Undertaking to notify them before settling with PDCP. describing the parties. It is further contended that the principal
objective of the parties in executing the Undertaking cannot be
attained unless petitioners are solidarily liable "because the total
The other arguments petitioners have offered to escape liability loan obligation can not be paid or settled to free or release the
to Ortigas are similarly weak. OBLIGORS if one or any of the SURETIES default from their
obligation in the Undertaking."39
Petitioners impugn Ortigas for having settled with PDCP in the
first place. They note that Ortigas had, in his answer, denied any In case, there is a concurrence of two or more creditors or of two
liability to PDCP and had alleged that he signed the Assumption or more debtors in one and the same obligation, Article 1207 of
of Solidary Liability not in his personal capacity, but as an officer the Civil Code states that among them, "[t]here is a solidary
of Falcon. However, such position, according to petitioners, liability only when the obligation expressly so states, or when the
could not be justified since Ortigas later voluntarily paid PDCP law or the nature of the obligation requires solidarity." Article
the amount of ₱1.3 Million. Such circumstances, according to 1210 supplies further caution against the broad interpretation of
petitioners, amounted to estoppel on the part of Ortigas. solidarity by providing: "The indivisibility of an obligation does
not necessarily give rise to solidarity. Nor does solidarity of itself
Even as we entertain this argument at depth, its premises are imply indivisibility."
still erroneous. The Partial Compromise Agreement between
PDCP and Ortigas expressly stipulated that Ortigas’s offer to These Civil Code provisions establish that in case of
pay PDCP was conditioned "without [Ortigas’s] admitting liability concurrence of two or more creditors or of two or more debtors
to plaintiff PDCP Bank’s complaint, and to terminate and dismiss in one and the same obligation, and in the absence of express
the said case as against Ortigas solely."34 Petitioners profess it and indubitable terms characterizing the obligation as solidary,
is "unthinkable" for Ortigas to have voluntarily paid PDCP the presumption is that the obligation is only joint. It thus
without admitting his liability,35 yet such contention based on becomes incumbent upon the party alleging that the obligation
assumption cannot supersede the literal terms of the Partial is indeed solidary in character to prove such fact with a
Compromise Agreement. preponderance of evidence.

Petitioners further observe that Ortigas made the payment to The Undertaking does not contain any express stipulation that
PDCP after he had already assigned his obligation to petitioners the petitioners agreed "to bind themselves jointly and severally"
through the 1982 Undertaking. Yet the fact is PDCP did pursue in their obligations to the Ortigas group, or any such terms to
a judicial claim against Ortigas notwithstanding the Undertaking that effect. Hence, such obligation established in the
he executed with petitioners. Not being a party to such Undertaking is presumed only to be joint. Ortigas, as the party
Undertaking, PDCP was not precluded by a contract from alleging that the obligation is in fact solidary, bears the burden
pursuing its claim against Ortigas based on the original to overcome the presumption of jointness of obligations. We rule
Assumption of Solidary Liability. and so hold that he failed to discharge such burden.

At the same time, the Undertaking did not preclude Ortigas from Ortigas places primary reliance on the fact that the petitioners
relieving his distress through a settlement with the creditor bank. and Matti identified themselves in the Undertaking as
Indeed, paragraph 1 of the Undertaking expressly states that "SURETIES", a term repeated no less than thirteen (13) times in
"nothing herein shall prevent OBLIGORS, or any one of them, the document. Ortigas claims that such manner of identification
from themselves negotiating with PDCP x x x for the release of sufficiently establishes that the obligation of petitioners to him
their said guarantees [sic]."36 Simply put, the Undertaking did was joint and solidary in nature.
not bar Ortigas from pursuing his own settlement with PDCP.
