Вы находитесь на странице: 1из 23

VOL.

341,OCTOBER3,2000

781

SecurityBankandTrustCompany,Inc.vs.Cuenca
*

G.R.No.138544.October3,2000.

SECURITYBANKANDTRUSTCOMPANY,INC.,petitioner,vs.
RODOLFOM.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
contendsthatpetitionersMotionforReconsiderationoftheCADecision,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.TheCourthasexplainedthatamovantmayraisethesamearguments,
preciselytoconvincethecourtthatitsrulingwaserroneous.
SameSameSameWherethecircumstancesofacasedonotshowan
intentonthepartofthemovantmerelytodelaytheproceedings,theSupreme
Courthasrefusedtocharacterizethemotionassimplyproforma.Thereis
noclearshowingofintentonthepartofpetitionertodelaytheproceedings.
InMarikinaValleyDevelopmentCorporationvs.Flojo,theCourtexplained
thataproformamotionhadnootherpurposethantogaintimeandtodelay
orimpedetheproceedings.Hence,wherethecircumstancesofacasedonot
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
thanliterally.Therighttoappeal,
_______________
*THIRDDIVISION.

782

782

SUPREMECOURTREPORTSANNOTATED

SecurityBankandTrustCompany,Inc.vs.Cuenca

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
therighttoappealbyaliteralapplicationoftheproceduralrulesrelatingto
proformamotionsforreconsideration.
Pleadings and Practice Service of Pleadings The explanation that
service was done by registered mail in lieu of personal service due to
limitationsintimeanddistancesufficientlyshowsthatpersonalservicewas
notpracticable.ThePetitiondoesstatethatitwasservedontherespective
counsels of Sta. Ines and Cuenca by registered mail in lieu of personal
serviceduetolimitationsintimeanddistance.Thisexplanationsufficiently
shows that personal service was not practicable. In any event, we find no
adequatereasontorejectthecontentionofpetitionerandtherebydepriveitof
theopportunitytofullyargueitscause.
NovationRequisitesIntheabsenceofanexpressagreement,novation
takes place only when the old and the new obligations are incompatible on
everypoint.Novationofacontractisneverpresumed.Ithasbeenheldthat
[i]n the absence of an express agreement, novation takes place only when
theoldandthenewobligationsareincompatibleoneverypoint.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
contractisextinguishedand(4)thereisavalidnewcontract.
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,
therequisitesofnovationarepresentinthiscase.The1989LoanAgreement
extinguished the obligation obtained under the 1980 credit accommodation.
Thisisevidentfromitsexplicitprovisiontoliquidatetheprincipalandthe
interestoftheearlierindebtedness,asthefollowingshows: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)whiletheSecondLoanshallbeappliedtoliquidatethepast
dueinterestandpenaltyportionoftheIndebtedness.(Italicssupplied.)The
testimony of an officer of the bank that the proceeds of the 1989 Loan
Agreement were used to payoff the original indebtedness serves to
strengthenthisruling.
783

VOL.341,OCTOBER3,2000

783

SecurityBankandTrustCompany,Inc.vs.Cuenca

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


IndemnityAgreement,anaccessoryobligation,wasnecessarilyextinguished
also, pursuant to Article 1296 of the Civil Code, which provides: ART.
1296. When the principal obligation is extinguished in consequence of a
novation,accessoryobligationsmaysubsistonlyinsofarastheymaybenefit
thirdpersonswhodidnotgivetheirconsent.
Loans Guaranty An extension granted to the debtor by the creditor
withouttheconsentoftheguarantorextinguishestheguarantyRationale.
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
LoanAgreement,whichhadallegedlyextendedtheoriginalP8millioncredit
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
theguarantorextinguishestheguaranty,xxx.Inanearliercase,theCourt
explained the rationale of this provision in this wise: The theory behind
Article2079isthatanextensionoftimegiventotheprincipaldebtorbythe
creditorwithoutthesuretysconsentwoulddeprivethesuretyofhisrightto
paythecreditorandtobeimmediatelysurrogatedtothecreditorsremedies
againsttheprincipaldebtoruponthematuritydate.Thesuretyissaidtobe
entitledtoprotecthimselfagainstthecontingencyoftheprincipaldebtoror
theindemnitorsbecominginsolventduringtheextendedperiod.
SameSameSuretyshipAnessentialalterationinthetermsofaLoan
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
termsoftheprincipalcontract,withouttheconsentofthesurety,willrelease
thesuretyfromliability.
SameSameSameEven as a surety held himself liable for the credit
accommodation or any modification thereof, such clause should be
understoodinthecontextoftheloanlimitandtheterm.Whilerespondent
heldhimselfliableforthecreditaccommodationoranymodificationthereof,
784

