SECOND DIVISION

[G.R. No. 103066. April 25, 1996]

WILLEX PLASTIC INDUSTRIES, CORPORATION, petitioner, vs. HON.

COURT OF APPEALS and INTERNATIONAL CORPORATE
BANK, respondents.
SYLLABUS
1. REMEDIAL LAW; EVIDENCE; PAROL EVIDENCE RULE; FAILURE TO OBJECT
TO THE PRESENTATION OF PAROL EVIDENCE CONSTITUTES A WAIVER
THEREOF. - It has been held that explanatory evidence may be received to show
the circumstances under which a document has been made and to what debt it
relates. At all events, Willex Plastic cannot now claim that its liability is limited to any
amount which Interbank, as creditor, might give directly to Inter-Resin Industrial as
debtor because, by failing to object to the parol evidence presented, Willex Plastic
waived the protection of the parol evidence rule.
2. ID.; ID.; FINDINGS OF FACT OF THE TRIAL COURT; RULE; APPLICABLE IN
CASE AT BAR. The trial court found that it was to secure the guarantee made by
plaintiff of the credit accommodation granted to defendant IRIC [Inter-Resin
Industrial] by Manilabank, [that] the plaintiff required defendant IRIC to execute a
chattel mortgage in its favor and a Continuing Guaranty which was signed by the
defendant Willex Plastic Industries Corporation. Similarly, the Court of Appeals
found it to be an undisputed fact that to secure the guarantee undertaken by
plaintiff-appellee [Interbank] of the credit accommodation granted to Inter-Resin
Industrial by Manilabank, plaintiff-appellee required defendant-appellant to sign a
Continuing Guaranty. These factual findings of the trial court and of the Court of
Appeals are binding on us not only because of the rule that on appeal to the
Supreme Court such findings are entitled to great weight and respect but also
because our own examination of the record of the trial court confirms these findings
of the two courts.
3. CIVIL LAW; SPECIAL CONTRACTS; GUARANTY; THE CONSIDERATION
NECESSARY TO SUPPORT A SURETY OBLIGATION NEED NOT PASS
DIRECTLY TO THE SURETY, A CONSIDERATION MOVING TO THE PRINCIPAL
ALONE IS SUFFICIENT. - Willex Plastic argues that the Continuing Guaranty,
being an accessory contract, cannot legally exist because of the absence of a valid
principal obligation. Its contention is based on the fact that it is not a party either to
the Continuing Surety Agreement or to the loan agreement between Manilabank
and Inter-Resin Industrial. Put in another way the consideration necessary to
support a surety obligation need not pass directly to the surety, a consideration
moving to the principal alone being sufficient. For a guarantor or surety is bound by
 the same consideration that makes the contract effective between the principal
parties thereto. . . . It is never necessary that a guarantor or surety should receive
any part or benefit, if such there be, accruing to his principal.
4. ID.; ID.; ID.; ALTHOUGH A CONTRACT OF SURETY IS ORDINARILY NOT TO BE
CONSTRUED AS RETROSPECTIVE, IN THE END THE INTENTION OF THE
PARTIES AS REVEALED BY THE EVIDENCE IS CONTROLLING. - Willex Plastic
contends that the Continuing Guaranty cannot be retroactively applied so as to
secure the payments made by Interbank under the two Continuing Surety
Agreements. Willex Plastic invokes the ruling in El Vencedor v. Canlas (44 Phil. 699
[1923]) and Dio v. Court of Appeals (216 SCRA 9 [1992]) in support of its contention
that a contract of suretyship or guaranty should be applied prospectively. The cases
cited are, however, distinguishable from the present case. In El Vencedor v.
Canlas we held that a contract of suretyship is not retrospective and no liability
attaches for defaults occurring before it is entered into unless an intent to be so
liable is indicated.There we found nothing in the contract to show that the parties
intended the surety bonds to answer for the debts contracted previous to the
execution of the bonds. In contrast, in this case, the parties to the Continuing
Guaranty clearly provided that the guaranty would cover sums obtained and/or to be
obtained by Inter-Resin Industrial from Interbank. On the other hand, in Dio v. Court
of Appeals the issue was whether the sureties could be held liable for an obligation
contracted after the execution of the continuing surety agreement. It was held that
by its very nature a continuing suretyship contemplates a future course of dealing. It
is prospective in its operation and is generally intended to provide security with
respect to future transactions. By no means, however, was it meant in that case that
in all instances a contract of guaranty or suretyship should be prospective in
application. Indeed, as we also held in Bank of the Philippine Islands v.
Foerster, (49 Phil. 843 [1926]) although a contract of suretyship is ordinarily not to
be construed as retrospective, in the end the intention of the parties as revealed by
the evidence is controlling. What was said there applies mutatis mutandis to the
case at bar: In our opinion, the appealed judgment is erroneous. It is very true that
bonds or other contracts of suretyship are ordinarily not to be construed as
retrospective, but that rule must yield to the intention of the contracting parties as
revealed by the evidence, and does not interfere with the use of the ordinary tests
and canons of interpretation which apply in regard to other contracts. In the present
case the circumstances so clearly indicate that the bond given by Echevarria was
intended to cover all of the indebtedness of the Arrocera upon its current account
with the plaintiff Bank that we cannot possibly adopt the view of the court below in
regard to the effect of the bond.
APPEARANCES OF COUNSEL
Tangle-Chua, Cruz & Aquino for petitioner.
Fe B. Macalino & Associates for respondent Interbank.

DECISION
MENDOZA, J.:
 This is a petition for review on certiorari of the decision [1] of the Court of Appeals in
C.A.-G.R. CV No. 19094, affirming the decision of the Regional Trial Court of the
National Capital Judicial Region, Branch XLV, Manila, which ordered petitioner Willex
Plastic Industries Corporation and the Inter-Resin Industrial Corporation, jointly and
severally, to pay private respondent International Corporate Bank certain sums of
money, and the appellate courts resolution of October 17, 1989 denying petitioners
motion for reconsideration.
The facts are as follows:
Sometime in 1978, Inter-Resin Industrial Corporation opened a letter of credit with
the Manila Banking Corporation. To secure payment of the credit accommodation, Inter-
Resin Industrial and the Investment and Underwriting Corporation of the Philippines
(IUCP) executed two documents, both entitled Continuing Surety Agreement and dated
December 1, 1978, whereby they bound themselves solidarily to pay Manilabank
obligations of every kind, on which the [Inter-Resin Industrial] may now be indebted or
hereafter become indebted to the [Manilabank]. The two agreements (Exhs. J and K)
are the same in all respects, except as to the limit of liability of the surety, the first surety
agreement being limited to US$333,830.00, while the second one is limited to
US$334,087.00.
On April 2, 1979, Inter-Resin Industrial, together with Willex Plastic Industries Corp.,
executed a Continuing Guaranty in favor of IUCP whereby For and in consideration of
the sum or sums obtained and/or to be obtained by Inter-Resin Industrial Corporation
from IUCP, Inter-Resin Industrial and Willex Plastic jointly and severally guaranteed the
prompt and punctual payment at maturity of the NOTE/S issued by the DEBTOR/S . . .
to the extent of the aggregate principal sum of FIVE MILLION PESOS (P5,000,000.00)
Philippine Currency and such interests, charges and penalties as hereafter may be
specified.
On January 7, 1981, following demand upon it, IUCP paid to Manilabank the sum of
P4,334,280.61 representing Inter-Resin Industrials outstanding obligation. (Exh. M-1)
On February 23 and 24, 1981, Atrium Capital Corp., which in the meantime had
succeeded IUCP, demanded from Inter-Resin Industrial and Willex Plastic the payment
of what it (IUCP) had paid to Manilabank. As neither one of the sureties paid, Atrium
filed this case in the court below against Inter-Resin Industrial and Willex Plastic.
On August 11, 1982, Inter-Resin Industrial paid Interbank, which had in turn
succeeded Atrium, the sum of P687,500.00 representing the proceeds of its fire
insurance policy for the destruction of its properties.
In its answer, Inter-Resin Industrial admitted that the Continuing Guaranty was
intended to secure payment to Atrium of the amount of P4,334,280.61 which the latter
had paid to Manilabank. It claimed, however, that it had already fully paid its obligation
to Atrium Capital.
On the other hand, Willex Plastic denied the material allegations of the complaint
and interposed the following Special Affirmative Defenses:
(a) Assuming arguendo that main defendant is indebted to plaintiff, the formers
liability is extinguished due to the accidental fire that destroyed its premises, which
liability is covered by sufficient insurance assigned to plaintiff;

(b) Again, assuming arguendo, that the main defendant is indebted to plaintiff, its
account is now very much lesser than those stated in the complaint because of some
payments made by the former;

(c) The complaint states no cause of action against WILLEX;

(d) WILLEX is only a guarantor of the principal obligor, and thus, its liability is only
secondary to that of the principal;

(e) Plaintiff failed to exhaust the ultimate remedy in pursuing its claim against the
principal obligor;

(f) Plaintiff has no personality to sue.

On April 29, 1986, Interbank was substituted as plaintiff in the action. The case then
proceeded to trial.
On March 4, 1988, the trial court declared Inter-Resin Industrial to have waived the
right to present evidence for its failure to appear at the hearing despite due notice. On
the other hand, Willex Plastic rested its case without presenting any
evidence. Thereafter Interbank and Willex Plastic submitted their respective
memoranda.
On April 5, 1988, the trial court rendered judgment, ordering Inter-Resin Industrial
and Willex Plastic jointly and severally to pay to Interbank the following amounts:

(a) P3,646,780.61, representing their indebtedness to the plaintiff, with interest of

17% per annum from August 11, 1982, when Inter-Resin Industrial paid P687,500.00
to the plaintiff, until full payment of the said amount;

(b) Liquidated damages equivalent to 17% of the amount due; and

(c) Attorneys fees and expenses of litigation equivalent to 20% of the total amount
due.

Inter-Resin Industrial and Willex Plastic appealed to the Court of Appeals. Willex
Plastic filed its brief, while Inter-Resin Industrial presented a Motion to Conduct Hearing
and to Receive Evidence to Resolve Factual Issues and to Defer Filing of the Appellants
Brief. After its motion was denied, Inter-Resin Industrial did not file its brief anymore.
 On February 22, 1991, the Court of Appeals rendered a decision affirming the ruling
of the trial court.
Willex Plastic filed a motion for reconsideration praying that it be allowed to present
evidence to show that Inter-Resin Industrial had already paid its obligation to Interbank,
but its motion was denied on December 6, 1991:

The motion is denied for lack of merit. We denied defendant-appellant Inter-Resin

Industrials motion for reception of evidence because the situation or situations in
which we could exercise the power under B.P. 129 did not exist. Movant here has not
presented any argument which would show otherwise.

Hence, this petition by Willex Plastic for the review of the decision of February 22,
1991 and the resolution of December 6,1991 of the Court of Appeals.
Petitioner raises a number of issues.
[1] The main issue raised is whether under the Continuing Guaranty signed on April
2, 1979 petitioner Willex Plastic may be held jointly and severally liable with Inter-Resin
Industrial for the amount paid by Interbank to Manilabank.
As already stated, the amount had been paid by Interbanks predecessor-in-interest,
Atrium Capital, to Manilabank pursuant to the Continuing Surety Agreements made on
December 1, 1978. In denying liability to Interbank for the amount, Willex Plastic argues
that under the Continuing Guaranty, its liability is for sums obtained by Inter-Resin
Industrial from Interbank, not for sums paid by the latter to Manilabank for the account
of Inter-Resin Industrial. In support of this contention Willex Plastic cites the following
portion of the Continuing Guaranty:

For and in consideration of the sums obtained and/or to be obtained by INTER-

RESIN INDUSTRIAL CORPORATION, hereinafter referred to as the DEBTOR/S,
from you and/or your principal/s as may be evidenced by promissory note/s, checks,
bills receivable/s and/or other evidence/s of indebtedness (hereinafter referred to as
the NOTE/S), I/We hereby jointly and severally and unconditionally guarantee unto
you and/or your principal/s, successor/s and assigns the prompt and punctual payment
at maturity of the NOTE/S issued by the DEBTOR/S in your and/or your principal/s,
successor/s and assigns favor to the extent of the aggregate principal sum of FIVE
MILLION PESOS (P5,000,000.00), Philippine Currency, and such interests, charges
and penalties as may hereinafter be specified.