Neither did the Undertaking bar Ortigas from recovering from
petitioners whatever amount he may have paid PDCP through The term "surety" has a specific meaning under our Civil Code.
his own settlement. The stipulation that if Ortigas was "for any Article 2047 provides the statutory definition of a surety
reason made to pay any amount to PDCP[,] x x x SURETIES agreement, thus:
shall reimburse OBLIGORS for said amount/s within seven (7)
Art. 2047. By guaranty a person, called the guarantor, binds The second paragraph of [Article 2047] is practically equivalent
himself to the creditor to fulfill the obligation of the principal to the contract of suretyship. The civil law suretyship is,
debtor in case the latter should fail to do so. accordingly, nearly synonymous with the common law guaranty;
and the civil law relationship existing between the co-debtors
If a person binds himself solidarily with the principal debtor, the liable in solidum is similar to the common law suretyship. 46
provisions of Section 4, Chapter 3, Title I of this Book shall be
observed. In such case the contract is called a suretyship. In the case of joint and several debtors, Article 1217 makes plain
[Emphasis supplied]40 that the solidary debtor who effected the payment to the creditor
"may claim from his co-debtors only the share which
As provided in Article 2047 in a surety agreement the surety corresponds to each, with the interest for the payment already
undertakes to be bound solidarily with the principal debtor. Thus, made." Such solidary debtor will not be able to recover from the
a surety agreement is an ancillary contract as it presupposes the co-debtors the full amount already paid to the creditor, because
existence of a principal contract. It appears that Ortigas’s the right to recovery extends only to the proportional share of
argument rests solely on the solidary nature of the obligation of the other co-debtors, and not as to the particular proportional
the surety under Article 2047. In tandem with the nomenclature share of the solidary debtor who already paid. In contrast, even
"SURETIES" accorded to petitioners and Matti in the as the surety is solidarily bound with the principal debtor to the
Undertaking, however, this argument can only be viable if the creditor, the surety who does pay the creditor has the right to
obligations established in the recover the full amount paid, and not just any proportional share,
from the principal debtor or debtors. Such right to full
reimbursement falls within the other rights, actions and benefits
Undertaking do partake of the nature of a suretyship as defined which pertain to the surety by reason of the subsidiary obligation
under Article 2047 in the first place. That clearly is not the case assumed by the surety.
here, notwithstanding the use of the nomenclature "SURETIES"
in the Undertaking.
What is the source of this right to full reimbursement by the
surety? We find the right under Article 2066 of the Civil Code,
Again, as indicated by Article 2047, a suretyship requires a which assures that "[t]he guarantor who pays for a debtor must
principal debtor to whom the surety is solidarily bound by way of be indemnified by the latter," such indemnity comprising of,
an ancillary obligation of segregate identity from the obligation among others, "the total amount of the debt."47 Further, Article
between the principal debtor and the creditor. The suretyship 2067 of the Civil Code likewise establishes that "[t]he guarantor
does bind the surety to the creditor, inasmuch as the latter is who pays is subrogated by virtue thereof to all the rights which
vested with the right to proceed against the former to collect the the creditor had against the debtor."48
credit in lieu of proceeding against the principal debtor for the
same obligation.41 At the same time, there is also a legal tie
created between the surety and the principal debtor to which the
creditor is not privy or party to. The moment the surety fully Articles 2066 and 2067 explicitly pertain to guarantors, and one
answers to the creditor for the obligation created by the principal might argue that the provisions should not extend to sureties,
debtor, such obligation is extinguished.42 At the same time, the especially in light of the qualifier in Article 2047 that the
surety may seek reimbursement from the principal debtor for the provisions on joint and several obligations should apply to
amount paid, for the surety does in fact "become subrogated to sureties. We reject that argument, and instead adopt Dr.
all the rights and remedies of the creditor." 43 Tolentino’s observation that "[t]he reference in the second
paragraph of [Article 2047] to the provisions of Section 4,
Chapter 3, Title I, Book IV, on solidary or several obligations,
Note that Article 2047 itself specifically calls for the application however, does not mean that suretyship is withdrawn from the
of the provisions on joint and solidary obligations to suretyship applicable provisions governing guaranty." 49 For if that were not
contracts.44 Article 1217 of the Civil Code thus comes into play, the implication, there would be no material difference between
recognizing the right of reimbursement from a co-debtor (the the surety as defined under Article 2047 and the joint and
principal debtor, in case of suretyship) in favor of the one who several debtors, for both classes of obligors would be governed
paid (i.e., the surety).45 However, a significant distinction still lies by exactly the same rules and limitations.