784

SUPREMECOURTREPORTSANNOTATED
SecurityBankandTrustCompany,Inc.vs.Cuenca

and the November 30, 1981 term. It did not give the bank or Sta. Ines any
licensetomodifythenatureandscopeoftheoriginalcreditaccommodation,
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
groundthatheconsentedtoallalterationsandextensionsthereof.
SameSameSameIt is a wellsettled 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
provisionthatthesuretywaivedhisrighttobenotifiedofortogiveconsent
to any alteration of the credit accommodation, waiver could not be
presumed.Ithasbeenheldthatacontractofsuretycannotextendtomore
than what is stipulated. It is strictly construed against the creditor, every
doubtbeingresolvedagainstenlargingtheliabilityofthesurety.Likewise,
theCourthasruledthatitisawellsettledlegalprinciplethatifthereisany
doubtonthetermsandconditionsofthesuretyagreement,thedoubtshould
beresolvedinfavorofthesuretyxxx.Ambiguouscontractsareconstrued
against the party who caused the ambiguity. In the absence of an
unequivocalprovisionthatrespondentwaivedhisrighttobenotifiedoforto
giveconsenttoanyalterationofthecreditaccommodation,wecannotsustain
petitionersviewthattherewassuchawaiver.
Same Same Same The submission that only the borrower, not the
surety, is entitled to be notified of any modification in the original loan
accommodationisuntenablesuchtheoryiscontrarytotheprinciplethata
suretycannotassumeanobligationmoreonerousthanthatoftheprincipal.
WerejectpetitionerssubmissionthatonlySta.Inesastheborrower,not
respondent, was entitled to be notified of any modification in the original
loan accommodation. Following the banks reasoning, such modification
wouldnotbevalidastoSta.Inesifnonoticeweregivenbutwouldstillbe
validastorespondenttowhomnonoticeneedbegiven.Thelattersliability
would thus be more burdensome than that of the former. Such untenable
theoryiscontrarytotheprinciplethatasuretycannotassumeanobligation
moreonerousthanthatoftheprincipal.
SameSameSameContinuingSuretiesWordsandPhrasesThatthe
IndemnityAgreementisacontinuingsuretydoesnotauthorizethelenderto
extend the scope of the principal obligation inordinately A continuing
guarantyisonewhichcoversalltransactions,includingthose
785

VOL.341,OCTOBER3,2000

785

SecurityBankandTrustCompany,Inc.vs.Cuenca

arising in the future, which are within the description or contemplation of


the contract of guaranty, until the expiration or termination thereof That
theIndemnityAgreementisacontinuingsuretydoesnotauthorizethebank
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
descriptionorcontemplationofthecontractofguaranty,untiltheexpiration
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 surety only in regard to loans obtained on or before the
aforementionedexpirydateandnotexceedingthetotalofP8million.
Same Same Same Same Comprehensive or continuing surety
agreements are in fact quite commonplace in present day financial and
commercialpractice.InAtokFinanceCorp.v.CA,222SCRA232,245,
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
benoneedtoexecuteaseparatesuretycontractorbondforeachfinancingor
creditaccommodationextendedtotheprincipaldebtor.
Same Same Same Banks and Banking It is a common banking
practice to require the JSS (joint and solidary signature) of a major
stockholderorcorporateofficer,asanadditionalsecurityforloansgranted
tocorporations.ItisacommonbankingpracticetorequiretheJSS(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

SUPREMECOURTREPORTSANNOTATED
SecurityBankandTrustCompany,Inc.vs.Cuenca

SameSameSameThere 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,hewasnolongeranofficerorastockholderofthedebtorcorporation.
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.
Therewasnoreasonorlogic,however,forthebankorSta.Inestoassume
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
debtorcorporation. Verily, he was not in a position then to ensure the
payment of the obligation. Neither did he have any reason to bind himself
furthertoabiggerandmoreonerousobligation.

PETITIONforreviewoncertiorariofadecisionoftheCourtof
Appeals.
ThefactsarestatedintheopinionoftheCourt.
De Borja, Medialdea, Bello, Gueuarra & Gerodias for
petitioner.
Carpio,Villaraza&CruzforrespondentR.Cuenca.
Beltran, De Grano, Mendoza & Sarmiento for Sta. Ines
MelaleCorporation.
PANGANIBAN,J.:
Being an onerous undertaking, a surety agreement is strictly
construedagainstthecreditor,andeverydoubtisresolvedinfavor
ofthesolidarydebtor.Thefundamentalrulesoffairplayrequirethe
creditortoobtaintheconsentofthesuretytoanymaterialalteration
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
showingthatthelatterwaivedhisrighttobenotifiedthereof,orto
give consent thereto. This is especially true where, as in this case,
respondentwasnolongertheprincipalofficerormajorstockholder
ofthecorporatedebtor,thetimethelaterobligationswereincurred.
Hewasthusnolongerinapositiontocompelthe
787

VOL.341,OCTOBER3,2000

787

SecurityBankandTrustCompany,Inc.vs.Cuenca

debtor to pay the creditor and had no more reason to bind himself
anewtothesubsequentobligations.
TheCase
This is the main principle used in denying the present Petition for
Review under Rule 45 of the1 Rules of Court. Petitioner assails the
December22,1998Decision oftheCourtofAppeals(CA)inCA
GR CV No. 56203, the dispositive portion of which reads as
follows:
WHEREFORE, the judgment appealed from is hereby amended in the
sense that defendantappellant Rodolfo M. Cuenca [herein respondent] is
RELEASEDfromliabilitytopayanyamountstatedinthejudgment.
Furthermore,[Respondent]RodolfoM.Cuencascounterclaimishereby
DISMISSEDforlackofmerit.
2
Inallotherrespect[s],thedecisionappealedfromisAFFIRMED.
3

AlsochallengedistheApril14,1999CAResolution, whichdenied
petitionersMotionforReconsideration.
4

Modified by the CA was the March 6, 1997 Decision of the

Modified by the CA was the March 6, 1997 Decision of the


Regional Trial Court (RTC) of Makati City (Branch 66) in Civil
CaseNo.931925,whichdisposedasfollows:
WHEREFORE,judgmentisherebyrenderedorderingdefendantsSta.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
andlitigationexpensesandtopaythecosts.
SOORDERED.
_______________
1WrittenbyJusticeJorgeS.Imperial(Divisionchairman),withtheconcurrenceof

JusticesHectorL.HofileaandOmarU.Amin(members).
2CADecision,pp.3233rollo,pp.5253.
3Rollo,p.56.PennedbyJusticeAminwiththeconcurrenceofJusticesHofilea

andMarinaL.Buzon.
4WrittenbyJudgeEribertoU.Rosario,Jr.(nowamemberoftheCourtofAppeals).