The contention is untenable. What Willex Plastic has overlooked is the fact that
evidence aliunde was introduced in the trial court to explain that it was actually to
secure payment to Interbank (formerly IUCP) of amounts paid by the latter to
Manilabank that the Continuing Guaranty was executed. In its complaint below,
Interbanks predecessor-in-interest. Atrium Capital, alleged:
 5. to secure the guarantee made by plaintiff of the credit accommodation granted to
defendant IRIC [Inter-Resin Industrial] by Manilabank, the plaintiff required
defendant IRIC [Inter-Resin Industrial] to execute a chattel mortgage in its favor and
a Continuing Guaranty which was signed by the other defendant WPIC [Willex
Plastic].
In its answer, Inter-Resin Industrial admitted this allegation although it claimed that
it had already paid its obligation in its entirety. On the other hand, Willex Plastic, while
denying the allegation in question, merely did so for lack of knowledge or information of
the same. But, at the hearing of the case on September 16, 1986, when asked by the
trial judge whether Willex Plastic had not filed a crossclaim against Inter-Resin
Industrial, Willex Plastics counsel replied in the negative and manifested that the plaintiff
in this case [Interbank] is the guarantor and my client [Willex Plastic] only signed as a
guarantor to the guarantee.[2]
For its part Interbank adduced evidence to show that the Continuing Guaranty had
been made to guarantee payment of amounts made by it to Manilabank and not of any
sums given by it as loan to Inter-Resin Industrial. Interbanks witness testified under
cross- examination by counsel for Willex Plastic that Willex guaranteed the exposure/of
whatever exposure of ACP [Atrium Capital] will later be made because of the guarantee
to Manila Banking Corporation.[3]
It has been held that explanatory evidence may be received to show the
circumstances under which a document has been made and to what debt it relates. [4] At
all events, Willex Plastic cannot now claim that its liability is limited to any amount
which Interbank, as creditor, might give directly to Inter-Resin Industrial as debtor
because, by failing to object to the parol evidence presented, Willex Plastic waived the
protection of the parol evidence rule.[5]
Accordingly, the trial court found that it was to secure the guarantee made by
plaintiff of the credit accommodation granted to defendant IRIC [Inter-Resin Industrial]
by Manilabank, [that] the plaintiff required defendant IRIC to execute a chattel mortgage
in its favor and a Continuing Guaranty which was signed by the defendant Willex Plastic
Industries Corporation.[6]
Similarly, the Court of Appeals found it to be an undisputed fact that to secure the
guarantee undertaken by plaintiff-appellee [Interbank] of the credit accommodation
granted to Inter-Resin Industrial by Manilabank, plaintiff-appellee required defendant-
appellants to sign a Continuing Guaranty. These factual findings of the trial court and of
the Court of Appeals are binding on us not only because of the rule that on appeal to
the Supreme Court such findings are entitled to great weight and respect but also
because our own examination of the record of the trial court confirms these findings of
the two courts.[7]
Nor does the record show any other transaction under which Inter-Resin Industrial
may have obtained sums of money from Interbank. It can reasonably be assumed that
Inter-Resin Industrial and Willex Plastic intended to indemnify Interbank for amounts
which it may have paid Manilabank on behalf of Inter-Resin Industrial.
 Indeed, in its Petition for Review in this Court, Willex Plastic admitted that it was to
secure the aforesaid guarantee, that INTERBANK required principal debtor IRIC [Inter-
Resin Industrial] to execute a chattel mortgage in its favor, and so a Continuing
Guaranty was executed on April 2, 1979 by WILLEX PLASTIC INDUSTRIES
CORPORATION (WILLEX for brevity) in favor of INTERBANK for and in consideration
of the loan obtained by IRIC [Inter-Resin Industrial].
[2] Willex Plastic argues that the Continuing Guaranty, being an accessory contract,
cannot legally exist because of the absence of a valid principal obligation. [8] Its
contention is based on the fact that it is not a party either to the Continuing Surety
Agreement or to the loan agreement between Manilabank and Inter-Resin Industrial.
Put in another way the consideration necessary to support a surety obligation need
not pass directly to the surety, a consideration moving to the principal alone being
sufficient. For a guarantor or surety is bound by the same consideration that makes the
contract effective between the principal parties thereto. . . . It is never necessary that a
guarantor or surety should receive any part or benefit, if such there be, accruing to his
principal.[9] In an analogous case,[10] this Court held:

At the time the loan of P100,000.00 was obtained from petitioner by Daicor, for the
purpose of having an additional capital for buying and selling coco-shell charcoal and
importation of activated carbon, the comprehensive surety agreement was admittedly
in full force and effect. The loan was, therefore, covered by the said agreement, and
private respondent, even if he did not sign the promissory note, is liable by virtue of
the surety agreement. The only condition that would make him liable thereunder is
that the Borrower is or may become liable as maker, endorser, acceptor or otherwise.
There is no doubt that Daicor is liable on the promissory note evidencing the
indebtedness.

The surety agreement which was earlier signed by Enrique Go, Sr. and private
respondent, is an accessory obligation, it being dependent upon a principal one which,
in this case is the loan obtained by Daicor as evidenced by a promissory note.

[3] Willex Plastic contends that the Continuing Guaranty cannot be retroactively
applied so as to secure the payments made by Interbank under the two Continuing
Surety Agreements. Willex Plastic invokes the ruling m El Vencedor v. Canlas[11] and Dio
v. Court of Appeals[12] in support of its contention that a contract of suretyship or
guaranty should be applied prospectively.
The cases cited are, however, distinguishable from the present case. In El
Vencedor v. Canlas we held that a contract of suretyship is not retrospective and no
liability attaches for defaults occurring before it is entered into unless an intent to be so
liable is indicated. There we found nothing in the contract to show that the parties
intended the surety bonds to answer for the debts contracted previous to the execution
of the bonds. In contrast, in this case, the parties to the Continuing Guaranty clearly
provided that the guaranty would cover sums obtained and/or to be obtained by Inter-
Resin Industrial from Interbank.
On the other hand, in Dio v. Court of Appeals the issue was whether the sureties
could be held liable for an obligation contracted after the execution of the continuing
surety agreement.
It was held that by its very nature a continuing suretyship contemplates a future
course of dealing. It is prospective in its operation and is generally intended to provide
security with respect to future transactions. By no means, however, was it meant in that
case that in all instances a contract of guaranty or suretyship should be prospective in
application.
Indeed, as we also held in Bank of the Philippine Islands v. Foerster,[13] although a
contract of suretyship is ordinarily not to be construed as retrospective, in the end the
intention of the parties as revealed by the evidence is controlling. What was said
there[14] applies mutatis mutandis to the case at bar:
In our opinion, the appealed judgment is erroneous. It is very true that bonds or
other contracts of suretyship are ordinarily not to be construed as retrospective, but that
rule must yield to the intention of the contracting parties as revealed by the evidence,
and does not interfere with the use of the ordinary tests and canons of interpretation
which apply in regard to other contracts.
In the present case the circumstances so clearly indicate that the bond given by
Echevarria was intended to cover all of the indebtedness of the Arrocera upon its
current account with the plaintiff Bank that we cannot possibly adopt the view of the
court below in regard to the effect of the bond.
[4] Willex Plastic says that in any event it cannot be proceeded against without first
exhausting all property of Inter-Resin Industrial. Willex Plastic thus claims the benefit of
excussion.The Civil Code provides, however:

Art. 2059. This excussion shall not take place:

(1) If the guarantor has expressly renounced it;

(2) If he has bound himself solidarily with the debtor;

xxxxxxxxx
The pertinent portion of the Continuing Guaranty executed by Willex Plastic and
Inter-Resin Industrial in favor of IUCP (now Interbank) reads:

If default be made in the payment of the NOTE/s herein guaranteed you and/or your
principal/s may directly proceed against Me/Us without first proceeding against and
exhausting DEBTOR/s properties in the same manner as if all such liabilities
constituted My/Our direct and primary obligations. (italics supplied)
 This stipulation embodies an express renunciation of the right of excussion. In
addition, Willex Plastic bound itself solidarily liable with Inter-Resin Industrial under the
same agreement:
For and in consideration of the sums obtained and/or to be obtained by INTER-
RESIN INDUSTRIAL CORPORATION, hereinafter referred to as the DEBTOR/S, from
you and/or your principal/s as may be evidenced by promissory note/s, checks, bills
receivable/s and/or other evidence/s of indebtedness (hereinafter referred to as the
NOTE/S), I/We hereby jointly and severally and unconditionally guarantee unto you and/
or your principal/s, successor/s and assigns the prompt and punctual payment at
maturity of the NOTE/S issued by the DEBTOR/S in your and/or your principal/s,
successor/s and assigns favor to the extent of the aggregate principal sum of FIVE
MILLION PESOS (P5,000,000.00), Philippine Currency, and such interests, charges
and penalties as may hereinafter he specified.
[5] Finally it is contended that Inter-Resin Industrial had already paid its
indebtedness to Interbank and that Willex Plastic should have been allowed by the
Court of Appeals to adduce evidence to prove this. Suffice it to say that Inter-Resin
Industrial had been given generous opportunity to present its evidence but it failed to
make use of the same. On the other hand, Willex Plastic rested its case without
presenting evidence.
The reception of evidence of Inter-Resin Industrial was set on January 29, 1987, but
because of its failure to appear on that date, the hearing was reset on March 12, 26 and
April 2, 1987.
On March 12, 1987 Inter-Resin Industrial again failed to appear. Upon motion of
Willex Plastic, the hearings on March 12 and 26, 1987 were cancelled and reset for the
last time on April 2 and 30, 1987.
On April 2, 1987, Inter-Resin Industrial again failed to appear. Accordingly the trial
court issued the following order:

Considering that, as shown by the records, the Court had exerted every earnest effort
to cause the service of notice or subpoena on the defendant Inter-Resin Industrial but
to no avail, even with the assistance of the defendant Willex. . . the defendant Inter-
Resin Industrial is hereby deemed to have waived the right to present its evidence.

On the other hand, Willex Plastic announced it was resting its case without presenting
any evidence.
Upon motion of Inter-Resin Industrial, however, the trial court reconsidered its order
and set the hearing anew on July 23, 1987. But Inter-Resin Industrial again moved for
the postponement of the hearing to August 11, 1987. The hearing was, therefore, reset
on September 8 and 22, 1987 but the hearings were reset on October 13,1987, this
time upon motion of Interbank. To give Interbank time to comment on a motion filed by
Inter-Resin Industrial, the reception of evidence for Inter-Resin Industrial was again
reset on November 17, 26 and December 11, 1987. However, Inter-Resin Industrial
again moved for the postponement of the hearing. Accordingly, the hearing was reset
on November 26 and December 11, 1987, with warning that the hearings were
intransferrable.
Again, the reception of evidence for Inter-Resin Industrial was reset on January 22,
1988 and February 5, 1988 upon motion of its counsel. As Inter-Resin Industrial still
failed to present its evidence, it was declared to have waived its evidence.
To give Inter-Resin Industrial a last opportunity to present its evidence, however,
the hearing was postponed to March 4, 1988. Again Inter-Resin Industrials counsel did
not appear. The trial court, therefore, finally declared Inter-Resin Industrial to have
waived the right to present its evidence. On the other hand, Willex Plastic, as before,
manifested that it was not presenting evidence and requested instead for time to file a
memorandum.
There is therefore no basis for the plea made by Willex Plastic that it be given the
opportunity of showing that Inter-Resin Industrial has already paid its obligation to
Interbank.
WHEREFORE, the decision of the Court of Appeals is AFFIRMED, with costs
against the petitioner.
SO ORDERED.
Regalado (Chairman), Romero, Puno, and Torres, Jr., JJ., concur.
 THIRD DIVISION

[G.R. No. 112191. February 7, 1997]

FORTUNE MOTORS (PHILS.) CORPORATION and EDGAR L.

RODRIGUEZA, petitioners, vs. THE HONORABLE COURT OF
APPEALS and FILINVEST CREDIT CORPORATION, respondents.

DECISION
PANGANIBAN, J.:

To fund their acquisition of new vehicles (which are later retailed or resold to the
general public), car dealers normally enter into wholesale automotive financing
schemes whereby vehicles are delivered by the manufacturer or assembler on the
strength of trust receipts or drafts executed by the car dealers, which are backed up by
sureties. These trust receipts or drafts are then assigned and/or discounted by the
manufacturer to/with financing companies, which assume payment of the vehicles but
with the corresponding right to collect such payment from the car dealers and/or the
sureties. In this manner, car dealers are able to secure delivery of their stock-in-trade
without having to pay cash therefor; manufacturers get paid without any
receivables/collection problems; and financing companies earn their margins with the
assurance of payment not only from the dealers but also from the sureties. When the
vehicles are eventually resold, the car dealers are supposed to pay the financing
companies -- and the business goes merrily on. However, in the event the car dealer
defaults in paying the financing company, may the surety escape liability on the legal
ground that the obligations were incurred subsequent to the execution of the surety
contract?
This is the principal legal question raised in this petition for review (under Rule 45 of
the Rules of Court) seeking to set aside the Decision [1] of the Court of Appeals (Tenth
Division)[2]promulgated on September 30, 1993 in CA G.R. CV No. 09136 which
affirmed in toto the decision[3] of the Regional Trial Court of Manila - Branch 11[4] in Civil
Case No. 83-21994, the dispositive portion of which reads:

WHEREFORE, judgment is hereby rendered in favor of the plaintiff and against the
defendants, by ordering the latter to pay, jointly and severally, the plaintiff the
following amounts:

1. The sum of P1,348,033.89, plus interest thereon at the rate of P922.53 per day
starting April 1, 1985 until the said principal amount is fully paid;
2. The amount of P50,000.00 as attorneys fees and another P50,000.00 as liquidated
damages; and

3. That the defendants, although spared from paying exemplary damages, are further
ordered to pay, in solidum, the costs of this suit.

