SecurlLy 8ank and 1rusL Co vs Cuenca

lacLs
1 SLa lnes Melale Corp(SMlC) engaged ln logglng operaLlons obLalned a credlL llne from SecurlLy 8ank ln Lhe amounL of
hp8mllllon pesos effecLlve unLll november 30 1981
2 1o secure Lhe paymenL of Lhe amounLs LhaL would be drawn SlMC execuLed a ChaLLel MorLgage and 8odolfo Cuenca
resldenL and Chalrman of Lhe 8oard of SlMC execuLed an lndemnlLy agreemenL where he solldarlly bound hlmself
wlLh SlMC SLlpulaLed ln Lhe lndemnlLy agreemenL ls Lhe phrase LhaL he wlll also blnd hlmself Lo subsLlLuLlons
renewals exLenslons lncreases amendmenLs converslons and revlvals of Lhe aforesald credlL accommodaLlon"
3 SlMC on nov 26 1981 4 days before explraLlon of Lhe perlod made Lhelr flrsL drawdown ln Lhe amounL of hp 61
mllllon
4 ln 1983 Cuenca reslgned from hls posL and hls shares ln Lhe company were sold
3 AfLer Lhls SlMC conLlnued Lo avall of lLs credlL llne and obLalned slx more loans ln Lhe LoLal amounL of 636901930
6 SlMC however had dlfflculLy paylng Lhe loan so Lhelr loan was resLrucLured by SeculrLy 8ank 1helr hp61M loan
prlor Lo nov30 1981 perlod was lumped wlLh Lhelr subsequenL loans whlch were noL secured by Lhe lndemnlLy
agreemenL
7 ln 1989 SecurlLy 8ank and SlMC formallzed Lhe loan obllgaLlons ln Lhe aggregaLe amounL of hp122M
8 SlMC agaln defaulLed ln Lhe paymenL Lhus SecurlLy 8ank flled a complalnL for Lhe collecLlon of sum of money
lssues Poldlng and 8aLlo
1 WCn Lhe 1989 Loan AgreemenL novaLed Lhe orlglnal credlL accommodaLlon and Cuenca's llablllLy under Lhe
lndemnlLy AgreemenL? ?es
A 8equlslLes of novaLlon (1) Lhere ls a prevlous valld obllgaLlon (2) Lhe parLles concerned agree Lo a new conLracL
(3) Lhe old conLracL ls exLlngulshed and (4) Lhere ls a valld new conLracL 1he requlslLes of novaLlon are presenL
ln Lhls case
a 1he 1989 loan served Lo llpolJote Lhe 1980 credlL llne as evldenced by Lhe agreemenL and Lhe
LesLlmony of a bank offlcer LhaL Lhe 1989 Loan AgreemenL were used Lo payoff Lhe orlglnal loan
b lncompaLlblllLles beLween Lhe Lwo loans
l Lhe 1980 credlL accommodaLlon had sLlpulaLed LhaL Lhe amounL of loan was noL Lo exceed 8
mllllon Lhe 1989 AgreemenL provlded LhaL Lhe loan was 122 mllllon 1he perlods for
paymenL were also dlfferenL
ll erlods of paymenL were also dlfferenL
lll 1989 conLracL conLalns covenanLs" noL found ln Lhe earller conLracL
8 ArL 1296 of Lhe CC sLaLes LhaL accessory obllgaLlons are exLlngulshed lf Lhe prlnclpal obllgaLlon ls exLlngulshed
lnsofar as Lhey would beneflL 3
rd
persons who dld noL glve Lhelr consenL 8ecause Lhe 1989 Loan agreemenL
exLlngulshed Lhe 1980 loan Lhe accessory obllgaLlon of lndemnlLy AgreemenL by Cuenca ls also exLlngulshed
C 1989 Loan AgreemenL was noL a renewal or exLenslon of Lhe earller agreemenL because lL's purpose was Lo
llquldaLe Lhe earller lndebLedness
oeoco olso JlJ oot slqo ot cooseot to tbe 1989 looo 1bos potsooot to Att 2079 of tbe (oo exteosloo qtooteJ
to tbe Jebtot by tbe cteJltot wltboot tbe cooseot of tbe qootootot extloqolsbes tbe qootooty) bls obllqotloo os
sotety ls olso extloqolsbeJ kotlooole fot 2079 oo exteosloo of tlme qlveo to tbe ptloclpol Jebtot by tbe cteJltot
wltboot tbe sotetys cooseot woolJ Jeptlve tbe sotety of bls tlqbt to poy tbe cteJltot ooJ to be lmmeJlotely
sobtoqoteJ to tbe cteJltots temeJles oqolost tbe ptloclpol Jebtot opoo tbe mototlty Jote 1be sotety ls solJ to be
eotltleJ to ptotect blmself oqolost tbe cootloqeocy of tbe ptloclpol Jebtot ot tbe loJemoltots becomloq losolveot
Jotloq tbe exteoJeJ petloJ#
2 WCn Cuenca walved hls rlghL Lo be noLlfled of and Lo glve consenL Lo any subsLlLuLlon renewal exLenslon lncrease
amendmenL converslon or revlval of Lhe sald credlL accommodaLlon? no
A LssenLlal alLeraLlon of Lhe loan agreemenL wlLhouL Lhe consenL of Lhe sureLy exLlngulshes hls obllgaLlon
AllegaLlon LhaL sLaLemenL ln Lhe lndemnlLy agreemenL LhaL Lhe sureLy wlll lnclude renewals exLenslons eLc" ls
wlLhouL merlL because he only bound hlmself Lo be llable for Lhe 8M credlL llne unLll nov 30 1981 lf lnLerpreLed
ln Lhe way SecurlLy 8ank wanLs lLs lL would mean LhaL even for a 1008 loan obLalned afLer 100 years from Lhe
perlod Lhe sureLy would sLlll blnd lLself
8 ConLracL of sureLy ls sLrlcLly consLrued agalnsL Lhe credlLor lf Lhere ls amblgulLy ln Lhe conLracL because Lhey are
Lhe ones who have drawn Lhe conLracL
C no express sLlpulaLlon by Cuenca LhaL he would walve hls rlghL Lo be noLlfled of any renewal or exLenslon
u lndemnlLy AgreemenL of Cuenca ls noL a conLlnulng sureLy whlch would allow SlMC Lo noL execuLe anoLher
sureLy agreemenL 1he lndemnlLy agreemenL was a conLlnulng sureLy only up Lo Lhe 8M llmlL and nov 30 1981
deadllne CondlLlons ln ulno rullng dlfferenL from Lhe case
L !olnL Solldary SlgnaLure" of a ma[or sLockholder of corporaLe offlcer as securlLy for loans of Lhe corporaLlons ls a
common pracLlce Lo exLend Lhe loan Lo Lhe personal asseLs of Lhe sureLy who has ma[or sLake ln Lhe company
and Lo ensure LhaL Lhe loan would be used for Lhe purpose agreed upon 1hough lL was only rlghL for Cuenca Lo
become as sureLy lL would be wrong Lo assume LhaL he would sLlll acL as sureLy for Lhe 1989 agreemenL because
he was no longer an offlcer of Lhe corporaLlon 8ank was sLupld for noL knowlng Cuenca was no longer wlLh Lhe
company and for Lhlnklng LhaL Lhe 1980 lndemnlLy agreemenL was sLlll avallable