788

788

SUPREMECOURTREPORTSANNOTATED
SecurityBankandTrustCompany,Inc.vs.Cuenca

TheFacts
5

ThefactsarenarratedbytheCourtofAppealsasfollows:

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
EnvironmentandNaturalResources(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
meetingtheadditionalcapitalizationrequirementsofitsloggingoperations.
TheCreditApprovalMemorandumexpresslystatedthattheP8MCredit
LoanFacilityshallbeeffectiveuntil30November1981:
JOINTCONDITIONS:
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
bemaintainedatalltimesinthisconnection,aMakatiaccountshall

beopenedpriortoavailmentonlines
4. LinesshallexpireonNovember30,1981and
5. The bank reserves the right to amend any of the aforementioned
terms and conditions upon written notice to the Borrower.
(Emphasissupplied.)
To secure the payment of the amounts drawn by appellant SIMC from
theabovementionedcreditline,SIMCexecutedaChattelMortgagedated23
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] Rodolfo M. Cuenca executed an Indemnity Agreement
dated 17 December 1980 (Exhibit B) in favor of [Petitioner] SBTC
wherebyhesolidarilyboundhimselfwithSIMCasfollows:
xxxxxxxxx
_______________
5CADecision,pp.49rollo,pp.2429.

789

VOL.341,OCTOBER3,2000

789

SecurityBankandTrustCompany,Inc.vs.Cuenca
RodolfoM.Cuencaxxxherebybindshimselfxxxjointlyandseverallywith the
client (SIMC) in favor of the bank for the payment, upon demand and without the
benefitofexcussionofwhateveramountxxxtheclientmaybeindebtedtothebankx
x x by virtue of aforesaid credit accommodation(s) including the substitutions,
renewals, extensions, increases, amendments, conversions and revivals of the
aforesaidcreditaccommodation(s)xxx.(Emphasissupplied).

On26November1981,four(4)dayspriortotheexpirationoftheperiodof
effectivity of the P8MCredit Loan Facility, appellant SIMC made a first
drawdownfromitscreditlinewith[Petitioner]SBTCintheamountof[s]ix
[m]illion[o]ne[h]undred[t]housand[p]esos(P6,100,000.00).Tocoversaid
drawdown,SIMCdulyexecutedpromissoryNoteNo.TD/TLS359981for
saidamount(ExhibitC).
Sometime in 1985, [Respondent] Cuenca resigned as President and
Chairman of the Board of Directors of defendantappellant Sta. Ines.
Subsequently, the shareholdings of [Respondent] Cuenca in defendant
appellant Sta. Ines were sold at a public auction relative to Civil Case No.
18021entitledAdolfoA.Angalavs.UniversalHoldings,Inc.andRodolfo
M.Cuenca.SaidshareswereboughtbyAdolfoAngalawhowasthehighest
bidderduringthepublicauction.
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]ineteenand50/100[p]esos(P6,369,019.50).Accordingly,SIMCexecuted
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
theabovementionedadditionalloansagainstthecreditline.
6

Appellant SIMC, however, encountered difficulty in making the

Appellant SIMC, however, encountered difficulty in making the


PROMISSORYNOTENO.
AMOUNT
amortization payments on its loans and requested [Petitioner] SBTC for a
complete restructuring of its indebtedness. SBTC accommodated appellant
SIMCsrequestandsignifieditsapprovalinaletterdated18February1988
(Exhibit G) wherein SBTC and defendantappellant Sta. Ines, without
noticetoorthepriorconsentof[Respondent]Cuenca,agreedtorestructure
thepastdueobligationsofdefendantappellantSta.
_______________
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
ResourcesonDecember6,1989andeventuallycancelledonMay4,1990.(RTCDecision,p.
3rollo,p.12.)

790

790

SUPREMECOURTREPORTSANNOTATED
SecurityBankandTrustCompany,Inc.vs.Cuenca

[Petitioner] Security Bank agreed to extend to defendantappellant Sta. Ines


thefollowingloans:
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 defendantappellant Sta. InesF] total
outstanding indebtedness to [Petitioner] Security Bank (cf. P. 1 of
Exhibit G, Expedient, at Vol. II, p. 336 Exhibit 5BCuenca,
Expediente,etVol.I,pp.33to34)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
defendantappellant Sta. Ines to [Petitioner] Security Bank (cf.
Exhibit G, Expediente, at Vol. II, p. 336 Exhibit 5BCuenca,
Expediente,atVol.II,pp.33to34).
It should be pointed out that in restructuring defendantappellant Sta.
Ines obligations to [Petitioner] Security Bank, Promissory Note No. TD
TLS359981 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 P8MCredit Loan Facility on 30 November 1981 and the
only one covered by the Indemnity Agreement dated 19 December 1980
(Exhibit 3Cuenca, Expediente, at Vol. II, p. 331), was not segregated
from,butwasinsteadlumpedtogetherwith,theotherloans,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
appellantSta.IneswhichwerenotsecuredbysaidIndemnityAgreement.
Pursuant to the agreement to restructure its past due obligations to
[Petitioner] Security Bank, defendantappellant Sta. Ines thus executed the
following promissory notes, both dated 09 March 1988 in favor of
[Petitioner]SecurityBank:

PROMISSORYNOTENO.
PROMISSORYNOTENO.
RL74/596/88

AMOUNT
AMOUNT
P8,800,000.00

RL74/597/88

P3,400,000.00

TOTAL

P12,200,000.00

(ExhibitsHandI,Expediente,atVol.II,pp.338to343).
To formalize their agreement to restructure the loan obligations of
defendantappellant Sta. Ines, [Petitioner] Security Bank and defendant
appellant Sta. Ines executed a Loan Agreement dated 31 October 1989
(Exhibit5Cuenca,Expediente,atVol.I,pp.33to41).Section1.01ofthe
saidLoanAgreementdated31October1989provides:
791