Plaintiff therein was the financing company and the defendants the car dealer and
its sureties.

The Facts

On or about August 4, 1981, Joseph L. G. Chua and Petitioner Edgar Lee

Rodrigueza (Petitioner Rodrigueza) each executed an undated Surety
Undertaking[5] whereunder they absolutely, unconditionally and solidarily guarantee(d) to
Respondent Filinvest Credit Corporation (Respondent Filinvest) and its affiliated and
subsidiary companies the full, faithful and prompt performance, payment and discharge
of any and all obligations and agreements of Fortune Motors (Phils.) Corporation
(Petitioner Fortune) under or with respect to any and all such contracts and any and all
other agreements (whether by way of guaranty or otherwise) of the latter with Filinvest
and its affiliated and subsidiary companies now in force or hereafter made.
The following year or on April[6] 5, 1982, Petitioner Fortune, Respondent Filinvest
and Canlubang Automotive Resources Corporation (CARCO) entered into an
Automotive Wholesale Financing Agreement[7] (Financing Agreement) under which
CARCO will deliver motor vehicles to Fortune for the purpose of resale in the latters
ordinary course of business; Fortune, in turn, will execute trust receipts over said
vehicles and accept drafts drawn by CARCO, which will discount the same together with
the trust receipts and invoices and assign them in favor of Respondent Filinvest, which
will pay the motor vehicles for Fortune. Under the same agreement, Petitioner Fortune,
as trustee of the motor vehicles, was to report and remit proceeds of any sale for cash
or on terms to Respondent Filinvest immediately without necessity of demand.
Subsequently, several motor vehicles were delivered by CARCO to Fortune, and
trust receipts covered by demand drafts and deeds of assignment were executed in
favor of Respondent Filinvest. However, when the demand drafts matured, not all the
proceeds of the vehicles which Petitioner Fortune had sold were remitted to
Respondent Filinvest. Fortune likewise failed to turn over to Filinvest several unsold
motor vehicles covered by the trust receipts. Thus, Filinvest through counsel, sent a
demand letter[8] dated December 12, 1983 to Fortune for the payment of its unsettled
account in the amount of P1,302,811.00. Filinvest sent similar demand
letters[9] separately to Chua and Rodrigueza as sureties. Despite said demands, the
amount was not paid. Hence, Filinvest filed in the Regional Trial Court of Manila a
complaint for a sum of money with preliminary attachment against Fortune, Chua and
Rodrigueza.
 In an order dated September 26, 1984, the trial court declared that there was no
factual issue to be resolved except for the correct balance of defendants account with
Filinvest as agreed upon by the parties during pre-trial.[10] Subsequently, Filinvest
presented testimonial and documentary evidence. Defendants (petitioners herein),
instead of presenting their evidence, filed a Motion for Judgment on Demurrer to
Evidence[11] anchored principally on the ground that the Surety Undertakings were null
and void because, at the time they were executed, there was no principal obligation
existing. The trial court denied the motion and scheduled the case for reception of
defendants evidence. On two scheduled dates, however, defendants failed to present
their evidence, prompting the court to deem them to have waived their right to present
evidence. On December 17, 1985, the trial court rendered its decision earlier cited
ordering Fortune, Chua and Rodrigueza to pay Filinvest, jointly and severally, the sum
of P1,348,033.83 plus interest at the rate of P922.53 per day from April 1, 1985 until
fully paid, P50,000.00 in attorneys fees, another P50,000.00 in liquidated damages and
costs of suit.
As earlier mentioned, their appeal was dismissed by the Court of Appeals (Tenth
Division) which affirmed in toto the trial courts decision. Hence, this recourse.

Issues

Petitioners assign the following errors in the appealed Decision:

1. that the Court of Appeals erred in declaring that surety can exist even if there was
no existing indebtedness at the time of its execution.

2. that the Court of Appeals erred when it declared that there was no novation.

3. that the Court of Appeals erred when it declared, that the evidence was sufficient to prove the
amount of the claim.[12]

Petitioners argue that future debts which can be guaranteed under Article 2053 of
the Civil Code refer only to debts existing at the time of the constitution of the guaranty
but the amount thereof is unknown, and that a guaranty being an accessory obligation
cannot exist without a principal obligation. Petitioners claim that the surety undertakings
cannot be made to cover the Financing Agreement executed by Fortune, Filinvest and
CARCO since the latter contract was not yet in existence when said surety contracts
were entered into.
Petitioners further aver that the Financing Agreement would effect a novation of the
surety contracts since it changed the principal terms of the surety contracts and
imposed additional and onerous obligations upon the sureties.
Lastly, petitioners claim that no accounting of the payments made by Petitioner
Fortune to Respondent Filinvest was done by the latter. Hence, there could be no way
by which the sureties can ascertain the correct amount of the balance, if any.
 Respondent Filinvest, on the other hand, imputes estoppel (by pleadings or by
judicial admission) upon petitioners when in their Motion to Discharge Attachment, they
admitted their liability as sureties thus:

Defendants Chua and Rodrigueza could not have perpetrated fraud because they are
only sureties of defendant Fortune Motors x x x;

x x x The defendants (referring to Rodrigueza and Chua) are not parties to the trust receipts
agreements since they are ONLY sureties x x x.[13]

In rejecting the arguments of petitioners and in holding that they (Fortune and the
sureties) were jointly and solidarily liable to Filinvest, the trial court declared:

As to the alleged non-existence of a principal obligation when the surety agreement

was signed, it is enought (sic) to state that a guaranty may also be given as security for
future debts, the amount of which is not known (Art. 2053, New Civil Code). In the
case of NARIC vs. Fojas, L-11517, promulgated April 10, 1958, it was ruled that a
bond posted to secure additional credit that the principal debtor had applied for, is not
void just because the said bond was signed and filed before the additional credit was
extended by the creditor. The obligation of the sureties on future obligations of
Fortune is apparent from a proviso under the Surety Undertakings marked Exhs. B
and C that the sureties agree with the plaintiff as follows:

In consideration of your entering into an arrangement with the party (Fortune) named
above, x x x x by which you may purchase or otherwise require from, and or enter
into with obligor x x x trust receipt x x x arising out of wholesale and/or retail
transactions by or with obligor, the undersigned x x x absolutely, unconditionally, and
solidarily guarantee to you x x x the full, faithful and prompt performance, payment
and discharge of any and all obligations x x x of obligor under and with respect to any
and all such contracts and any and all agreements (whether by way of guaranty or
otherwise) of obligor with you x x x now in force or hereafter made. (Underlinings
supplied).

On the matter of novation, this has already been ruled upon when this Court denied
defendants Motion to dismiss on the argument that what happened was really an
assignment of credit, and not a novation of contract, which does not require the
consent of the debtors. The fact of knowledge is enough. Besides, as explained by the
plaintiff, the mother or the principal contract was the Financing Agreement, whereas
the trust receipts, the sight drafts, as well as the Deeds of assignment were only
collaterals or accidental modifications which do not extinguish the original contract
by way of novation. This proposition holds true even if the subsequent agreement
would provide for more onerous terms for, at any rate, it is the principal or mother
contract that is to be followed. When the changes refer to secondary agreements and
not to the object or principal conditions of the contract, there is no novation; such
changes will produce modifications of incidental facts, but will not extinguish the
original obligation (Tolentino, Commentaries on Jurisprudence of the Civil Code of
the Philippines, 1973 Edition, Vol. IV, page 367; cited in plaintiffs Memorandum of
September 6, 1985, p. 3).

On the evidence adduced by the plaintiff to show the status of defendants accounts, which took
into consideration payments by defendants made after the filing of the case, it is enough to state
that a statement was carefully prepared showing a balance of the principal obligation plus
interest totalling P1,348,033.89 as of March 31, 1985 (Exh. M). This accounting has not been
traversed nor contradicted by defendants although they had the opportunity to do so. Likewise,
there was absolute silence on the part of defendants as to the correctness of the previous
statement of account made as of December 16, 1983 (referring to Exh. I), but more important,
however, is that defendants received demand letters from the plaintiff stating that, as of
December 1983 (Exhs. J, K and L), this total amount of obligation was P1,302,811,00, and yet
defendants were not heard to have responded to said demand letters, let alone have taken any
exception thereto. There is such a thing as evidence by silence (Sec. 23, Rule 130, Revised Rules
of Court).[14]

The Court of Appeals, affirming the above decision of the trial court, further
explained:

x x x In the case at bar, the surety undertakings in question unequivocally state that
Chua and Rodrigueza absolutely, unconditionally and solidarily guarantee to Filinvest
the full, faithful and prompt performance, payment and discharge of any and all
obligations and agreements of Fortune under or with respect to any and all such
contracts and any and all other agreements (whether by way of guaranty or otherwise)
of the latter with Filinvest in force at the time of the execution of the Surety
Undertakings or made thereafter. Indeed, if Chua and Rodrigueza did not intend to
guarantee all of Fortunes future obligation with Filinvest, then they should have
expressly stated in their respective surety undertakings exactly what said surety
agreements guaranteed or to which obligations of Fortune the same were intended to
apply. For another, if Chua and Rodrigueza truly believed that the surety undertakings
they executed should not cover Fortunes obligations under the AWFA, then why did
they not inform Filinvest of such fact when the latter sent them the aforementioned
demand letters (Exhs. K and L) urging them to pay Fortunes liability under the
AWFA. Instead, quite uncharacteristic of persons who have just been asked to pay an
obligation to which they believe they are not liable, Chua and Rodrigueza elected or
chose not to answer said demand letters. Then, too, considering that appellant Chua is
the corporate president of Fortune and a signatory to the AWFA, he should have
simply had it stated in the AWFA or in a separate document that the Surety
Undertakings do not cover Fortunes obligations in the aforementioned AWFA, trust
receipts or demand drafts.
Appellants argue that it was unfair for Filinvest to have executed the AWFA only
after two (2) years from the date of the Surety undertakings because Chua and
Rodrigueza were thereby made to wait for said number of years just to know what
kind of obligation they had to guarantee.

The argument cannot hold water. In the first place, the Surety Undertakings did not provide that
after a period of time the same will lose its force and effect. In the second place, if Chua and
Rodrigueza did not want to guarantee the obligations of Fortune under the AWFA, trust receipts
and demand drafts, then why did they not simply terminate the Surety Undertakings by serving
ten (10) days written notice to Filinvest as expressly allowed in said surety agreements. It is
highly plausible that the reason why the Surety Undertakings were not terminated was because
the execution of the same was part of the consideration why Filinvest and CARCO agreed to
enter into the AWFA with Fortune.[15]

The Courts Ruling

We affirm the decisions of the trial and appellate courts.

First Issue: Surety May Secure Future Obligations

The case at bench falls on all fours with Atok Finance Corporation vs. Court of
Appeals[16] which reiterated our rulings in National Rice and Corn Corporation (NARIC)
vs. Court of Appeals[17] and Rizal Commercial Banking Corporation vs. Arro.[18] In Atok
Finance, Sanyu Chemical as principal, and Sanyu Trading along with individual private
stockholders of Sanyu Chemical, namely, spouses Daniel and Nenita Arrieta, Leopoldo
Halili and Pablito Bermundo, as sureties, executed a continuing suretyship agreement in
favor of Atok Finance as creditor.Under the agreement, Sanyu Trading and the
individual private stockholders and officers of Sanyu Chemical jointly and severally
unconditionally guarantee(d) to Atok Finance Corporation (hereinafter called Creditor),
the full, faithful and prompt payment and discharge of any and all indebtedness of
[Sanyu Chemical] x x x to the Creditor. Subsequently, Sanyu Chemical assigned its
trade receivables outstanding with a total face value of P125,871.00 to Atok Finance in
consideration of receipt of the amount of P105,000.00. Later, additional trade
receivables with a total face value of P100,378.45 were also assigned. Due to
nonpayment upon maturity, Atok Finance commenced action against Sanyu Chemical,
the Arrieta spouses, Bermundo and Halili to collect the sum of P120,240.00 plus penalty
charges due and payable. The individual private respondents contended that the
continuing suretyship agreement, being an accessory contract, was null and void since,
at the time of its execution, Sanyu Chemical had no pre-existing obligation due to Atok
Finance. The trial court rendered a decision in favor of Atok Finance and ordered
defendants to pay, jointly and severally, aforesaid amount to Atok.
 On appeal, the then Intermediate Appellate Court reversed the trial court and
dismissed the complaint on the ground that there was no proof that when the suretyship
agreement was entered into, there was a pre-existing obligation which served as the
principal obligation between the parties. Furthermore, the future debts alluded to in
Article 2053 refer to debts already existing at the time of the constitution of the
agreement but the amount thereof is unknown, unlike in the case at bar where the
obligation was acquired two years after the agreement.
We ruled then that the appellate court was in serious error. The distinction which
said court sought to make with respect to Article 2053 (that future debts referred to
therein relate to debts already existing at the time of the constitution of the agreement
but the amount [of which] is unknown and not to debts not yet incurred and existing at
that time) has previously been rejected, citing the RCBC and NARIC cases. We further
said:

x x x Of course, a surety is not bound under any particular principal obligation until
that principal obligation is born. But there is no theoretical or doctrinal difficulty
inherent in saying that the suretyship agreement itself is valid and binding even before
the principal obligation intended to be secured thereby is born, any more than there
would be in saying that obligations which are subject to a condition precedent are
valid and binding before the occurrence of the condition precedent.

