CLEMENTE
PHILIPPINE BLOOMING MILLS, INC. V. CA of Suretyship in the event plaintiff cannot recover the full amount of
DOCTRINE: Under the Civil Code, a guaranty may be given to secure even
future debts, the amount of which may not be known at the time of the
guaranty is executed.
PARTIES:
(1) Petitioners: Philippine Blooming Mills (PBM) and Ching (Senior Vice
President of PBM)
(2) Respondents: Traders Royal Bank (TRB)
FACTS:
A. HISTORY OF THE CASE
(1) Ching, in his personal capacity and not as a corporate officer, signed
a Deed of Suretyship on July 21, 1977 (Kindly take note of this date,
please. Thank you very much!) binding himself to pay TRB in case
PBM defaults in payment. TRB granted PBM letters of credit on
application of Ching. Ching later accomplished and delivered to TRB
trust receipts. For each trust receipts, Ching executed an
Undertaking which states that should PBM default in payment, Ching
jointly and severally will pay.
(2) On April 27, 1981 (Kindly take note of this date as well, please.),
PBM obtained a trust loan amounting to P3.5M from TRB. Ching
signed as co-maker in the notarized Promissory Note evidencing this
trust loan. PBM defaulted in its payment of both the Trust
Receipts and the Trust Loan.
(3) PBM and Ching filed a petition for suspension of payments with the
Securities and Exchange Commission (SEC). The petition sought to
suspend payment of PBMs obligations and prayed that the SEC
allowed PBM to continue its normal business operations free from
the interference of its creditors. One of the listed creditors of PBM
was TRB.
(4) SEC placed all of PBMs assets, liabilities, and obligations under a
rehabilitation receivershipi. Ten months after SEC placed PBM under
rehabilitation receivership TRB filed with the trial court a complaint
for collection against PBM and Ching. One of the things being asked
by TRB from the trial court was to order Ching to pay under the Deed
PBMs indebtedness from the latter.
(5) Upon finding out that the SEC has put PBM under rehabilitation
receivership, TRB moved to withdraw its complaint from the trial
court. The trial court thus dismissed the complaint against PBM.
(6) This gave PBM and Ching the opportunity to also move for the
dismissal of the complaint on the ground that the trial court had no
jurisdiction over the subject matter of the case. PBM and Ching
invoked the assumption of jurisdiction by the SEC over all of PBMs
assets and liabilities.
(7) TRB filed an opposition to the Motion to Dismiss. TRB argued that:
a. Ching is being sued in his personal capacity as a surety for
PBM.
b. The SEC decision declaring PBM in suspension of payments
is not binding on TRB.
c. P.D. 1758, which Ching relied on to support his assertion that
all claims against PBM are suspended, does not apply to
Ching as the decree regulates corporate activities only and
not to individuals.
(8) RTC denied the motion to dismiss with respect to Ching and
affirmed its dismissal of the case with respect to PBM:
a. The trial court stressed that TRB was holding Ching liable
under the Deed of Suretyship.
b. As Chings obligation was solidary, TRB could proceed
against Ching as surety upon default of the principal debtor
PBM.
c. P.D. 1758 applied only to corporations, partnerships, and
associations, and NOT to individuals.
(9) CA granted Chings petition and ordered the dismissal of the case:
a. SEC assumed jurisdiction over Ching and PBM to the
exclusion of courts or tribunals of coordinate rank.

(10) TRB assailed the CAs decision:
a. Traders Royal Bank v. CA: The SC upheld TRB and ruled
that Ching was merely a nominal party in the SEC case.
b. Creditors may sue individual sureties of debtor corporations,
like Ching, in a separate proceeding before regular courts
despite the pendency of a case before the SEC involving the
debtor corporation.
(11) Ching denied liability as surety and accommodation co-maker of
PBM:
a. SEC had already issued a decision approving the revised
rehabilitation plan for PBMs creditors.
b. PBM obtained the credit accommodations for corporate
purposes that did not redound to his personal benefit.
c. Even as a surety, he has the right to the defenses personal
to PBM. Thus, his liability would attach only if, after the
implementation of payments scheduled under the
rehabilitation plan, there would remain a balance of PBMs
debt to TRB.
(12) Although Ching admitted PBMs availment of the credit
accomodations, he did not show any proof of payment by PBM or by
him.
(13) TRB admitted certain partial payments on the PBM account made
by PBM itself and by the SEC-appointed receiver.
B. THE ACTUAL CASE
(1) RTC found Ching liable to TRB under the Deed of Suretyship:
a. The liability of Ching attaches independently from his
capacity as a stockholder of PBM.
b. Under the Deed of Suretyship, Ching unconditionally agreed
to assume PBM/s liability to TRB in the event PBM defaulted
in the payment of the said obligation in addition to whatever
costs and penalties may occur by reason of default.
CLEMENTE
c. Under the Deed of Suretyship, Ching bound himself jointly
and severally with PBM in the payment of the latters
obligation to the plaintiff. The obligation being solidary, TRB
can hold Ching liable upon default of the principal debtor as
provided by Article 1216:
Art. 1216. The creditor may proceed against any one
of the solidary debtors or some or all of them
simultaneously. The demand made against one of
them shall not be an obstacle to those which may
subsequently be directed against the others, so long
as the debt has not been fully collected.
(2) Ching argues:
a. As a surety and solidary debtor, he should benefit from the
changed nature of the obligation as provided in Article 1222:
Art. 1222: A solidary debtor may, in actions filed by
the creditor, avail himself of all defenses which are
derived from the nature of the obligation and of
those which are personal to him, or pertain to his
own share. With respect to those which personally
belong to the others, he may avail himself thereof
only as regards that part of the debt for which the
latter are responsible.
b. The Deed of Suretyship executed on July 21 1977 could not
guarantee obligations incurred after its execution.
(3) CA ruled in favor of TRB when it resolved the issue on whether
Ching can still be sued as a surety after the SEC placed PBM under
rehabilitation receivership:
a. As surety of a corporation placed under rehabilitation
receivership, Ching can answer separately for the obligations
of PBM.
b. Even an SEC injunctive order cannot suspend payment of
the suretys obligation since the rehabilitation receivers are
limited to the existing assets of the corporation.