VOL.341,OCTOBER3,2000

791

SecurityBankandTrustCompany,Inc.vs.Cuenca
1.01 AmountThe Lender agrees to grant loan to the Borrower in the aggregate
amount of TWELVE MILLION TWO HUNDRED THOUSAND PESOS
(P12,200,000.00),Philippines[c]urrency(theLoan).Theloanshallbereleasedintwo
(2)tranchesofP8,800,000.00forthefirsttranche(theFirstLoan)andP3,400,000.00
for the second tranche (the Second Loan) to be applied in the manner and for the
purposestipulatedhereinbelow.
1.02PurposeTheFirstLoanshallbeappliedtoliquidatetheprincipalportionof
the Borrowers present total outstanding indebtedness to the Lender (the
indebtedness) while the Second Loan shall be applied to liquidate the past due
interestandpenaltyportionoftheIndebtedness.(Italicssupplied.)(cf.p.1ofExhibit
5Cuenca,Expediente,atVol.I,p.33)

From 08 April 1988 to 02 December 1988, defendantappellant Sta. Ines


madefurtherpaymentsto[Petitioner]SecurityBankintheamountof[o]ne
[m]illion [s]even [h]undred [f]ifty[s]even [t]housand [p]esos
(P1,757,000.00) (Exhibits 8, 9PSIMC up to 9GGSIMC,
Expediente,atVol.II,pp.38,70to165)
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,SBTCfiledacomplaintforcollectionofsumofmoneyon14
June1993,resultingaftertrialonthemeritsinadecisionbythecourtaquo,
xxxfromwhich[Respondent]Cuencaappealed.

RulingoftheCourtofAppeals
InreleasingRespondentCuencafromliability,theCAruledthatthe
1989LoanAgreementhadnovatedthe1980creditaccommodation
earliergrantedbythebanktoSta.Ines.Accordingly,suchnovation
extinguishedtheIndemnityAgreement,bywhichCuenca,whowas

then the board chairman and president of Sta. Ines, had bound
himselfsolidarilyliableforthepaymentoftheloanssecuredbythat
credit accommodation. It noted that the 1989 Loan Agreement had
been executed without notice to, much less consent from, Cuenca
whoatthetimewasnolongerastockholderofthecorporation.
792

792

SUPREMECOURTREPORTSANNOTATED
SecurityBankandTrustCompany,Inc.vs.Cuenca

The appellate court also noted that the Credit Approval


Memorandumhadspecifiedthatthecreditaccommodationwasfora
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
exceedingP8million.
ItfurtherheldthattherestructuringofSta.Inesobligationunder
the1989LoanAgreementwastantamounttoagrantofanextension
oftimetothedebtorwithouttheconsentofthesurety.UnderArticle
2079oftheCivilCode,suchextensionextinguishedthesurety.
TheCAalsoopinedthatthesuretywasentitledtonotice,incase
the bank and Sta. Ines decided to materially alter or modify the
principal obligation after the expiry date of the credit
accommodation.
7
Hence,thisrecoursetothisCourt.
TheIssues
In its Memorandum,
petitioner submits the following for our
8
consideration:
A. Whether or not the Honorable Court of Appeals erred in releasing
RespondentCuencafromliabilityassuretyundertheIndemnityAgreement
for the payment of the principal amount of twelve million two hundred
thousandpesos(P12,200,000.00)underPromissoryNoteNo.RL/74/596/88
dated9March1988andPromissoryNoteNo.RL/74/597/88dated9March
1988,plusstipulatedinterests,penaltiesandotherchargesduethereon
_______________
7ThiscasewasdeemedsubmittedfordecisiononMay8,2000,uponreceiptbythis

Court of respondents Reply Memorandum signed by Attys. Elvira C. Oquendo and


VissiaConcepcionC.CalderonofCarpioVillaraza&Cruz.FiledearlieronMarch3,
2000, was petitioners Memorandum, signed by Attys. Menardo I. Guevarra, Adrian
FerdinandS.SugayandMa.JazminB.BanalofDeBorjaMedialdeaBelloGuevarra
&Gerodias.
8PetitionersMemorandum,pp.910rollo,pp.320321.Allinuppercaseinthe

original.
793

VOL.341,OCTOBER3,2000

793

SecurityBankandTrustCompany,Inc.vs.Cuenca
i. WhetherornottheHonorableCourtofAppealserredinrulingthat
Respondent Cuencas liability under the Indemnity Agreement
coveredonlyavailmentsonSIMCscreditlinetotheextentofeight
millionpesos(P8,000,000.00)andmadeonorbefore30November
1981
ii. WhetherornottheHonorableCourtofAppealserredinrulingthat
the restructuring of SIMCs indebtedness under the P8 million
credit accommodation was tantamount to an extension granted to
SIMCwithoutRespondentCuencasconsent,thusextinguishinghis
liabilityundertheIndemnityAgreementpursuanttoArticle2079of
theCivilCode
iii. WhetherornottheHonorableCourtofappealserredinrulingthat
the restructuring of SIMCs indebtedness under the P8 million
credit accommodation constituted a novation of the principal
obligation, thus extinguishing Respondent Cuencas liability under
theindemnityagreement
B. WhetherornotRespondentCuencasliabilityunctertheIndemnity
AgreementwasextinguishedbythepaymentsmadebySIMC
C. Whether or not petitioners Motion for Reconsideration was pro
forma
D. Whether or not service of the Petition by registered mail
sufficientlycompliedwithSection11,Rule13ofthe1997Rulesof
CivilProcedure.
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)whetherCuencawaivedhisrighttobenotifiedofandtogiveconsentto
any substitution, renewal, extension, increase, amendment, conversion or
revival of the said credit accommodation. As preliminary matters, the
proceduralquestionsraisedbyrespondentwillalsobeaddressed.