Comprehensive or continuing surety agreements are in fact quite commonplace in

present day financial and commercial practice. A bank or financing company which
anticipates entering into a series of credit transactions with a particular company,
commonly requires the projected principal debtor to execute a continuing surety
agreement along with its sureties. By executing such an agreement, the principal
places itself in a position to enter into the projected series of transactions with its
creditor; with such suretyship agreement, there would be no need to execute a separate
surety contract or bond for each financing or credit accommodation extended to the
principal debtor.

In Dio vs. Court of Appeals,[19] we again had occasion to discourse on continuing

guaranty/suretyship thus:

x x x A continuing guaranty is one which is not limited to a single transaction, but

which contemplates a future course of dealing, covering a series of transactions,
generally for an indefinite time or until revoked. It is prospective in its operation 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 accrue,
the guarantor becomes liable. Otherwise stated, a continuing guaranty is one which
covers all transactions, including those arising in the future, which are within the
description or contemplation of the contract, of guaranty, until the expiration or
termination thereof. A guaranty shall be construed as continuing when by the terms
thereof it is evident that the object is to give a standing credit to the principal debtor to
be used from time to time either indefinitely or until a certain period; especially if the
right to recall the guaranty is expressly reserved. Hence, where the contract of
guaranty states that the same is to secure advances to be made from time to time the
guaranty will be construed to be a continuing one.

In other jurisdictions, it has been held that the use of particular words and expressions such as
payment of any debt, any indebtedness, any deficiency, or any sum, or the guaranty of any
transaction 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.[20]

We have no reason to depart from our uniform ruling in the above-cited cases. The
facts of the instant case bring us to no other conclusion than that the surety
undertakings executed by Chua and Rodrigueza were continuing guaranties or
suretyships covering all future obligations of Fortune Motors (Phils.) Corporation with
Filinvest Credit Corporation. This is evident from the written contract itself which
contained the words absolutely, unconditionally and solidarily guarantee(d) to
Respondent Filinvest and its affiliated and subsidiary companies the full, faithful and
prompt performance, payment and discharge of any and all obligations and agreements
of Petitioner Fortune under or with respect to any and all such contracts and any and all
other agreements (whether by way of guaranty or otherwise) of the latter with Filinvest
and its affiliated and subsidiary companies now in force or hereafter made.
Moreover, Petitioner Rodrigueza and Joseph Chua knew exactly where they stood
at the time they executed their respective surety undertakings in favor of Fortune. As
stated in the petition:

Before the execution of the new agreement, Edgar L. Rodrigueza and Joseph Chua were required
to sign blank surety agreements, without informing them how much amount they would be liable
as sureties.However, because of the desire of petitioners, Chua and Rodrigueza to have the cars
delivered to petitioner, Fortune, they signed the blank promissory notes.[21] (underscoring
supplied)

It is obvious from the foregoing that Rodrigueza and Chua were fully aware of the
business of Fortune, an automobile dealer; Chua being the corporate president of
Fortune and even a signatory to the Financial Agreement with Filinvest. [22] Both sureties
knew the purpose of the surety undertaking which they signed and they must have had
an estimate of the amount involved at that time. Their undertaking by way of the surety
contracts was critical in enabling Fortune to acquire credit facility from Filinvest and to
procure cars for resale, which was the business of Fortune. Respondent Filinvest, for its
part, relied on the surety contracts when it agreed to be the assignee of CARCO with
respect to the liabilities of Fortune with CARCO. After benefiting therefrom, petitioners
cannot now impugn the validity of the surety contracts on the ground that there was no
pre-existing obligation to be guaranteed at the time said surety contracts were
executed. They cannot resort to equity to escape liability for their voluntary acts, and to
heap injustice to Filinvest, which relied on their signed word.
 This is a clear case of estoppel by deed. By the acts of petitioners, Filinvest was
made to believe that it can collect from Chua and/or Rodrigueza in case of Fortunes
default. Filinvest relied upon the surety contracts when it demanded payment from the
sureties of the unsettled liabilities of Fortune. A refusal to enforce said surety contracts
would virtually sanction the perpetration of fraud or injustice.[23]

Second Issue: No Novation

Neither do we find merit in the averment of petitioners that the Financing Agreement
contained onerous obligations not contemplated in the surety undertakings, thus
changing the principal terms thereof and effecting a novation.
We have ruled previously that there are only two ways to effect novation and
thereby extinguish an obligation. First, novation must be explicitly stated and declared in
unequivocal terms. Novation is never presumed. Second, the old and new obligations
must be incompatible on every point. The test of incompatibility is whether the two
obligations can stand together, each one having its independent existence. If they
cannot, they are incompatible and the latter obligation novates the first. [24] Novation must
be established either by the express terms of the new agreement or by the acts of the
parties clearly demonstrating the intent to dissolve the old obligation as a consideration
for the emergence of the new one. The will to novate, whether totally or partially, must
appear by express agreement of the parties, or by their acts which are too clear and
unequivocal to be mistaken.[25]
Under the surety undertakings however, the obligation of the sureties referred to
absolutely, unconditionally and solidarily guaranteeing the full, faithful and prompt
performance, payment and discharge of all obligations of Petitioner Fortune with respect
to any and all contracts and other agreements with Respondent Filinvest in force at that
time or thereafter made.There were no qualifications, conditions or reservations stated
therein as to the extent of the suretyship. The Financing Agreement, on the other hand,
merely detailed the obligations of Fortune to CARCO (succeeded by Filinvest as
assignee). The allegation of novation by petitioners is, therefore, misplaced. There is no
incompatibility of obligations to speak of in the two contracts. They can stand together
without conflict.
Furthermore, the parties have not performed any explicit and unequivocal act to
manifest their agreement or intention to novate their contract. Neither did the sureties
object to the Financing Agreement nor try to avoid liability thereunder at the time of its
execution. As aptly discussed by the Court of Appeals:

x x x For another, if Chua and Rodrigueza truly believed that the surety undertakings they
executed should not cover Fortunes obligations under the AWFA (Financing Agreement), then
why did they not inform Filinvest of such fact when the latter sent them the aforementioned
demand letters (Exhs. K and L) urging them to pay Fortunes liability under the AWFA. Instead,
quite uncharacteristic of persons who have just been asked to pay an obligation to which they are
not liable, Chua and Rodrigueza elected or chose not to answer said demand letters. Then, too,
considering that appellant Chua is the corporate president of Fortune and a signatory to the
AWFA, he should have simply had it stated in the AWFA or in a separate document that the
Surety Undertakings do not cover Fortunes obligations in the aforementioned AWFA, trust
receipts or demand drafts.[26]

Third Issue: Amount of Claim Substantiated

The contest on the correct amount of the liability of petitioners is a purely factual
issue. It is an oft repeated maxim that the jurisdiction of this Court in cases brought
before it from the Court of Appeals under Rule 45 of the Rules of Court is limited to
reviewing or revising errors of law. It is not the function of this Court to analyze or weigh
evidence all over again unless there is a showing that the findings of the lower court are
totally devoid of support or are glaringly erroneous as to constitute serious abuse of
discretion. Factual findings of the Court of Appeals are conclusive on the parties and
carry even more weight when said court affirms the factual findings of the trial court. [27]
In the case at bar, the findings of the trial court and the Court of Appeals with
respect to the assigned error are based on substantial evidence which were not refuted
with contrary proof by petitioners. Hence, there is no necessity to depart from the above
judicial dictum.
WHEREFORE, premises considered, the petition is DENIED and the assailed
Decision of the Court of Appeals concurring with the decision of the trial court is
hereby AFFIRMED.Costs against petitioners.
SO ORDERED.
Melo, and Francisco, JJ., concur.
Narvasa, C.J. (Chairman), took no part due to personal relationship to party.
Davide, Jr., took no part due to close relationship of a party.
 SOUTHERN MOTORS, INC., Plaintiff-Appellee, vs. ELISEO BARBOSA, Defendant-Appellant.

DECISION
CONCEPCION, J.:
This is an appeal from a decision of the Court of First Instance of Iloilo: chanroble svirtuallawlibrary

“(a) Ordering the Defendant Eliseo Barbosa to pay to the Court, for the benefit of the Plaintiffwithin a
period of ninety (90) days from receipt by the Defendant hereof, the sum of P2,889.53, with interest at
the rate of 12% per annum computed on the basis of the amounts of the installments mentioned in the
mortgage and of the dates they respectively fell due, until fully paid; the sum of P200 by way of chan robl esvirtualawlibrary

attorney’s fees, plus costs; and (b) Upon failure of the Defendant to pay as aforesaid, ordering the
chan roblesvirtualawlibrary

land described in the complaint and subject of the mortgage to be sold at public auction in accordance
with law in order to realize the amount of the judgment debt and costs.”
Although originally forwarded to the Court of Appeals, the same has certified the record to this Court in
view of the fact that the issues raised in the appeal involve merely questions of law.
Plaintiff, Southern Motors, Inc., brought this action against Eliseo Barbosa, to foreclose a real estate
mortgage, constituted by the latter in favor of the former, as security for the payment of the sum of
P2,889.53 due to said Plaintiff from one Alfredo Brillantes, who had failed to settle his obligation in
accordance with the terms and conditions of the corresponding deed of mortgage. Defendant Eliseo
Barbosa filed an answer admitting the allegations of the complaint and alleging, by way of “special and
affirmative” defense: chanroble svirtuallawlibrary

“That the Defendant herein has executed the deed of mortgage Annex A for the only purpose of
guaranteeing — as surety and/or guarantor — the payment of the above mentioned debt of Mr. Alfredo
Brillantes in favor of the Plaintiff.
“That the Plaintiff until now has no right action against the herein Defendant on the ground that
said Plaintiff, without motive whatsoever, did not intent or intent to exhaust all recourses to collect
from the true debtor Mr. Alfredo Brillantes the debt contracted by the latter in favor of said Plaintiff,
and did not resort nor intends to resort all the legal remedies against the true debtor Mr. Alfredo
Brillantes, notwithstanding the fact that said Mr. Alfredo Brillantes is solvent and has many properties
within the Province of Iloilo.”
Thereupon, Plaintiff moved for summary judgment which a branch of the Court of First Instance of Iloilo,
presided over by Hon. Roman Ibañez, Judge, denied upon the ground that it “is
premature”. Plaintiff moved for a reconsideration of the order to this effect. Soon later, he filed, also,
another motion praying that the case be transferred to another branch of said court, because that of
Judge Ibañez would be busy trying cadastral cases, and had adopted the “policy of refraining from
entertaining any other civil cases and all incidents related thereto, until after said cadastral cases shall
have been finally disposed of.” With the express authority of Judge Ibañez, the case was referred to the
branch of said court, presided over by Hon. Querube C. Makalintal, Judge, for action, upon said motion
for reconsideration. Thereafter, Judge Makalintal rendered the aforementioned decision, from which
the Defendant has appealed. He maintains, in his brief, that: chanroblesvirtuallawlibrary

“1. The trial court erred in hearing Plaintiff-Appellee’s ‘motion for reconsideration’ dated June 9, 1951,
notwithstanding the fact that Defendant-Appellant was not served with a copy thereof nor served with
notice of the hearing thereof.
2. “The trial court erred in rendering a ‘judgment on the pleadings’ in Appellee’s favor when no issue
was at all submitted to it for resolution, to the prejudice of the substantial rights of Appellant.
3. “The court a quo erred in depriving Defendant-Appellant of his property rights without due process of
law.”
The first assignment of error is based upon an erroneous predicate, for, contrary to Defendant’s
assertion, his counsel in the lower court, Atty. Manuel F. Zamora, through an employee of his office, by
the name of Agripino Aguilar, was actually served on June 9, 1951, with copy of Plaintiff’s motion for
reconsideration, with notice to the effect that said motion would be submitted for the consideration
and approval of the lower court, on Saturday, June 16, 1951, at 8: 00 a.m., or soon thereafter as chanroble svirtuallawlibrary

counsel may be heard.