(4) Ching argues that:
a. The Deed of Suretyship dated on July 21, 1977 could not
answer for obligations not yet in existence at the time of the
execution.
b. The Deed of Suretyship cannot answer for debts contracted
by PBM in 1980 and 1981 (in reference to the trust loans).
c. No accessory contract of suretyship could arise without an
existing principal contract of loan.
(5) TRB argues that:
a. Ching never presented PBMs rehabilitation plan before the
trial court.
b. The SC ruling in Traders Royal Bank v. CA constitutes res
judicata between the parties. Therefore, TRB could proceed
against Ching separately from PBM to enforce in full Chings
liability as surety.
ISSUES:
(1) W/N Ching is still separately liable as surety despite the rehabilitation
proceedings before the SEC. (YES)
(2) W/N Ching is liable for obligations PBM contracted after the
execution of the Deed of Suretyship. (YES)
(3) W/N Chings liability is limited to the amount stated in PBMs
rehabilitation plan. (NO)
(4) W/N Ching is liable for the trust receipts. (YES)
HELD 1:
(1) It was long ruled in Traders Royal Bank v. CA that although Ching
was impleaded in the SEC case as a co-petitioner, the SEC could not
assume jurisdiction over his person and properties.
(2) The SEC was empowered to take custody and control of the assets
and properties of PBM only for the SEC has jurisdiction over
corporations and not over private individuals. Being a nominal party
in the SEC case, Chings personal properties were not included in
the rehabilitation receivership that the SEC constituted to take
CLEMENTE
custody of PBMs assets. Therefore TRB was not barred from filing a
suit against Ching as surety of PBM.
(3) Article 1216 also states that Ching can be sued separately to enforce
his liability as surety for PBM.
HELD 2:
(1) Ching is liable for credit obligations contracted by PBM against TRB
before and after the execution of the Deed of Suretyship held on
July 21, 1977. This is in reference to how the Deed was written:
may now be indebteded or may hereafter become indebted to TRB.
(2) The law expressly allows a suretyship for future debts under Article
2053.
Art. 2053: A guaranty may also be given as security for
future debts, the amount of which is not yet known; there can
be no claim against the guarantor until the debt is liquidated.
A conditiona obligation may also be secured.
(3) Dio v. CA also explains the concept of a continuing guaranty or
surety in reference to Art. 2053:
A continuing guaranty is one which is not limited to a
single transaction, but which contemplated a future
course or dealing, covering a series of transactions,
generally for an indefinite time or until revoked. It is
prospective in its operations and is generally intended to
provide security with respect to future transactions within
certain limits, and contemplates a succession of liabilities ,
for which, as they accure, the guarantor becomes liable.
In other jurisdictions, it has been held that the use of
particular words and expressions such as payment of any
debt, any indebtedness, or any sum or guaranty of any
transactions, or money to be furnished the principal debtor
at any time or on such time that the principal debtor may
require, have been construed to indicate a continuing
guaranty.
HELD 3:
 CLEMENTE

(1) In granting the loan to PBM, TRB required Chings surety precisely to
insure full recovery of the loan in case PBM becomes insolvent or
fails to pay in full. This was the very purpose of the surety. Thus,
Ching cannot use PBMs failure to pay in full as justification for his
own reduced liability to TRB. As surety, Ching agreed to pay in full for
any reason including its insolvency.

(2) TRB, as creditor, has the right to proceed against Ching for the entire
amount of PBM under Article 1216.

HELD 4:

(1) Ching is still liable for the amounts stated in the letters of credit
covered by the trust receipts. Other than his bare allegations, Ching
has not shown proof of payment or settlement with TRB.

(2) Absent any proof or settlement of PBM and Chings credit obligations
with TRB, Chings liability is what the Deed of Suretyship stipulates,
plus the applicable interest and penalites. The trust receipts, as well
as the Letter of Undertaking executed by PBM, stipulate in writing the
payment of interest without specifying the rate. In this case, legal
interest should be paid.

WHEREFORE, SC AFFIRMS CAs decision.

i
Arehabilitationreceiverisapersonwhoassiststhecourtinformulatingandimplementingtherehabilitationplanofa
financiallydistresseddebtorundergoingrehabilitation.Whileappointedattheinstanceofthedebtorand/orcreditors,a
rehabilitation receiver is, first and foremost, an officer of the court.