TheCourtsRuling
ThePetitionhasnomerit.
794

794

SUPREMECOURTREPORTSANNOTATED
SecurityBankandTrustCompany,Inc.vs.Cuenca

PreliminaryMatters:ProceduralQuestions

MotionforReconsideration
NotProForma
RespondentcontendsthatpetitionersMotionforReconsiderationof
theCADecision,inmerelyrehashingtheargumentsalreadypassed
uponbytheappellatecourt,wasproformathatassuch,itdidnot9
toll the period for filing the present Petition
for Review.
10
Consequently,thePetitionwasfiledoutoftime.
Wedisagree.Amotionforreconsiderationisnotproformajust
becauseitreiteratedtheargumentsearlierpasseduponandrejected
bytheappellatecourt.TheCourthasexplainedthatamovantmay
raise the same arguments,
precisely to convince the court that its
11
rulingwaserroneous.
Moreover, there is no clear showing of intent on the part of
petitionertodelaytheproceedings.InMarikinaValleyDevelopment
12
Corporationvs.Flojo, theCourtexplainedthataproformamotion
had no other purpose than to gain time and to delay or impede the
proceedings.Hence,wherethecircumstancesofacasedonotshow
anintentonthepartofthemovantmerelytodelaytheproceedings,
our Court has refused to characterize the motion as simply pro
forma.Itheld:
Wenotefinallythatbecausethedoctrinerelatingtoproformamotionsfor
reconsiderationimpactsupontherealityandsubstanceofthestatutoryright
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,
ratherthanbyabortingtherighttoappealbyaliteral
_______________
92,Rule37oftheRulesofCourt,providesthat[a]proformamotionfornewtrialor

reconsiderationshallnottollthereglementaryperiodofappeal.
10RespondentsMemorandum,pp.114115rollo,pp.480481.
11SeeGuerraEnterprisesv.CFI,32SCRA314,April17,1970.
12251SCRA87,December8,1995,perFeliciano,J.

795

VOL.341,OCTOBER3,2000

795

SecurityBankandTrustCompany,Inc.vs.Cuenca

application of the procedural rules relating to pro forma motions for


reconsideration.

Section11,Rule13ofthe1997RulesofCourt,providesasfollows:
SEC.11.Prioritiesinmodesofserviceandfiling.Wheneverpracticable,
theserviceandfilingofpleadingsandotherpapersshallbedonepersonally.
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
considerthepaperasnotfiled.

RespondentmaintainsthatthepresentPetitionforReviewdoesnot
contain a sufficient written explanation why it was served by
registeredmail.
We do
not think so. The Court held in Solar Entertainment v.
13
Ricafort that the aforecited rule was mandatory, and that only
whenpersonalserviceorfilingisnotpracticablemayresorttoother
modes be had, which must then be accompanied by a written
explanationastowhypersonalserviceorfilingwasnotpracticable
tobeginwith.
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
contentionofpetitionerandtherebydepriveitoftheopportunityto
fullyargueitscause.
_______________
13293SCRA661,August5,1998,perDavide,J.(nowCJ).
14PetitionforReview,p.29rollo,p.92.

796

796

SUPREMECOURTREPORTSANNOTATED
SecurityBankandTrustCompany,Inc.vs.Cuenca

FirstIssue:OriginalObligationExtinguishedbyNovation
Anobligationmaybeextinguishedbynovation,pursuanttoArticle
1292oftheCivilCode,whichreadsasfollows:
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
unequivocalterms,orthattheoldandthenewobligationsbeoneverypoint
incompatiblewitheachother.

Novationofacontractisneverpresumed.Ithasbeenheldthat[i]n
the absence of an express agreement, novation takes place only
when the
old and the new obligations are incompatible on every
15
point. Indeed, the following requisites must be established: (1)
thereisapreviousvalidobligation(2)thepartiesconcernedagree
toanewcontract(3)theoldcontractisextinguishedand(4)there
16
isavalidnewcontract.
Petitioner contends that there was no absolute incompatibility
betweentheoldandthenewobligations,andthatthelatterdidnot
extinguishtheearlierone.Itfurtherarguesthatthe1989Agreement

didnotchangetheoriginalloaninrespecttothepartiesinvolvedor
theobligationsincurred.Itaddsthatthetermsofthe1989Contract
17
were not more onerous. Since the original credit accomodation
was not extinguished, it concludes that Cuenca is still liable under
theIndemnityAgreement.
We reject these contentions. Clearly, the requisites of novation
arepresentinthiscase.The1989LoanAgreementextinguishedthe
18
obligation obtained under the 1980 credit accomodation. This is
evident from its explicit provision to liquidate the principal and
theinterestoftheearlierindebtedness,asthefollowingshows:
_______________
15LimTayv.CA,293SCRA364,August5,1998,perPanganiban,J.
16Cruzv.CA,293SCRA239,July27,1998citingVitug,Compendium of Civil

LawandJurisprudence,1993ed.,p.528.
17PetitionersMemorandum,pp.2526rollo,pp.336337.
18Aswillbeshownlater,onlyoneloanwasobtainedbeforetheexpirydateofthe

1980creditaccommodation.
797

VOL.341,OCTOBER3,2000

797

SecurityBankandTrustCompany,Inc.vs.Cuenca
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
19
liquidate the past due interest and penalty portion of the Indebtedness.
(Italicssupplied.)
20