The second assignment of error is, likewise, untenable. It is not true that there was no issue submitted
for determination by the lower court when it rendered the decision appealed from.
It will be recalled that each one of the allegations made in Plaintiff’s complaint were expressly admitted
in Defendant’s answer, in which he merely alleged, as “special and affirmative” defense, that Plaintiff is
not entitled to foreclose the mortgage constituted in its favor by the Defendant, because the property of
Alfredo Brillantes, the principal debtors, had not been exhausted as yet, and were not sought to be
exhausted, for the satisfaction of Plaintiff’s credit. Thus, there was no question of fact left for
determination. The only issue set up by the pleadings was the sufficiency of said affirmative defense.
And such was the only point discussed by the Defendant in his opposition to Plaintiff’s motion for a
summary judgment, referring, evidently, to a judgment on the pleadings.
Plaintiff’s motion for reconsideration of the order of Judge Roman Ibañez refusing to render said
judgment, upon the ground that it was premature, revived said issue of sufficiency of the
aforementioned affirmative defense, apart from calling for a reexamination of the question posed by
said order of Judge Ibañez, namely, whether it was proper, under the circumstances, to render a
judgment on the pleadings. In other words, said motion for reconsideration had the effect of placing
before then Judge Makalintal, for resolution, the following issues, to wit: (1) whether a summary chanroblesvirtuallawlibrary

judgment or a judgment on the pleadings was in order, considering the allegations of Plaintiff’s
complaint and those of Defendant’s answer; and (2) whether the mortgage in question could be
chan roblesvirtualawlibrary

foreclosed although Plaintiff had not exhausted, and did not intend to exhaust, the properties of his
principal debtor, Alfredo Brillantes.
The third assignment of error is predicated upon the alleged lack of notice of the hearing of Plaintiff’s
motion for reconsideration. As stated in our discussion of the first assignment of error, this pretense is
refuted by the record. Moreover, it is obvious that Defendant’s affirmative defense is devoid of merit
for:
chanroblesvirtuallawlibrary

1. The deed of mortgage executed by him specifically provides: chanroblesvirtuallawlibrary

“That if said Mr. Alfredo Brillantes or herein mortgagor, his heirs, executors, administrators and assigns
shall well and truly perform the full obligations above-stated according to the terms thereof, then this
mortgage shall be null and void, otherwise it shall remain in full force and effect, in which event herein
mortgagor authorizes and empowers herein mortgagee-company to take any of the following actions to
enforce said payment;.
“(a) Foreclose, judicially or extrajudicially, the chattel mortgage above referred to and/or also this
mortgage, applying the proceeds of the purchase price at public sale of the real property herein
mortgaged to any deficiency or difference between the purchase price of said chattel at public auction
and the amount of P2,889.53, together with its interest hereby secured; or chan roble svirtualawlibrary
“(b) Simply foreclose this mortgage judicially in accordance with the provisions of section 2, Rule 70,
Rules of Court, or extra- judicially under the provisions of Act No. 3135 and Act No. 4118, to satisfy the
full amount of P2,889.53, together with its interest of 12 per cent per annum.”
2. The right of guarantors, under Article 2058 of the Civil Code of the Philippines, to demand exhaustion
of the property of the principal debtor, exists only when a pledge or a mortgage has not been given as
special security for the payment of the principal obligation. Guarantees, without any such pledge or
mortgage, are governed by Title XV of said Code, whereas pledges and mortgages fall under Title XVI of
the same Code, in which the following provisions, among others, are found: chanroblesvirtuallawlibrary

ART. 2087. “It is also of the essence of these contracts that when the principal obligation becomes due,
the things in which the pledge or mortgage consists may be alienated for the payment to the creditor.”
ART. 2126. “The mortgage directly and immediately subjects the property upon which it is imposed,
whoever the possessor may be, to the fulfillment of the obligation for whose security it was
constituted.”
3. It has been held already (Saavedra vs. Price, 68 Phil., 688), that a mortgagor is not entitled to the
exhaustion of the property of the principal debtor.
4. Although an ordinary personal guarantor — not a mortgagor or pledgor — may demand the
aforementioned exhaustion, the creditor may, prior thereto, secure a judgment against said guarantor,
who shall be entitled, however, to a deferment of the execution of said judgment against him until after
the properties of the principal debtor shall have been exhausted to satisfy the obligation involved in the
case.
Wherefore, the decision appealed from is hereby affirmed, with costs against the Defendant-Appellant.
It is SO ORDERED.
G.R. No. L-42518 August 29, 1936

WISE & CO., INC., plaintiff-appellee,

vs.
DIONISIO P. TANGLAO, defendant-appellant.

The appellant in his own behalf.

Franco and Reinoso for appellee.

AVANCEÑA, C. J.:

In the Court of First Instance of Manila, Wise & Co. instituted civil case No. 41129 against Cornelio
C. David for the recovery of a certain sum of money David was an agent of Wise & Co. and the
amount claimed from him was the result of a liquidation of accounts showing that he was indebted in
said amount. In said case Wise & Co. asked and obtained a preliminary attachment of David's
property. To avoid the execution of said attachment, David succeeded in having his Attorney
Tanglao execute on January 16, 1932, a power of attorney (Exhibit A) in his favor, with the following
clause:

To sign for me as guarantor for himself in his indebtedness to Wise & Company of Manila,
which indebtedness appears in civil case No. 41129, of the Court of First Instance of Manila,
and to mortgage my lot (No. 517-F of the subdivision plan Psd-20, being a portion of lot No.
517 of the cadastral survey of Angeles, G. L. R. O. Cad. Rec. No. 124), to guarantee the said
obligations to the Wise & Company, Inc., of Manila.

On the 18th of said month David subscribed and on the 23d thereof, filed in court, the following
document (Exhibit B):

COMPROMISE

Come now the parties, plaintiff by the undersigned attorneys and defendants in his own
behalf and respectfully state:

I. That the defendant confesses judgment for the sum of six hundred forty pesos
(P640), payable at the rate of eighty pesos (P80) per month, the first payment to be
made on February 15, 1932 and successively thereafter until the full amount is paid;
the plaintiff accepts this stipulation.

II. That as security for the payment of said sum of P640, defendant binds in favor of,
and pledges to the plaintiff, the following real properties:

1. House of light materials described under tax declaration No. 9650 of the
municipality of Angeles, Province of Pampanga, assessed at P320.

2. Accesoria apartments with a ground floor of 180 sq. m. with the first story
of cement and galvanized of iron roofing located on the lot belonging to
Mariano Tablante Geronimo, said accesoria is described under tax
declaration No. 11164 of the municipality of Angeles, Province of Pampanga,
assessed at P800.
 3. Parcel of land described under Transfer Certificate of Title No. 2307 of the
Province of Pampanga recorded in the name of Dionisio Tanglao of which
defendant herein holds a special power of attorney to pledge the same in
favor of Wise & Co., Inc., as a guarantee for the payment of the claim against
him in the above entitled cause. The said parcel of land is bounded as
follows: NE. lot No. 517 "Part" de Narciso Garcia; SE. Calle Rizal; SW. lot
No. 517 "Part" de Bernardino Tiongco; NW. lot No. 508 de Clemente Dayrit;
containing 431 sq. m. and described in tax declaration No. 11977 of the
municipality of Angeles, Pampanga, assessed at P423.

That this guaranty is attached to the properties above mentioned as first lien and for this
reason the parties agree to register this compromise with the Register of Deeds of
Pampanga, said lien to be cancelled only on the payment of the full amount of the judgment
in this case.

Wherefore, the parties pray that the above compromise be admitted and that an order issue
requiring the register of Deeds of Pampanga to register this compromise previous to the filing
of the legal fees.

David paid the sum of P343.47 to Wise & Co., on account of the P640 which he bound himself to
pay under Exhibit B, leaving an unpaid balance of P296.53.

Wise & Co. now institutes this case against Tanglao for the recovery of said balance of P296.53.

There is no doubt that under Exhibit, A, Tanglao empowered David, in his name, to enter into a
contract of suretyship and a contract of mortgage of the property described in the document, with
Wise & Co. However, David used said power of attorney only to mortgage the property and did not
enter into contract of suretyship. Nothing is stated in Exhibit B to the effect that Tanglao became
David's surety for the payment of the sum in question. Neither is this inferable from any of the
clauses thereof, and even if this inference might be made, it would be insufficient to create an
obligation of suretyship which, under the law, must be express and cannot be presumed.

It appears from the foregoing that defendant, Tanglao could not have contracted any personal
responsibility for the payment of the sum of P640. The only obligation which Exhibit B, in connection
with Exhibit A, has created on the part of Tanglao, is that resulting from the mortgage of a property
belonging to him to secure the payment of said P640. However, a foreclosure suit is not instituted in
this case against Tanglao, but a purely personal action for the recovery of the amount still owed by
David.

At any rate, even granting that defendant Tanglao may be considered as a surety under Exhibit B,
the action does not yet lie against him on the ground that all the legal remedies against the debtor
have not previously been exhausted (art. 1830 of the Civil Code, and decision of the Supreme Court
of Spain of March 2, 1891). The plaintiff has in its favor a judgment against debtor David for the
payment of debt. It does not appear that the execution of this judgment has been asked for and
Exhibit B, on the other hand, shows that David has two pieces of property the value of which is in
excess of the balance of the debt the payment of which is sought of Tanglao in his alleged capacity
as surety.

For the foregoing considerations, the appealed judgment is reversed and the defendant is absolved
from the complaint, with the costs to the plaintiff. So ordered.
G.R. No. 74886 December 8, 1992

PRUDENTIAL BANK, petitioner,

vs.
INTERMEDIATE APPELLATE COURT, PHILIPPINE RAYON MILLS, INC. and ANACLETO R.
CHI, respondents.

DAVIDE, JR., J.:

Petitioner seeks to review and set aside the decision 1 of public respondent; Intermediate Appellate
Court (now Court of Appeals), dated 10 March 1986, in AC-G.R. No. 66733 which affirmed in
toto the 15 June 1978 decision of Branch 9 (Quezon City) of the then Court of First Instance (now
Regional Trial Court) of Rizal in Civil Case No. Q-19312. The latter involved an action instituted by
the petitioner for the recovery of a sum of money representing the amount paid by it to the Nissho
Company Ltd. of Japan for textile machinery imported by the defendant, now private respondent,
Philippine Rayon Mills, Inc. (hereinafter Philippine Rayon), represented by co-defendant Anacleto R.
Chi.

The facts which gave rise to the instant controversy are summarized by the public respondent as
follows:

On August 8, 1962, defendant-appellant Philippine Rayon Mills, Inc. entered into a

contract with Nissho Co., Ltd. of Japan for the importation of textile machineries
under a five-year deferred payment plan (Exhibit B, Plaintiff's Folder of Exhibits, p 2).
To effect payment for said machineries, the defendant-appellant applied for a
commercial letter of credit with the Prudential Bank and Trust Company in favor of
Nissho. By virtue of said application, the Prudential Bank opened Letter of Credit No.
DPP-63762 for $128,548.78 (Exhibit A, Ibid., p. 1). Against this letter of credit, drafts
were drawn and issued by Nissho (Exhibits X, X-1 to X-11, Ibid., pp. 65, 66 to 76),
which were all paid by the Prudential Bank through its correspondent in Japan, the
Bank of Tokyo, Ltd. As indicated on their faces, two of these drafts (Exhibit X and X-
1, Ibid., pp. 65-66) were accepted by the defendant-appellant through its president,
Anacleto R. Chi, while the others were not (Exhibits X-2 to X-11, Ibid., pp. 66 to 76).

Upon the arrival of the machineries, the Prudential Bank indorsed the shipping
documents to the defendant-appellant which accepted delivery of the same. To
enable the defendant-appellant to take delivery of the machineries, it executed, by
prior arrangement with the Prudential Bank, a trust receipt which was signed by
Anacleto R. Chi in his capacity as President (sic) of defendant-appellant company
(Exhibit C, Ibid., p. 13).

At the back of the trust receipt is a printed form to be accomplished by two sureties
who, by the very terms and conditions thereof, were to be jointly and severally liable
to the Prudential Bank should the defendant-appellant fail to pay the total amount or
any portion of the drafts issued by Nissho and paid for by Prudential Bank. The
defendant-appellant was able to take delivery of the textile machineries and installed
the same at its factory site at 69 Obudan Street, Quezon City.

Sometime in 1967, the defendant-appellant ceased business operation (sic). On

December 29, 1969, defendant-appellant's factory was leased by Yupangco Cotton
 Mills for an annual rental of P200,000.00 (Exhibit I, Ibid., p. 22). The lease was
renewed on January 3, 1973 (Exhibit J, Ibid., p. 26). On January 5, 1974, all the
textile machineries in the defendant-appellant's factory were sold to AIC
Development Corporation for P300,000.00 (Exhibit K, Ibid., p. 29).

