G.R. No.

L-17474            October 25, 1962 RULING:

REPUBLIC OF THE PHILIPPINES VS JOSE V. BAGTAS Yes.

For a period of one year from 8 May 1948 to 7 May
1949, Republic of the Philippines through the Bureau of Animal
Industry lent to Jose V. Bagtas three bulls : a Red Sindhi with a
book value of P1,176.46, a Bhagnari, of P1,320.56 and a
Sahiniwal, of P744.46, for breeding purposes subject to a
government charge of breeding fee of 10% of the book value of
the bulls. However, the contract was renewed for another year
with regard to only one bull for another year from 8 May 1949
to 7 May 1950. With that, the return of the other two was
requested.
A contract of commodatum is essentially gratuitous. If the
breeding fee be considered a compensation, then the contract
would be a lease of the bull. Under article 1671 of the Civil Code
the lessee would be subject to the responsibilities of a
possessor in bad faith, because she had continued possession of
the bull after the expiry of the contract. And even if the contract
be commodatum, still the appellant is liable, because article 1942
of the Civil Code provides that a bailee in a contract
of commodatum  is liable for loss of the things, even if it should be
through a fortuitous event:

Moreover, Balagtas expressed his desire to buy the the (2) If he keeps it longer than the period stipulated . . .
three bulls with a deduction of yearly depreciation to be approved
by the Auditor General. In response, he was informed that the (3) If the thing loaned has been delivered with appraisal of its
book value of the three bulls could not be reduced. He was given value, unless there is a stipulation exempting the bailee from
an option to return them or pay the on or before 31 October 1950. responsibility in case of a fortuitous event;
But he neither paid nor returned them.
Thus, the estate of the late defendant is only liable for the sum of
Jose Bagtas died on 23 October 1951. Furthermore, on P859.63, the value of the bull which has not been returned to
26 June 1952 Jose M. Bagtas, Jr., son of the appellant by the late the appellee, because it was killed while in the custody of the
defendant, returned the Sindhi and Bhagnari bulls to Roman administratrix of his estate.
Remorin, Superintendent of the NVB Station, Bureau of Animal
Industry, Bayombong, Nueva Vizcaya, as evidenced by a
memorandum receipt signed by the latter . While , Sahiniwal bull
was accidentally killed during a raid by the Huk in November
1953. The appellant asserted that the contract was commodatum .
Hence,appellee retained ownership or title to the bull it should
suffer its loss due to force majeure.

ISSUE:

W/N Jose Bagtas (Felicidad M. Bagtas, the surviving spouse) is

liable for loss of the bull, even if it should be through a fortuitous
event.
THE MANILA BANKING CORPORATION vs.
ANASTACIO TEODORO, JR. and GRACE ANNA TEODORO
ISSUES:
FACTS:

1. W/N the assignment of receivables has the effect of payment of

On January 24, 1964, the Son executed in favor of plaintiff a
all the loans contracted by appellants from appellee bank.
Deed of Assignment of Receivables from the Emergency
Employment Administration in the sum of P44,635.00. The
2. W/N t bank must have to exhaust all legal remedies against the
Deed of Assignment provided it was for and in consideration of
Philippine Fisheries Commission before it can proceed against
certain credits, loans, overdrafts and other credit accommodations
appellants for collection of loans under their promissory notes,
extended to defendants as security for the payment of said sum and
must also be answered in the negative.
the interest thereon, and that defendants do hereby remise,
release and quitclaim all its rights, title, and interest in and to
RULING:
the accounts receivables.
I. The assignment of receivables executed by appellants on January
On April 25, 1966, Anastacio Jr and Grace with Anastacio
24, 1964 did not transfer the ownership of the receivables to
Teodoro, Sr., executed in favor of plaintiff a Promissory Note (No.
appellee bank and release appellants from their loans with the
11487) for the sum of P10,420.00 payable in 120 days, or on
bank incurred under promissory notes Nos. 11487,11515 and
August 25, 1966, at 12% interest per annum. But the defendants
11699.
failed to pay .
The character of the transactions between the parties is not,
On May 3, 1966 and June 20, 1966, another two Promissory
however, determined by the language used in the document but by
Notes were executed by Anastacio Teodoro, Sr. (Father) and
their intention. The assignment of the receivables did not result
Anastacio Teodoro, Jr. (Son) executed in favor of plaintiff for
from a sale transaction. It cannot be said to have been constituted
P8,000.00 and P1,000.00, payable in 120 days at 12% interest per
by virtue of a dation in payment for appellants' loans with the
annum. A partial payment was made on the May 3, 1966 but the
bank evidenced by promissory note Nos. 11487, 11515 and 11699
rest of the amount was remained unpaid until September 30,
which are the subject of the suit for collection in Civil Case No.
1969.
78178. At the time the deed of assignment was executed, said
loans were non-existent yet. The deed of assignment was
Meanwhile, the loans was approved on the basis of certain
executed on January 24, 1964, while promissory note No.
contracts entered into by the defunct Emergency Employment
11487 is dated April 25, 1966, promissory note 11515, dated
Administration (EEA) with defendants for the fabrication of
May 3, 1966, promissory note 11699, on June 20, 1966. At
fishing boats, and that the Philippine Fisheries Commission
most, it was a dation in payment for P10,000.00, the amount of
succeeded the EEA after its abolition. The non-payment of the
credit from appellee bank indicated in the deed of assignment. At
notes was due to the failure of the Commission to pay
the time the assignment was executed, there was no obligation to be
defendants after the latter had complied with their contractual
extinguished except the amount of P10,000.00. Moreover, in order
obligations. Even the President of plaintiff Bank took steps to
that an obligation may be extinguished by another which
collect from the Commission, no collection was effected.
substitutes the same, it is imperative that it be so declared in
unequivocal terms, or that the old and the new obligations be on
every point incompatible with each other (Article 1292, New Civil
Code).

Hence, deed of assignment was intended as collateral security

for the bank loans of appellants, as a continuing guaranty for
whatever sums would be owing by defendants to plaintiff.

II. The obligation of appellants under the promissory notes not

having been released by the assignment of receivables, appellants
remain as the principal debtors of appellee bank rather than
mere guarantors. It is but proper that after their repeated
demands made on appellants for the settlement of their
obligations, appellee bank should proceed against appellants.