The testimony of an officer of the bank that the proceeds of the


1989 Loan Agreement were used to 21payoff the original
indebtednessservestostrengthenthisruling.
Furthermore, several incompatibilities between the 1989
Agreement and the 1980 original obligation demonstrate that the
two cannot coexist. While the 1980 credit accommodation22had
stipulatedthattheamountofloanwasnottoexceedP8million, the
1989 Agreement provided that the loan was P12.2 million. The
periodsforpaymentwerealsodifferent.
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
undertookfromtimetotimeanduponrequestbytheLender,[to]
performsuchfurtheractsand/orexecuteanddeliversuchadditional
documentsandwritingsasmaybenecessaryorpropertoeffectively23
carry out the provisions and purposes of this Loan Agreement.
Likewise, SIMC agreed that it would not create any mortgage or
encumbranceonanyassetownedorhereafteracquired,norwouldit
24
participateinanymergerorconsolidation.

Since the 1989 Loan Agreement had extinguished the original


credit accommodation, the Indemnity Agreement, an accessory
obligation, was necessarily extinguished also, pursuant to Article
1296oftheCivilCode,whichprovides:
_______________
19Rollo,p.125.
20CarmenComia,formermanagerofthebanksLoansandDiscountsDepartment.
21RespondentsMemorandum,pp.6768rollo,pp.433434citingTSN,June17,

1994,pp.21,90,9596.
22CreditApprovalMemorandum,p.1rollo,p.109.
231989LoanAgreement,p.4rollo,p.128.
24Ibid.

798

798

SUPREMECOURTREPORTSANNOTATED
SecurityBankandTrustCompany,Inc.vs.Cuenca

ART. 1296. When the principal obligation is extinguished in consequence


of a novation, accessory obligations may subsist only insofar as they may
benefitthirdpersonswhodidnotgivetheirconsent.

AllegedExtension
Petitionerinsiststhatthe1989LoanAgreementwasamererenewal
orextensionoftheP8millionoriginalaccommodationitwasnota
25
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,
whichhadallegedlyextendedtheoriginalP8millioncreditfacility.
Hence, his obligation as a surety should be deemed extinguished,
pursuanttoArticle2079oftheCivilCode,whichspecificallystates
that[a]nextensiongrantedtothedebtorbythecreditorwithoutthe
consent of the
guarantor extinguishes the guaranty, x x x. In an
26
earliercase, the Court explained the rationale of this provision in
thiswise:
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
thesuretyofhisrighttopaythecreditorandtobeimmediatelysurrogatedto
the creditors remedies against the principal debtor upon the maturity date.
Thesuretyissaidtobeentitledtoprotecthimselfagainstthecontingencyof
the principal debtor or the indemnitors becoming insolvent during the
extendedperiod.

BindingNatureofthe
CreditApprovalMemorandum

As noted earlier, the appellate court relied on the provisions of the


Credit Approval Memorandum in holding that the credit
accommodationwasonlyforP8million,andthatitwasforaperiod
ofoneyearendingonNovember30,1981.Petitionerobjectstothe
_______________
25PetitionersMemorandum,p.28rollo,p.339.
26CochingyanJr.v.R&BSuretyandInsuranceCo.,151SCRA339,352,June30,

1987,perFeliciano,J.
799

VOL.341,OCTOBER3,2000

799

SecurityBankandTrustCompany,Inc.vs.Cuenca

appellate courts reliance on that document, contending that it was


notabindingagreementbecauseitwasnotsignedbytheparties.It
addsthatitwasmerelyforitsinternaluse.
We disagree. It was petitioner itself which presented the said
document to prove the accommodation. Attached to the Complaint
27
asAnnexAwasacopythereofevidencingtheaccommodation.
Moreover, in its Petition before this Court, it alluded to the Credit
ApprovalMemoranduminthiswise:
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
BankissuedaCreditApprovalMemorandumdated10November1980.

Clearly, respondent is estopped from denying the terms and


conditions of the P8 million credit accommodation as contained in
theverydocumentitpresentedtothecourts.Indeed,itcannottake
advantageofthatdocumentbyagreeingtobeboundonlybythose
portions that are favorable to it, while denying those that are
disadvantageous.
SecondIssue:AllegedWaiverofConsent
Pursuing another course, petitioner contends that Respondent
Cuencaimpliedlygavehisconsenttoanymodificationofthecredit
accommodationorotherwisewaivedhisrighttobenotifiedof,orto
28
giveconsentto,thesame. Respondentsconsentorwaiverthereof
is allegedly found in the Indemnity Agreement, in which he held
himself liable for the credit accommodation including [its]
substitutions, renewals, extensions, increases, amendments,
conversionsandrevival.Itexplainsthatthenovationoftheoriginal
creditaccommodationbythe1989LoanAgreementis
_______________

27Complaint,p.2rollo,p.135.
28PetitionersMemorandum,p.19rollo,p.330.