between a joint and several debtor, on one hand, and a surety
on the other. Solidarity signifies that the creditor can compel any
one of the joint and several debtors or the surety alone to answer Accordingly, the rights to indemnification and subrogation as
for the entirety of the principal debt. The difference lies in the established and granted to the guarantor by Articles 2066 and
respective faculties of the joint and several debtor and the surety 2067 extend as well to sureties as defined under Article 2047.
to seek reimbursement for the sums they paid out to the creditor. These rights granted to the surety who pays materially differ
from those granted under Article 1217 to the solidary debtor who
pays, since the "indemnification" that pertains to the latter
Dr. Tolentino explains the differences between a solidary co- extends "only [to] the share which corresponds to each [co-
debtor and a surety: debtor]." It is for this reason that the Court cannot accord the
conclusion that because petitioners are identified in the
A guarantor who binds himself in solidum with the principal Undertaking as "SURETIES," they are consequently joint and
debtor under the provisions of the second paragraph does not severally liable to Ortigas.
become a solidary co-debtor to all intents and purposes. There
is a difference between a solidary co-debtor and a fiador in In order for the conclusion espoused by Ortigas to hold, in light
solidum (surety). The latter, outside of the liability he assumes of the general presumption favoring joint liability, the Court
to pay the debt before the property of the principal debtor has would have to be satisfied that among the petitioners and Matti,
been exhausted, retains all the other rights, actions and benefits there is one or some of them who stand as the principal debtor
which pertain to him by reason of the fiansa; while a solidary co- to Ortigas and another as surety who has the right to full
debtor has no other rights than those bestowed upon him in reimbursement from the principal debtor or debtors. No
Section 4, Chapter 3, Title I, Book IV of the Civil Code. suggestion is made by the parties that such is the case, and
certainly the Undertaking is not revelatory of such intention. If Finally, petitioners claim that they should not be liable for interest
the Court were to give full fruition to the use of the term "sureties" since the Undertaking does not contain any stipulation for
as conclusive indication of the existence of a surety agreement interest, and assuming that they are liable, that the rate of
that in turn gives rise to a solidary obligation to pay Ortigas, the interest should not be 12% per annum, as adjudged by the RTC.
necessary implication would be to lay down a corresponding set
of rights and obligations as between the "SURETIES" which The seminal ruling in Eastern Shipping Lines, Inc. v. Court of
petitioners and Matti did not clearly intend. Appeals51 set forth the rules with respect to the manner of
computing legal interest:
It is not impossible that as between Escaño, Silos and Matti,
there was an agreement whereby in the event that Ortigas were I. When an obligation, regardless of its source, i.e., law,
to seek reimbursement from them per the terms of the contracts, quasi-contracts, delicts or quasi-delicts is breached,
Undertaking, one of them was to act as surety and to pay Ortigas the contravenor can be held liable for damages. The provisions
in full, subject to his right to full reimbursement from the other under Title XVIII on "Damages" of the Civil Code govern in
two obligors. In such case, there would have been, in fact, a determining the measure of recoverable damages.
surety agreement which evinces a solidary obligation in favor of
Ortigas. Yet if there was indeed such an agreement, it does not
appear on the record. More consequentially, no such intention II. With regard particularly to an award of interest in the concept
is reflected in the Undertaking itself, the very document that of actual and compensatory damages, the rate of interest, as
creates the conditional obligation that petitioners and Matti well as the accrual thereof, is imposed, as follows:
reimburse Ortigas should he be made to pay PDCP. The mere
utilization of the term "SURETIES" could not work to such effect, 1. When the obligation is breached, and it consists in the
especially as it does not appear who exactly is the principal payment of a sum of money, i.e., a loan or forbearance of
debtor whose obligation is "assured" or "guaranteed" by the money, the interest due should be that which may have been
surety. stipulated in writing. Furthermore, the interest due shall itself
earn legal interest from the time it is judicially demanded. In the
Ortigas further argues that the nature of the Undertaking absence of stipulation, the rate of interest shall be 12% per
requires "solidary obligation of the Sureties," since the annum to be computed from default, i.e., from judicial or
Undertaking expressly seeks to "reliev[e] obligors of any and all extrajudicial demand under and subject to the provisions of
liability arising from their said joint and several undertaking with Article 1169 of the Civil Code.