The obligation of the defendant-appellant arising from the letter of credit and the trust
receipt remained unpaid and unliquidated. Repeated formal demands (Exhibits U, V,
and W, Ibid., pp. 62, 63, 64) for the payment of the said trust receipt yielded no result
Hence, the present action for the collection of the principal amount of P956,384.95
was filed on October 3, 1974 against the defendant-appellant and Anacleto R. Chi. In
their respective answers, the defendants interposed identical special defenses, viz.,
the complaint states no cause of action; if there is, the same has prescribed; and the
plaintiff is guilty of laches. 2

On 15 June 1978, the trial court rendered its decision the dispositive portion of which reads:

WHEREFORE, judgment is hereby rendered sentencing the defendant Philippine

Rayon Mills, Inc. to pay plaintiff the sum of P153,645.22, the amounts due under
Exhibits "X" & "X-1", with interest at 6% per annum beginning September 15, 1974
until fully paid.

Insofar as the amounts involved in drafts Exhs. "X" (sic) to "X-11", inclusive, the
same not having been accepted by defendant Philippine Rayon Mills, Inc., plaintiff's
cause of action thereon has not accrued, hence, the instant case is premature.

Insofar as defendant Anacleto R. Chi is concerned, the case is dismissed. Plaintiff is

ordered to pay defendant Anacleto R. Chi the sum of P20,000.00 as attorney's fees.

With costs against defendant Philippine Rayon Mills, Inc.

SO ORDERED. 3

Petitioner appealed the decision to the then Intermediate Appellate Court. In urging the said court to
reverse or modify the decision, petitioner alleged in its Brief that the trial court erred in (a)
disregarding its right to reimbursement from the private respondents for the entire unpaid balance of
the imported machines, the total amount of which was paid to the Nissho Company Ltd., thereby
violating the principle of the third party payor's right to reimbursement provided for in the second
paragraph of Article 1236 of the Civil Code and under the rule against unjust enrichment; (b) refusing
to hold Anacleto R. Chi, as the responsible officer of defendant corporation, liable under Section 13
of P.D No 115 for the entire unpaid balance of the imported machines covered by the bank's trust
receipt (Exhibit "C"); (c) finding that the solidary guaranty clause signed by Anacleto R. Chi is not a
guaranty at all; (d) controverting the judicial admissions of Anacleto R. Chi that he is at least a
simple guarantor of the said trust receipt obligation; (e) contravening, based on the assumption that
Chi is a simple guarantor, Articles 2059, 2060 and 2062 of the Civil Code and the related evidence
and jurisprudence which provide that such liability had already attached; (f) contravening the judicial
admissions of Philippine Rayon with respect to its liability to pay the petitioner the amounts involved
in the drafts (Exhibits "X", "X-l" to "X-11''); and (g) interpreting "sight" drafts as requiring acceptance
by Philippine Rayon before the latter could be held liable thereon. 4

In its decision, public respondent sustained the trial court in all respects. As to the first and last
assigned errors, it ruled that the provision on unjust enrichment, Article 2142 of the Civil Code,
applies only if there is no express contract between the parties and there is a clear showing that the
payment is justified. In the instant case, the relationship existing between the petitioner and
Philippine Rayon is governed by specific contracts, namely the application for letters of credit, the
promissory note, the drafts and the trust receipt. With respect to the last ten (10) drafts (Exhibits "X-
2" to "X-11") which had not been presented to and were not accepted by Philippine Rayon, petitioner
was not justified in unilaterally paying the amounts stated therein. The public respondent did not
agree with the petitioner's claim that the drafts were sight drafts which did not require presentment
for acceptance to Philippine Rayon because paragraph 8 of the trust receipt presupposes prior
acceptance of the drafts. Since the ten (10) drafts were not presented and accepted, no valid
demand for payment can be made.

Public respondent also disagreed with the petitioner's contention that private respondent Chi is
solidarily liable with Philippine Rayon pursuant to Section 13 of P.D. No. 115 and based on his
signature on the solidary guaranty clause at the dorsal side of the trust receipt. As to the first
contention, the public respondent ruled that the civil liability provided for in said Section 13 attaches
only after conviction. As to the second, it expressed misgivings as to whether Chi's signature on the
trust receipt made the latter automatically liable thereon because the so-called solidary guaranty
clause at the dorsal portion of the trust receipt is to be signed not by one (1) person alone, but by
two (2) persons; the last sentence of the same is incomplete and unsigned by witnesses; and it is
not acknowledged before a notary public. Besides, even granting that it was executed and
acknowledged before a notary public, Chi cannot be held liable therefor because the records fail to
show that petitioner had either exhausted the properties of Philippine Rayon or had resorted to all
legal remedies as required in Article 2058 of the Civil Code. As provided for under Articles 2052 and
2054 of the Civil Code, the obligation of a guarantor is merely accessory and subsidiary,
respectively. Chi's liability would therefore arise only when the principal debtor fails to comply with
his obligation. 5

Its motion to reconsider the decision having been denied by the public respondent in its Resolution
of 11 June 1986, 6 petitioner filed the instant petition on 31 July 1986 submitting the following legal
issues:

I. WHETHER OR NOT THE RESPONDENT APPELLATE COURT GRIEVOUSLY

ERRED IN DENYING PETITIONER'S CLAIM FOR FULL REIMBURSEMENT
AGAINST THE PRIVATE RESPONDENTS FOR THE PAYMENT PETITIONER
MADE TO NISSHO CO. LTD. FOR THE BENEFIT OF PRIVATE RESPONDENT
UNDER ART. 1283 OF THE NEW CIVIL CODE OF THE PHILIPPINES AND
UNDER THE GENERAL PRINCIPLE AGAINST UNJUST ENRICHMENT;

II. WHETHER OR NOT RESPONDENT CHI IS SOLIDARILY LIABLE UNDER THE

TRUST RECEIPT (EXH. C);

III. WHETHER OR NOT ON THE BASIS OF THE JUDICIAL ADMISSIONS OF

RESPONDENT CHI HE IS LIABLE THEREON AND TO WHAT EXTENT;

IV. WHETHER OR NOT RESPONDENT CHI IS MERELY A SIMPLE GUARANTOR;

AND IF SO; HAS HIS LIABILITY AS SUCH ALREADY ATTACHED;

V. WHETHER OR NOT AS THE SIGNATORY AND RESPONSIBLE OFFICER OF

RESPONDENT PHIL. RAYON RESPONDENT CHI IS PERSONALLY LIABLE
PURSUANT TO THE PROVISION OF SECTION 13, P.D. 115;

VI. WHETHER OR NOT RESPONDENT PHIL. RAYON IS LIABLE TO THE

PETITIONER UNDER THE TRUST RECEIPT (EXH. C);
 VII. WHETHER OR NOT ON THE BASIS OF THE JUDICIAL ADMISSIONS
RESPONDENT PHIL. RAYON IS LIABLE TO THE PETITIONER UNDER THE
DRAFTS (EXHS. X, X-1 TO X-11) AND TO WHAT EXTENT;

VIII. WHETHER OR NOT SIGHT DRAFTS REQUIRE PRIOR ACCEPTANCE FROM

RESPONDENT PHIL. RAYON BEFORE THE LATTER BECOMES LIABLE TO
PETITIONER. 7

In the Resolution of 12 March 1990, 8 this Court gave due course to the petition after the filing of the Comment thereto by
private respondent Anacleto Chi and of the Reply to the latter by the petitioner; both parties were also required to submit their respective
memoranda which they subsequently complied with.

As We see it, the issues may be reduced as follows:

1. Whether presentment for acceptance of the drafts was

indispensable to make Philippine Rayon liable thereon;

2. Whether Philippine Rayon is liable on the basis of the trust receipt;

3. Whether private respondent Chi is jointly and severally liable with

Philippine Rayon for the obligation sought to be enforced and if not,
whether he may be considered a guarantor; in the latter situation,
whether the case should have been dismissed on the ground of lack
of cause of action as there was no prior exhaustion of Philippine
Rayon's properties.

Both the trial court and the public respondent ruled that Philippine Rayon could be held liable for the
two (2) drafts, Exhibits "X" and "X-1", because only these appear to have been accepted by the latter
after due presentment. The liability for the remaining ten (10) drafts (Exhibits "X-2" to "X-11"
inclusive) did not arise because the same were not presented for acceptance. In short, both courts
concluded that acceptance of the drafts by Philippine Rayon was indispensable to make the latter
liable thereon. We are unable to agree with this proposition. The transaction in the case at bar
stemmed from Philippine Rayon's application for a commercial letter of credit with the petitioner in
the amount of $128,548.78 to cover the former's contract to purchase and import loom and textile
machinery from Nissho Company, Ltd. of Japan under a five-year deferred payment plan. Petitioner
approved the application. As correctly ruled by the trial court in its Order of 6 March 1975: 9

. . . By virtue of said Application and Agreement for Commercial Letter of Credit,

plaintiff bank 10 was under obligation to pay through its correspondent bank in Japan
the drafts that Nisso (sic) Company, Ltd., periodically drew against said letter of
credit from 1963 to 1968, pursuant to plaintiff's contract with the defendant Philippine
Rayon Mills, Inc. In turn, defendant Philippine Rayon Mills, Inc., was obligated to pay
plaintiff bank the amounts of the drafts drawn by Nisso (sic) Company, Ltd. against
said plaintiff bank together with any accruing commercial charges, interest, etc.
pursuant to the terms and conditions stipulated in the Application and Agreement of
Commercial Letter of Credit Annex "A".

A letter of credit is defined as an engagement by a bank or other person made at the request of a
customer that the issuer will honor drafts or other demands for payment upon compliance with the
conditions specified in the credit. 11Through a letter of credit, the bank merely substitutes its own
promise to pay for one of its customers who in return promises to pay the bank the amount of funds
mentioned in the letter of credit plus credit or commitment fees mutually agreed upon. 12 In the instant
case then, the drawee was necessarily the herein petitioner. It was to the latter that the drafts were
presented for payment. In fact, there was no need for acceptance as the issued drafts are sight
drafts. Presentment for acceptance is necessary only in the cases expressly provided for in Section
143 of the Negotiable Instruments Law (NIL). 13 The said section reads:

Sec. 143. When presentment for acceptance must be made. — Presentment for
acceptance must be made:

(a) Where the bill is payable after sight, or in any

other case, where presentment for acceptance is
necessary in order to fix the maturity of the
instrument; or

(b) Where the bill expressly stipulates that it shall be

presented for acceptance; or

(c) Where the bill is drawn payable elsewhere than at

the residence or place of business of the drawee.

In no other case is presentment for acceptance necessary in order to render any

party to the bill liable.

Obviously then, sight drafts do not require presentment for acceptance.

The acceptance of a bill is the signification by the drawee of his assent to the order of the
drawer; 14 this may be done in writing by the drawee in the bill itself, or in a separate instrument. 15

The parties herein agree, and the trial court explicitly ruled, that the subject, drafts are sight drafts.
Said the latter:

. . . In the instant case the drafts being at sight, they are supposed to be payable
upon acceptance unless plaintiff bank has given the Philippine Rayon Mills Inc. time
within which to pay the same. The first two drafts (Annexes C & D, Exh. X & X-1)
were duly accepted as indicated on their face (sic), and upon such acceptance
should have been paid forthwith. These two drafts were not paid and although
Philippine Rayon Mills
ought to have paid the same, the fact remains that until now they are still unpaid. 16

Corollarily, they are, pursuant to Section 7 of the NIL, payable on demand. Section 7 provides:

Sec. 7. When payable on demand. — An instrument is payable on demand —

(a) When so it is expressed to be payable on demand,

or at sight, or on presentation; or

(b) In which no time for payment in expressed.

Where an instrument is issued, accepted, or indorsed when overdue, it is, as regards

the person so issuing, accepting, or indorsing it, payable on demand. (emphasis
supplied)
 Paragraph 8 of the Trust Receipt which reads: "My/our liability for payment at maturity of any
accepted draft, bill of exchange or indebtedness shall not be extinguished or
modified" 17 does not, contrary to the holding of the public respondent, contemplate prior
acceptance by Philippine Rayon, but by the petitioner. Acceptance, however, was not even
necessary in the first place because the drafts which were eventually issued were sight
drafts And even if these were not sight drafts, thereby necessitating acceptance, it would be
the petitioner — and not Philippine Rayon — which had to accept the same for the latter was
not the drawee. Presentment for acceptance is defined an the production of a bill of
exchange to a drawee for acceptance. 18The trial court and the public respondent, therefore,
erred in ruling that presentment for acceptance was an indispensable requisite for Philippine
Rayon's liability on the drafts to attach. Contrary to both courts' pronouncements, Philippine
Rayon immediately became liable thereon upon petitioner's payment thereof. Such is the
essence of the letter of credit issued by the petitioner. A different conclusion would violate
the principle upon which commercial letters of credit are founded because in such a case,
both the beneficiary and the issuer, Nissho Company Ltd. and the petitioner, respectively,
would be placed at the mercy of Philippine Rayon even if the latter had already received the
imported machinery and the petitioner had fully paid for it. The typical setting and purpose of
a letter of credit are described in Hibernia Bank and Trust Co.vs. J. Aron & Co., Inc., 19 thus:

Commercial letters of credit have come into general use in international sales
transactions where much time necessarily elapses between the sale and the receipt
by a purchaser of the merchandise, during which interval great price changes may
occur. Buyers and sellers struggle for the advantage of position. The seller is
desirous of being paid as surely and as soon as possible, realizing that the vendee at
a distant point has it in his power to reject on trivial grounds merchandise on arrival,
and cause considerable hardship to the shipper. Letters of credit meet this condition
by affording celerity and certainty of payment. Their purpose is to insure to a seller
payment of a definite amount upon presentation of documents. The bank deals only
with documents. It has nothing to do with the quality of the merchandise. Disputes as
to the merchandise shipped may arise and be litigated later between vendor and
vendee, but they may not impede acceptance of drafts and payment by the issuing
bank when the proper documents are presented.