800

800

SUPREMECOURTREPORTSANNOTATED
SecurityBankandTrustCompany,Inc.vs.Cuenca

merely its renewal, which connotes


cessation of an old contract
29
andbirthofanotheronexxx.
Attheoutset,weshouldemphasizethatanessentialalterationin
thetermsoftheLoanAgreementwithouttheconsentofthesurety
extinguishes the latters
obligation. As the Court held in National
30
Bankv.Veraguth, [i]tisfundamentalinthelawofsuretyshipthat
anyagreementbetweenthecreditorandtheprincipaldebtorwhich
essentially varies the terms of the principal contract, without the
consentofthesurety,willreleasethesuretyfromliability.
Inthiscase,petitionersassertionthatrespondentconsentedto
thealterationsinthecreditaccommodationfindsnosupportinthe
textoftheIndemnityAgreement,whichisreproducedhereunder:
Rodolfo M. Cuenca of legal age, with postal address c/o Sta. Ines Malale
ForestProductsCorp.,AlcoBldg.,391BuendiaAvenueExt.,MakatiMetro
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,MetroManilahereinafterreferredtoastheBANKinfavor
ofSTA.INESMELALEFORESTPRODUCTSCORP.,xxxhereinafter
referredtoastheCLIENT,withthestipulatedinterestsandchargesthereon,
evidencedbythat/thosecertainPROMISSORYNOTE[(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 BANK
under and by virtue of aforesaid credit accommodation(s) including the
substitutions, renewals, extensions, increases, amendment, conversions and
revivalsoftheaforesaidcreditaccommodation(s),aswellasoftheamount
oramountsofsuchotherobligationsthattheCLIENTmayowetheBANK,
whetherdirectorindirect,principalorsecondary,asappearsintheaccounts,
booksandrecordsoftheBANK,plusinterestandexpensesarisingfromany
agreement or agreements that may have heretofore been made, or may
hereafterbeexecutedbyand
_______________
29PetitionersMemorandum,p.29rollo,p.340.
3050Phil.253,257,April1,1927,perVillamor,J.

801

VOL.341,OCTOBER3,2000

801

SecurityBankandTrustCompany,Inc.vs.Cuenca

betweenthepartiesthereto,includingthesubstitutions,renewals,extensions,
increases, amendments, conversions and revivals of the aforesaid credit
accommodation(s),andfurtherbind(s)himself/themselveswiththeCLIENT
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
areincorporatedhereinandmadeparthereofbyreference.

Whilerespondentheldhimselfliableforthecreditaccommodation
oranymodificationthereof,suchclauseshouldbeunderstoodinthe
contextoftheP8millionlimitandtheNovember30,1981term.It
didnotgivethebankorSta.Inesanylicensetomodifythenature
andscopeoftheoriginalcreditaccommodation,withoutinforming
or getting the consent of respondent who was solidarily liable.
Taking the banks submission to the extreme, respondent (or his
successors)wouldbeliableforloansevenamountingto,say,P100
billion obtained 100 years after the expiration of the credit
accommodation, on the ground that he consented to all alterations
andextensionsthereof.
Indeed,ithasbeenheldthatacontractofsuretycannotextend
to more than what is stipulated. It is strictly construed against the
creditor,everydoubtbeingresolvedagainstenlargingtheliabilityof
31
thesurety. Likewise, the Court has ruled that it is a wellsettled
legalprinciplethatifthereisanydoubtonthetermsandconditions
ofthesuretyagreement,thedoubtshouldberesolvedinfavorofthe
surety x x x. Ambiguous contracts
are construed against the party
32
who caused the ambiguity. In the absence of an unequivocal
provisionthatrespondentwaivedhisrighttobenotifiedofortogive
consent to any alteration of the credit accommodation, we cannot
sustainpetitionersviewthattherewassuchawaiver.
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,pursuanttothiscondition:
_______________
31Aguenzav.CA,271SCRA1,April7,1997,perHermosisima,J.SeealsoZenith

InsuranceCorp.v.CA,119SCRA485,December29,1982.
32Garciav.CA,258SCRA446,456,July5,1996,perMelo,J.

802

802

SUPREMECOURTREPORTSANNOTATED
SecurityBankandTrustCompany,Inc.vs.Cuenca

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


aforementioned terms
33
andconditionsuponwrittennoticetotheBorrower.

WerejectpetitionerssubmissionthatonlySta.Inesastheborrower,
notrespondent,wasentitledtobenotifiedofanymodificationinthe
34
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 35cannot assume an obligation
moreonerousthanthatoftheprincipal.
ThepresentcontroversymustbedistinguishedfromPhilamgenv.
36
Mutuc in which the Court sustained a stipulation whereby the
suretyconsentedtobeboundnotonlyforthespecifiedperiod,but
to any extension thereafter made, an extension x x x that could be
hadwithouthishavingtobenotified.
In that case, the surety agreement contained this unequivocal
stipulation:Itisherebyfurtheragreedthatincaseofanyextension
ofrenewalofthebond,weequallybindourselvestotheCompany
underthesametermsandconditionsashereinprovidedwithoutthe
necessityofexecutinganotherindemnityagreementforthepurpose
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
indemnityagreement.
Inthepresentcase,thereisnosuchexpressstipulation.Atmost,
the alleged basis of respondents waiver is vague and uncertain. It
confersnoclearauthorizationonthebankorSta.Inestomodifyor
extend the original obligation without the consent of the surety or
noticethereto.
_______________
33CreditApprovalMemorandum,p.2rollo,p.110.
34PetitionersMemorandum,pp.2425rollo,pp.335336.
35Article2054,CivilCode.
3661SCRA22,26,November13,1974,perFernando,J.