[F]alcon," and for the "sureties" to "irrevocably agree and
undertake to assume all of obligors said guarantees to 2. When an obligation, not constituting a loan or forbearance of
PDCP."50 We do not doubt that a finding of solidary liability money, is breached, an interest on the amount of damages
among the petitioners works to the benefit of Ortigas in the awarded may be imposed at the discretion of the court at the
facilitation of these goals, yet the Undertaking itself contains no rate of 6% per annum. No interest, however, shall be adjudged
stipulation or clause that establishes petitioners’ obligation to on unliquidated claims or damages except when or until the
Ortigas as solidary. Moreover, the aims adverted to by Ortigas demand can be established with reasonable certainty.
do not by themselves establish that the nature of the obligation Accordingly, where the demand is established with reasonable
requires solidarity. Even if the liability of petitioners and Matti certainty, the interest shall begin to run from the time the claim
were adjudged as merely joint, the full relief and reimbursement is made judicially or extrajudicially (Art. 1169, Civil Code) but
of Ortigas arising from his payment to PDCP would still be when such certainty cannot be so reasonably established at the
accomplished through the complete execution of such a time the demand is made, the interest shall begin to run only
judgment. from the date the judgment of the court is made (at which time
quantification of damages may be deemed to have been
Petitioners further claim that they are not liable for attorney’s reasonably ascertained). The actual base for the computation of
fees since the Undertaking contained no such stipulation for legal interest shall, in any case, be on the amount finally
attorney’s fees, and that the situation did not fall under the adjudged.
instances under Article 2208 of the Civil Code where attorney’s
fees are recoverable in the absence of stipulation. 3. When the judgment of the court awarding a sum of money
becomes final and executory, the rate of legal interest, whether
We disagree. As Ortigas points out, the acts or omissions of the the case falls under paragraph 1 or paragraph 2, above, shall be
petitioners led to his being impleaded in the suit filed by PDCP. 12% per annum from such finality until its satisfaction, this
The Undertaking was precisely executed as a means to obtain interim period being deemed to be by then an equivalent to a
the release of Ortigas and the Scholeys from their previous forbearance of credit.52
obligations as sureties of Falcon, especially considering that
they were already divesting their shares in the corporation. Since what was the constituted in the Undertaking consisted of
Specific provisions in the Undertaking obligate petitioners to a payment in a sum of money, the rate of interest thereon shall
work for the release of Ortigas from his surety agreements with be 12% per annum to be computed from default, i.e., from
Falcon. Specific provisions likewise mandate the immediate judicial or extrajudicial demand. The interest rate imposed by the
repayment of Ortigas should he still be made to pay PDCP by RTC is thus proper. However, the computation should be
reason of the guaranty agreements from which he was reckoned from judicial or extrajudicial demand. Per records,
ostensibly to be released through the efforts of petitioners. None there is no indication that Ortigas made any extrajudicial
of these provisions were complied with by petitioners, and Article demand to petitioners and Matti after he paid PDCP, but on 14
2208(2) precisely allows for the recovery of attorney’s fees March 1994, Ortigas made a judicial demand when he filed a
"[w]hen the defendant’s act or omission has compelled the Third-Party Complaint praying that petitioners and Matti be
plaintiff to litigate with third persons or to incur expenses to made to reimburse him for the payments made to PDCP. It is
protect his interest." the filing of this Third Party Complaint on 14 March 1994 that
should be considered as the date of judicial demand from which
the computation of interest should be reckoned. 53 Since the
RTC held that interest should be computed from 28 February
1994, the appropriate redefinition should be made.

WHEREFORE, the Petition is GRANTED in PART. The Order

of the Regional Trial Court dated 5 October 1995 is modified by
declaring that petitioners and Joseph M. Matti are only jointly
liable, not jointly and severally, to respondent Rafael Ortigas, Jr.
in the amount of ₱1,300,000.00. The Order of the Regional Trial
Court dated 7 March 1996 is MODIFIED in that the legal interest
of 12% per annum on the amount of ₱1,300,000.00 is to be
computed from 14 March 1994, the date of judicial demand, and
not from 28 February 1994 as directed in the Order of the lower
court. The assailed rulings are affirmed in all other respects.
Costs against petitioners.

SO ORDERED.