The trial court and the public respondent likewise erred in disregarding the trust receipt and in not
holding that Philippine Rayon was liable thereon. In People vs. Yu Chai Ho, 20 this Court explains the
nature of a trust receipt by quoting In re Dunlap Carpet Co., 21 thus:

By this arrangement a banker advances money to an intending importer, and thereby

lends the aid of capital, of credit, or of business facilities and agencies abroad, to the
enterprise of foreign commerce. Much of this trade could hardly be carried on by any
other means, and therefore it is of the first importance that the fundamental factor in
the transaction, the banker's advance of money and credit, should receive the
amplest protection. Accordingly, in order to secure that the banker shall be repaid at
the critical point — that is, when the imported goods finally reach the hands of the
intended vendee — the banker takes the full title to the goods at the very beginning;
he takes it as soon as the goods are bought and settled for by his payments or
acceptances in the foreign country, and he continues to hold that title as his
indispensable security until the goods are sold in the United States and the vendee is
called upon to pay for them. This security is not an ordinary pledge by the importer to
the banker, for the importer has never owned the goods, and moreover he is not able
to deliver the possession; but the security is the complete title vested originally in the
bankers, and this characteristic of the transaction has again and again been
recognized and protected by the courts. Of course, the title is at bottom a security
 title, as it has sometimes been called, and the banker is always under the obligation
to reconvey; but only after his advances have been fully repaid and after the importer
has fulfilled the other terms of the contract.

As further stated in National Bank vs. Viuda e Hijos de Angel Jose, 22 trust receipts:

. . . [I]n a certain manner, . . . partake of the nature of a conditional sale as provided

by the Chattel Mortgage Law, that is, the importer becomes absolute owner of the
imported merchandise as soon an he has paid its price. The ownership of the
merchandise continues to be vested in the owner thereof or in the person who has
advanced payment, until he has been paid in full, or if the merchandise has already
been sold, the proceeds of the sale should be turned over to him by the importer or
by his representative or successor in interest.

Under P.D. No. 115, otherwise known an the Trust Receipts Law, which took effect on 29 January
1973, a trust receipt transaction is defined as "any transaction by and between a person referred to
in this Decree as the entruster, and another person referred to in this Decree as the entrustee,
whereby the entruster, who owns or holds absolute title or security interests' over certain specified
goods, documents or instruments, releases the same to the possession of the entrustee upon the
latter's execution and delivery to the entruster of a signed document called the "trust receipt" wherein
the entrustee binds himself to hold the designated goods, documents or instruments in trust for the
entruster and to sell or otherwise dispose of the goods, documents or instruments with the obligation
to turn over to the entruster the proceeds thereof to the extent of the amount owing to the entruster
or as appears in the trust receipt or the goods, instruments themselves if they are unsold or not
otherwise disposed of, in accordance with the terms and conditions specified in the trusts receipt, or
for other purposes substantially equivalent to any one of the following: . . ."

It is alleged in the complaint that private respondents "not only have presumably put said machinery
to good use and have profited by its operation and/or disposition but very recent information that
(sic) reached plaintiff bank that defendants already sold the machinery covered by the trust receipt to
Yupangco Cotton Mills," and that "as trustees of the property covered by the trust receipt, . . . and
therefore acting in fiduciary (sic) capacity, defendants have willfully violated their duty to account for
the whereabouts of the machinery covered by the trust receipt or for the proceeds of any lease, sale
or other disposition of the same that they may have made, notwithstanding demands therefor;
defendants have fraudulently misapplied or converted to their own use any money realized from the
lease, sale, and other disposition of said machinery." 23 While there is no specific prayer for the
delivery to the petitioner by Philippine Rayon of the proceeds of the sale of the machinery covered
by the trust receipt, such relief is covered by the general prayer for "such further and other relief as
may be just and equitable on the premises." 24 And although it is true that the petitioner commenced
a criminal action for the violation of the Trust Receipts Law, no legal obstacle prevented it from
enforcing the civil liability arising out of the trust, receipt in a separate civil action. Under Section 13
of the Trust Receipts Law, the failure of an entrustee to turn over the proceeds of the sale of goods,
documents or instruments covered by a trust receipt to the extent of the amount owing to the
entruster or as appear in the trust receipt or to return said goods, documents or instruments if they
were not sold or disposed of in accordance with the terms of the trust receipt shall constitute the
crime of estafa, punishable under the provisions of Article 315, paragraph 1(b) of the Revised Penal
Code. 25 Under Article 33 of the Civil Code, a civil action for damages, entirely separate and distinct
from the criminal action, may be brought by the injured party in cases of defamation, fraud and
physical injuries. Estafa falls under fraud.

We also conclude, for the reason hereinafter discussed, and not for that adduced by the public
respondent, that private respondent Chi's signature in the dorsal portion of the trust receipt did not
bind him solidarily with Philippine Rayon. The statement at the dorsal portion of the said trust receipt,
which petitioner describes as a "solidary guaranty clause", reads:

In consideration of the PRUDENTIAL BANK AND TRUST COMPANY complying with

the foregoing, we jointly and severally agree and undertake to pay on demand to the
PRUDENTIAL BANK AND TRUST COMPANY all sums of money which the said
PRUDENTIAL BANK AND TRUST COMPANY may call upon us to pay arising out of
or pertaining to, and/or in any event connected with the default of and/or non-
fulfillment in any respect of the undertaking of the aforesaid:

PHILIPPINE RAYON MILLS, INC.

We further agree that the PRUDENTIAL BANK AND TRUST COMPANY does not
have to take any steps or exhaust its remedy against aforesaid:

before making demand on me/us.

(
S
g
d
.
)

A
n
a
c
l
e
t
o

R
.

C
h
i

A
N
A
C
L
E
T
O

R
.
 C
H
I
2
6

Petitioner insists that by virtue of the clear wording of the statement, specifically the clause ". . . we
jointly and severally agree and undertake . . .," and the concluding sentence on exhaustion, Chi's
liability therein is solidary.

In holding otherwise, the public respondent ratiocinates as follows:

With respect to the second argument, we have our misgivings as to whether the
mere signature of defendant-appellee Chi of (sic) the guaranty agreement, Exhibit
"C-1", will make it an actionable document. It should be noted that Exhibit "C-1" was
prepared and printed by the plaintiff-appellant. A perusal of Exhibit "C-1" shows that
it was to be signed and executed by two persons. It was signed only by defendant-
appellee Chi. Exhibit "C-1" was to be witnessed by two persons, but no one signed in
that capacity. The last sentence of the guaranty clause is incomplete. Furthermore,
the plaintiff-appellant also failed to have the purported guarantee clause
acknowledged before a notary public. All these show that the alleged guaranty
provision was disregarded and, therefore, not consummated.

But granting arguendo that the guaranty provision in Exhibit "C-1" was fully executed
and acknowledged still defendant-appellee Chi cannot be held liable thereunder
because the records show that the plaintiff-appellant had neither exhausted the
property of the defendant-appellant nor had it resorted to all legal remedies against
the said defendant-appellant as provided in Article 2058 of the Civil Code. The
obligation of a guarantor is merely accessory under Article 2052 of the Civil Code
and subsidiary under Article 2054 of the Civil Code. Therefore, the liability of the
defendant-appellee arises only when the principal debtor fails to comply with his
obligation. 27

Our own reading of the questioned solidary guaranty clause yields no other conclusion than that the
obligation of Chi is only that of a guarantor. This is further bolstered by the last sentence which
speaks of waiver of exhaustion, which, nevertheless, is ineffective in this case because the space
therein for the party whose property may not be exhausted was not filled up. Under Article 2058 of
the Civil Code, the defense of exhaustion (excussion) may be raised by a guarantor before he may
be held liable for the obligation. Petitioner likewise admits that the questioned provision is a solidary
guaranty clause, thereby clearly distinguishing it from a contract of surety. It, however, described the
guaranty as solidary between the guarantors; this would have been correct if two (2) guarantors had
signed it. The clause "we jointly and severally agree and undertake" refers to the undertaking of the
two (2) parties who are to sign it or to the liability existing between themselves. It does not refer to
the undertaking between either one or both of them on the one hand and the petitioner on the other
with respect to the liability described under the trust receipt. Elsewise stated, their liability is not
divisible as between them, i.e., it can be enforced to its full extent against any one of them.

Furthermore, any doubt as to the import, or true intent of the solidary guaranty clause should be
resolved against the petitioner. The trust receipt, together with the questioned solidary guaranty
clause, is on a form drafted and prepared solely by the petitioner; Chi's participation therein is limited
to the affixing of his signature thereon. It is, therefore, a contract of adhesion; 28 as such, it must be
strictly construed against the party responsible for its preparation. 29

Neither can We agree with the reasoning of the public respondent that this solidary guaranty clause
was effectively disregarded simply because it was not signed and witnessed by two (2) persons and
acknowledged before a notary public. While indeed, the clause ought to have been signed by two (2)
guarantors, the fact that it was only Chi who signed the same did not make his act an idle ceremony
or render the clause totally meaningless. By his signing, Chi became the sole guarantor. The
attestation by witnesses and the acknowledgement before a notary public are not required by law to
make a party liable on the instrument. The rule is that contracts shall be obligatory in whatever form
they may have been entered into, provided all the essential requisites for their validity are present;
however, when the law requires that a contract be in some form in order that it may be valid or
enforceable, or that it be proved in a certain way, that requirement is absolute and
indispensable. 30 With respect to a guaranty, 31 which is a promise to answer for the debt or default of
another, the law merely requires that it, or some note or memorandum thereof, be in writing.
Otherwise, it would be unenforceable unless ratified. 32 While the acknowledgement of a surety
before a notary public is required to make the same a public document, under Article 1358 of the
Civil Code, a contract of guaranty does not have to appear in a public document.

And now to the other ground relied upon by the petitioner as basis for the solidary liability of Chi,
namely the criminal proceedings against the latter for the violation of P.D. No. 115. Petitioner claims
that because of the said criminal proceedings, Chi would be answerable for the civil liability arising
therefrom pursuant to Section 13 of P.D. No. 115. Public respondent rejected this claim because
such civil liability presupposes prior conviction as can be gleaned from the phrase "without prejudice
to the civil liability arising from the criminal offense." Both are wrong. The said section reads:

Sec. 13. Penalty Clause. — The failure of an entrustee to turn over the proceeds of
the sale of the goods, documents or instruments covered by a trust receipt to the
extent of the amount owing to the entruster or as appears in the trust receipt or to
return said goods, documents or instruments if they were not sold or disposed of in
accordance with the terms of the trust receipt shall constitute the crime of estafa,
punishable under the provisions of Article Three hundred and fifteen, paragraph one
(b) of Act Numbered Three thousand eight hundred and fifteen, as amended,
otherwise known as the Revised Penal Code. If the violation or offense is committed
by a corporation, partnership, association or other juridical entities, the penalty
provided for in this Decree shall be imposed upon the directors, officers, employees
or other officials or persons therein responsible for the offense, without prejudice to
the civil liabilities arising from the criminal offense.