803

VOL.341,OCTOBER3,2000

803

SecurityBankandTrustCompany,Inc.vs.Cuenca

ContinuingSurety
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
LoanAgreement.
This argument is incorrect. That the Indemnity Agreement is a
continuingsuretydoesnotauthorizethebanktoextendthescopeof
37
38
theprincipalobligationinordinately. InDinov.CA, theCourtheld
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


expirationorterminationthereof.
To repeat, in the present case, the Indemnity Agreement was
subjecttothetwolimitationsofthecreditaccommodation:(1)that
the obligation should not exceed P8 million, and (2) that the
accommodation should expire not later than November 30, 1981.
Hence,itwasacontinuingsuretyonlyinregardtoloansobtainedon
orbeforetheaforementionedexpirydateandnotexceedingthetotal
ofP8million.
Accordingly,thesuretyofCuencasecuredonlythefirstloanof
P6.1millionobtainedonNovember26,1991.Itdidnotsecurethe
_______________
37InAtokFinanceCorp.v.CA,222SCRA232,245,May18,1993,perFeliciano,

J.,theCourtexplainedthenatureofacontinuingsuretyinthiswise:
Comprehensiveorcontinuingsuretyagreementsareinfactquitecommonplaceinpresentday
financial and commercial practice. A bank or financing company which anticipates entering
intoaseriesofcredittransactionswithaparticularcompany,commonlyrequirestheprojected
principaldebtortoexecuteacontinuingsuretyagreementalongwithitssureties.Byexecuting
suchanagreement,theprincipalplacesitselfinapositiontoenterintotheprojectedseriesof
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
extendedtotheprincipaldebtor.
38216 SCRA 9, November 26, 1992, per Davide, J. (now CJ). See also Fortune

Motorsv.CA,267SCRA653,February7,1997.
804

804

SUPREMECOURTREPORTSANNOTATED
SecurityBankandTrustCompany,Inc.vs.Cuenca

subsequent loans, purportedly under the 1980 credit


accommodation,thatwereobtainedin1986.Certainly,hecouldnot
have guaranteed the 1989 Loan Agreement, which was executed
after November 30, 1981 and which exceeded the stipulated P8
millionceiling.
Petitioner, however, cites the Dino ruling in which the Court
foundthesuretyliablefortheloanobtainedafterthepaymentofthe
originalone,whichwascoveredbyacontinuingsuretyagreement.
At the risk of being repetitious, we hold that in Dino, the Surety
Agreement specifically provided that each suretyship is a
continuingonewhichshallremaininfullforceandeffectuntilthis
bank is notified of its revocation. Since the bank had not been
notified of such revocation, the surety was held liable even for the
subsequentobligationsoftheprincipalborrower.
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
downintheCreditApprovalMemorandum.

SpecialNatureoftheJSS
It is a common banking practice to require the JSS (joint and
solidary signature) of a major stockholder or corporate officer, as
anadditionalsecurityforloansgrantedtocorporations.Thereareat
least two reasons for this. First, in case of default, the creditors
recourse,whichisnormallylimitedtothecorporatepropertiesunder
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
agreedupon,andthatitwouldbepaidbythecorporation.
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,forthebankorSta.Inestoassumethathewouldstillagree
toactassuretyinthe1989LoanAgreement,becauseatthattime,he
wasnolongeranofficerorastockholderofthedebtorcorporation.
Verily,hewasnotinapositionthentoensurethepaymentofthe
805

VOL.341,OCTOBER3,2000

805

SecurityBankandTrustCompany,Inc.vs.Cuenca

obligation.Neitherdidhehaveanyreasontobindhimselffurtherto
abiggerandmoreonerousobligation.
Indeed,thestipulationinthe1989LoanAgreementprovidingfor
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,theoldloanhavingbeenalreadyliquidated,thespirit
offairplayshouldhaveimpelledSta.Inestoasksomebodyelseto
actasasuretyforthenewloan.
Inthesamevein,alittleprudenceshouldhaveimpelledthebank
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
connectedwiththecorporationatthetime.Asitis,thebankisnow
relying on an unclear Indemnity Agreement in order to collect an
obligationthatcouldhavebeensecuredbyafairlyobtainedsurety.
Foritsdefeatinthislitigation,thebankhasonlyitselftoblame.
Insum,weholdthatthe1989LoanAgreementextinguishedby
novation the obligation under the 1980 P8 million credit
accommodation.Hence,theIndemnityAgreement,whichhadbeen
an accessory to the 1980 credit accommodation, was also
extinguished. Furthermore, we reject petitioners submission that
respondentwaivedhisrighttobenotifiedof,ortogiveconsentto,
anymodificationorextensionofthe1980creditaccommodation.
Inthislight,wefindnomoreneedtoresolvetheissueofwhether
theloanobtainedbeforetheexpirydateofthecreditaccommodation

hasbeenpaid.
WHEREFORE, the Petition is DENIED and the assailed
DecisionAFFIRMED.Costsagainstpetitioner.
SOORDERED.
Melo(Chairman),Vitug,PurisimaandGonzagaReyes,JJ.,
concur.
Petitiondenied,judgmentaffirmed.
Notes.The consideration necessary to support a surety
obligation need not pass directly to the surety, a consideration
movingto
806

806

SUPREMECOURTREPORTSANNOTATED
Calvanvs.CourtofAppeals

theprincipalalonebeingsufficientaguarantororsuretyisbound
bythesameconsiderationthatmakesthecontracteffectivebetween
the principal parties thereto. (Willex Plastic Industries Corporation
vs.CourtofAppeals,256SCRA478[1996])
Themerecircumstanceofthecreditorreceivingpaymentsfroma
third party who acquiesced to assume the obligation of the debtor
when there is clearly no agreement to release the debtor from her
responsibilitydoesnotconstitutenovationatmost,itonlycreates
ajuridicalrelationofcodebtorshiporsuretyshiponthepartofthe
third party to the contractual obligation of the debtor, and the
creditorcanstillenforcetheobligationagainstthedebtor.(Reyesvs.
CourtofAppeals,264SCRA35[1996])
Bythecontractofsuretyship,itisnotfortheobligeetoseetoit
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
InsuranceCorporationvs.CourtofAppeals,310SCRA377[1999])
o0o

Copyright2016CentralBookSupply,Inc.Allrightsreserved.

Похожие интересы