A close examination of the quoted provision reveals that it is the last sentence which provides for the
correct solution. It is clear that if the violation or offense is committed by a corporation, partnership,
association or other juridical entities, the penalty shall be imposed upon the directors, officers,
employees or other officials or persons therein responsible for the offense. The penalty referred to is
imprisonment, the duration of which would depend on the amount of the fraud as provided for in
Article 315 of the Revised Penal Code. The reason for this is obvious: corporations, partnerships,
associations and other juridical entities cannot be put in jail. However, it is these entities which are
made liable for the civil liability arising from the criminal offense. This is the import of the clause
"without prejudice to the civil liabilities arising from the criminal offense." And, as We stated earlier,
since that violation of a trust receipt constitutes fraud under Article 33 of the Civil Code, petitioner
was acting well within its rights in filing an independent civil action to enforce the civil liability arising
therefrom against Philippine Rayon.
The remaining issue to be resolved concerns the propriety of the dismissal of the case against
private respondent Chi. The trial court based the dismissal, and the respondent Court its affirmance
thereof, on the theory that Chi is not liable on the trust receipt in any capacity — either as surety or
as guarantor — because his signature at the dorsal portion thereof was useless; and even if he
could be bound by such signature as a simple guarantor, he cannot, pursuant to Article 2058 of the
Civil Code, be compelled to pay until
after petitioner has exhausted and resorted to all legal remedies against the principal debtor,
Philippine Rayon. The records fail to show that petitioner had done so 33 Reliance is thus placed on
Article 2058 of the Civil Code which provides:

Art. 2056. The guarantor cannot be compelled to pay the creditor unless the latter
has exhausted all the property of the debtor, and has resorted to all the legal
remedies against the debtor.

Simply stated, there is as yet no cause of action against Chi.

We are not persuaded. Excussion is not a condition sine qua non for the institution of an action
against a guarantor. In Southern Motors, Inc. vs. Barbosa, 34 this Court stated:

4. Although an ordinary personal guarantor — not a mortgagor or pledgor — may

demand the aforementioned exhaustion, the creditor may, prior thereto, secure a
judgment against said guarantor, who shall be entitled, however, to a deferment of
the execution of said judgment against him until after the properties of the principal
debtor shall have been exhausted to satisfy the obligation involved in the case.

There was then nothing procedurally objectionable in impleading private respondent Chi as a co-
defendant in Civil Case No. Q-19312 before the trial court. As a matter of fact, Section 6, Rule 3 of
the Rules of Court on permissive joinder of parties explicitly allows it. It reads:

Sec. 6. Permissive joinder of parties. — All persons in whom or against whom any
right to relief in respect to or arising out of the same transaction or series of
transactions is alleged to exist, whether jointly, severally, or in the alternative, may,
except as otherwise provided in these rules, join as plaintiffs or be joined as
defendants in one complaint, where any question of law or fact common to all such
plaintiffs or to all such defendants may arise in the action; but the court may make
such orders as may be just to prevent any plaintiff or defendant from being
embarrassed or put to expense in connection with any proceedings in which he may
have no interest.

This is the equity rule relating to multifariousness. It is based on trial convenience and is designed to
permit the joinder of plaintiffs or defendants whenever there is a common question of law or fact. It
will save the parties unnecessary work, trouble and expense. 35

However, Chi's liability is limited to the principal obligation in the trust receipt plus all the accessories
thereof including judicial costs; with respect to the latter, he shall only be liable for those costs
incurred after being judicially required to pay. 36 Interest and damages, being accessories of the
principal obligation, should also be paid; these, however, shall run only from the date of the filing of
the complaint. Attorney's fees may even be allowed in appropriate cases.37

In the instant case, the attorney's fees to be paid by Chi cannot be the same as that to be paid by
Philippine Rayon since it is only the trust receipt that is covered by the guaranty and not the full
extent of the latter's liability. All things considered, he can be held liable for the sum of P10,000.00
as attorney's fees in favor of the petitioner.

Thus, the trial court committed grave abuse of discretion in dismissing the complaint as against
private respondent Chi and condemning petitioner to pay him P20,000.00 as attorney's fees.

In the light of the foregoing, it would no longer necessary to discuss the other issues raised by the
petitioner

WHEREFORE, the instant Petition is hereby GRANTED.

The appealed Decision of 10 March 1986 of the public respondent in AC-G.R. CV No. 66733
and, necessarily, that of Branch 9 (Quezon City) of the then Court of First Instance of Rizal in
Civil Case No. Q-19312 are hereby REVERSED and SET ASIDE and another is hereby
entered:

1. Declaring private respondent Philippine Rayon Mills, Inc. liable on

the twelve drafts in question (Exhibits "X", "X-1" to "X-11", inclusive)
and on the trust receipt (Exhibit "C"), and ordering it to pay petitioner:
(a) the amounts due thereon in the total sum of P956,384.95 as of 15
September 1974, with interest thereon at six percent (6%) per annum
from 16 September 1974 until it is fully paid, less whatever may have
been applied thereto by virtue of foreclosure of mortgages, if any; (b)
a sum equal to ten percent (10%) of the aforesaid amount as
attorney's fees; and (c) the costs.

2. Declaring private respondent Anacleto R. Chi secondarily liable on

the trust receipt and ordering him to pay the face value thereof, with
interest at the legal rate, commencing from the date of the filing of the
complaint in Civil Case No. Q-19312 until the same is fully paid as
well as the costs and attorney's fees in the sum of P10,000.00 if the
writ of execution for the enforcement of the above awards against
Philippine Rayon Mills, Inc. is returned unsatisfied.

Costs against private respondents.

SO ORDERED.
 Today is Friday, August 04, 2017

Republic of the Philippines

SUPREME COURT
Manila

FIRST DIVISION

ranch IV, ROSA V. REYES, PEDRO V. REYES and CONSOLACION V. REYES, respondents.

mulgated on July 19, 1967 entitled "The Imperial Insurance, Inc., petitioner vs. Hon. Walfrido de los Angeles, Judge of the Court of Fi

on issued by the Court on January 31, 1967, is hereby dissolved, with costs against petitioner.

se N. Q-8213 of the Court of First Instance of Rizal, Branch IV, Quezon City, entitled, 'Rosa V. Reyes vs, Felicisimo V. Reyes, etc.,' w
pondents, namely, Pedro V. Reyes and Consolacion V. Reyes, are the plaintiffs in Civil Case No. Q-5214 of the same court entitled,

e Imperial Insurance, Inc., as surety, and Felicisimo V. Reyes, as principal, posted a 'defendant's bond for dissolution of attachment' i

dered was in favor of the plaintiffs. This decision was affirmed by this Court on appeal in cases CA-G.R. NOS. 33783-R and 33784-R.

nt Judge, Hon. Walfrido de los Angeles, issued the writs of execution of judgment in said cases. However, on August 20, 1966, the P

rety bonds'. Thereafter, said private respondents, thru counsel, sent a letter of demand upon petitioner asking the latter to pay them t
order, dated November 10, 1966, rendered judgment against the counter-bonds.
xecution' without serving copy thereof on petitioner.

onsideration' of the order, dated November 10, 1966. This motion was, however, denied by the respondent Judge on January 9, 1967

m the final orders of the respondent Judge, dated November 10, 1966 and January 9. 1967.

e of the writ of execution against the bonds riled by the petitioner (Exhibit J, petition). 2

e Court of Appeals to restrain the enforcement of the writ of execution. 3

the parties had submitted their respective pleadings and memoranda in lieu of oral argument, the Court of Appeals rendered the decision n

He was duly substituted by his surviving spouse, Emilia T. David, an administratrix of his intestate estate. 5

ONDENT JUDGE COULD LEGALLY ISSUE THE WRIT OF EXECUTION AGAINST THE PETITIONER AS SURETY IN A COUNTER
FOR HEARING.

TIFF WHO OBTAINED A JUDGMENT AGAINST THE DEFENDANT MAY LEGALLY CHOOSE 'TO GO DIRECTLY' AFTER THE SUR

UDGMENT' RENDERED AGAINST THE MENTIONED COUNTERBONDS IS A 'FINAL ORDER' IN THE CONTEMPLATION OF SEC

E ABSENCE OF AN EXPRESS PROVISION OF THE REVISED RULES OF COURT, THE PROCEDURE FOLLOWED BY THE SHE
ND BEFORE JUDGMENT WAS DULY SUBSTITUTED BY THE COURT APPOINTED ADMINISTRATRIX OF HIS ESTATE, SHOUL
TIES IN CUSTODIALEGIS. 6

ge could legally issue the writ of execution against the petitioner as surety in a counterbond (bond to dissolve attachment) on the basis of an

rance, Inc., for and in behalf of the deceased defendant Felicisimo V. Reyes in favor of the plaintiffs, private respondents herein Rosa
s of Court which provides:

ecution be returned unsatisfied in whole or in part, the surety or sureties on any counterbond given pursuant to the provisions of this r
which amount may be recovered from such surety or sureties after notice and summary hearing in the same action.

ry hearing in the same action.

case.

y on the surety bonds where the petitioner was duly notified and the said motion was heard on September 24, 1966. 7Moreover, on No
Q-5213 and P40,000.00 in Civil Case No. Q-5214. 8 The respondent judge set the hearing of the ex parte motion for writ of execution togeth
ced by Registry Return Receipt No. 40122. 10 On January 9, 1967, the respondent Judge issued an order denying the motion for reconsider

isfactorily complied with by the respondents. The first error assigned is overruled.

dgment against the defendant may legally choose "to go directly" after the surety in a counterbond without prior exhaustion of the def

ordinary guaranty where the sureties assume a subsidiary liability, the rule cannot apply to a counterbond where the surety bound its
nsurance, Inc., as solidary quarantor to lift the attachment in Civil Case No. Q-5213 is in the following terms:

al address at San Jose, San Miguel, Bulacan and/or 1480 Batangas Street, Sta. Cruz, Manila, as PRINCIPAL and THE IMPERIAL IN
AND SEVERALLY, bind ourselves in the sum of SIXTY THOUSAND PESOS ONLY (P60,000.00), Philippine Currency, under the co
t release for attachment, to be applied to the payment of the judgment, or in default thereof, the Surety will, on demand, pay to the pla

l address at San Jose, San Miguel, Bulacan, and/or 1480 Batangas Street, Sta. Cruz, Manila, as PRINCIPAL and THE IMPERIAL IN
and SEVERALLY, bind ourselves in the sum of FORTY THOUSAND PESOS ONLY (P40,000.00), Philippine Currency, under the co
amount released for attachment, to be applied to the payment of the judgment, or in default thereof, the Surety will, on demand, pay

ased defendant Felicisimo V. Reyes. In accordance with Article 2059, par. 2 of the Civil Code of the Philippines, 15excussion (previous
gainst the debtor be first returned unsatisfied even if the bond were a solidary one, for a procedural rule may not amend the substantive law

der dated November 10, 1966 rendering judgment against the counter-bonds, as well as the order dated January 9, 1967, denying th
so without merit.

Recovery and execution may be had in the same Civil Cases Nos. Q-5213 and Q-5214, as sanctioned by Sec. 17, Rule 57, of the Re

he writs of execution in said cases. On August 20, 1966, the Provincial Sheriff of Bulacan returned the writs of execution "unsatisfied

aking of a cash deposit or filing a counterbond "in an amount equal to the value of the property attached as determined by the judge"; and th
he property so released."

he properties formerly attached, and just as the latter may be levied upon after final judgment in the case in order to realize the amou

him and the surety, The Imperial Insurance, Inc., under Sec. 12, Rule 57 are made liable after execution was returned unsatisfied. Under the
e action. A separate action against the sureties is not necessary. 20

en the private respondents filed the motion for recovery on the surety bonds dated September 9, 1966 and to which the petitioner filed their

eturned unsatisfied, in whole or in part; (2) the plaintiff must demand the amount due under the judgment from the surety or sureties, and (3
rfluity. The respondent judge could have issued immediately a writ of execution against the petitioner surety upon demand.

tioner on its bond immediately after its failure to satisfy the judgment against the defendant upon demand, since liability on the bond a
22

te with the issuance of the order of execution dated January 19, 1967 23 upon the filing of the ex parte motion for writ of execution 24 of whic
ule are: (1) where the order of execution varies the tenor of the judgment; and (2) when the terms of the judgment are not very clear, and th
er dated November 10, 1966, but is in fact, in consonance therewith and the terms of the judgment are clear and definite, therefore, the gen

ity expressly assumed by the petitioner on the counter-bonds is solidary with the principal debtor, the deceased defendant, Felicisimo
ly after it. 27

gment. As held by this Court in the aforecited case of Luzon Steel Corporation vs. Sia 28 "where under the rule and the bond the undertakin
the bond." Thus, it matters not whether the Provincial Sheriff of Bulacan, in making the return of the writ of execution served or did not serv
57 of the Revised Rules of Court. The petitioner surety as solidary obligor is liable just the same.

4-R is affirmed and the order of the respondent judge dated January 19, 1967 and all writs or orders issued in consequence or in purs

stice Julio Villamor and Justice Jesus Perez, Rollo, pp. 21-28.
 time after an order of attachment has been granted, the party whose property has been attached, or the person appearing on his beh
chment wholly or in part on the security given. The judge shalt after hearing, order the discharge of the attachment ff a cash deposit i
to the value of the property attached as determined by the judge, to secure the payment of any judgment that the attaching creditor m
ce with the provisions of this section the property attached, or the proceeds of any sale thereof, shall be delivered to the party making
counterbond for any reason be found to be, or become, insufficient, and the party furnishing the same fail to file an additional counte