PHILIPPINE BLOOMING MILLS, INC., and ALFREDO
CHING, petitioners,
vs.
COURT OF APPEALS and TRADERS ROYAL BANK, respondents.
FACTS:
Ching, the Senior Vice President of Philippine Blooming Mills,
inc In his personal capacity and not as a corporate officer, Ching
executed Deed of Suretyship dated 21 July 1977 binding himself
jointly and severally in case PMB failed to pay.
On 24 March and 6 August 1980, TRB granted PBM letters of
credit on application of Ching in his capacity as Senior Vice
President of PBM. Ching later accomplished and delivered to TRB
trust receipts, which acknowledged receipt in trust for TRB of the
merchandise subject of the letters of credit.
Another Undertaking for each trust receipt was executed by Ching.
On 27 April 1981, PBM obtained a ₱3,500,000 trust loan from
TRB. Ching signed as co-maker in the notarized Promissory Note
evidencing this trust loan.
PBM defaulted in its payment of Trust Receipt No. 106 (Letter of
Credit No. 479 AD) for ₱959,611.96, and of Trust Receipt No. 113
(Letter of Credit No. 563 AD) for ₱1,191,137.13. PBM also
defaulted on its ₱3,500,000 trust loan.
ISSUE: W/N Ching is liable for obligations PBM contracted after
execution of the Deed of Suretyship.
RULING:
Yes. The Court ruled that Ching is liable for credit obligations
contracted by PBM against TRB before and after the execution of
the 21 July 1977 Deed of Suretyship. This is evident from the tenor
of the deed itself, referring to amounts PBM "may now be indebted
or may hereafter become indebted" to TRB. The law expressly
allows a suretyship for "future debts". Article 2053 of the Civil
Code provides:
A guaranty may also be given as security for future debts, the
amount of which is not yet known; there can be no claim against the
guarantor until the debt is liquidated. A conditional obligation may
also be secured.
 The court emphasized in Diñ o v. Court of Appeals that under the
Civil Code, a guaranty may be given to secure even future debts,
the amount of which may not be known at the time the guaranty is
executed. This is the basis for contracts denominated as
continuing guaranty or suretyship. 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 states that the guaranty is to secure advances to be made
"from time to time," it 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," 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.
Thus, Ching is liable for obligations PBM contracted after
execution of the Deed of Suretyship.
G.R. No. L-17474            October 25, 1962
REPUBLIC OF THE PHILIPPINES, plaintiff-appellee,
vs.
JOSE V. BAGTAS, defendant,
FELICIDAD M. BAGTAS, Administratrix of the Intestate Estate
left by the late Jose V. Bagtas, petitioner-appellant.
On 8 May 1948 Jose V. Bagtas borrowed from the Republic of the Philippines
through the Bureau of Animal Industry three bulls: a Red Sindhi with a book
value of P1,176.46, a Bhagnari, of P1,320.56 and a Sahiniwal, of P744.46, for a
period of one year from 8 May 1948 to 7 May 1949 for breeding purposes
subject to a government charge of breeding fee of 10% of the book value of
the bulls. Upon the expiration on 7 May 1949 of the contract, the borrower
asked for a renewal for another period of one year. However, the Secretary of
Agriculture and Natural Resources approved a renewal thereof of only one bull
for another year from 8 May 1949 to 7 May 1950 and requested the return
of the other two. On 25 March 1950 Jose V. Bagtas wrote to the Director of
Animal Industry that he would pay the value of the three bulls. On 17 October
1950 he reiterated his desire to buy them at a value with a deduction of yearly
depreciation to be approved by the Auditor General. On 19 October 1950 the
Director of Animal Industry advised him that the book value of the three bulls
could not be reduced and that they either be returned or their book value paid
not later than 31 October 1950. Jose V. Bagtas failed to pay the book value of the
three bulls or to return them. So, on 20 December 1950 in the Court of First
Instance of Manila the Republic of the Philippines commenced an action against
him praying that he be ordered to return the three bulls loaned to him or to pay
their book value in the total sum of P3,241.45 and the unpaid breeding fee in
the sum of P199.62, both with interests, and costs; and that other just and
equitable relief be granted in (civil No. 12818).
On 5 July 1951 Jose V. Bagtas, through counsel Navarro, Rosete and Manalo,
answered that because of the bad peace and order situation in Cagayan
Valley, particularly in the barrio of Baggao, and of the pending appeal he had
taken to the Secretary of Agriculture and Natural Resources and the President of
the Philippines from the refusal by the Director of Animal Industry to deduct
from the book value of the bulls corresponding yearly depreciation of 8%
from the date of acquisition, to which depreciation the Auditor General did not
object, he could not return the animals nor pay their value and prayed for the
dismissal of the complaint.
After hearing, on 30 July 1956 the trial court render judgment —
. . . sentencing the latter (defendant) to pay the sum of P3,625.09 the total value
of the three bulls plus the breeding fees in the amount of P626.17 with interest
on both sums of (at) the legal rate from the filing of this complaint and costs.
On 9 October 1958 the plaintiff moved ex parte for a writ of execution which the
court granted on 18 October and issued on 11 November 1958. On 2 December
1958 granted an ex-parte motion filed by the plaintiff on November 1958 for
the appointment of a special sheriff to serve the writ outside Manila. Of this
order appointing a special sheriff, on 6 December 1958, Felicidad M. Bagtas, the
surviving spouse of the defendant Jose Bagtas who died on 23 October 1951
and as administratrix of his estate, was notified. On 7 January 1959 she file a
motion alleging that on 26 June 1952 the two bull Sindhi and Bhagnari were
returned to the Bureau Animal of Industry and that sometime in
November 1958 the third bull, the Sahiniwal, died from gunshot wound
inflicted during a Huk raid on Hacienda Felicidad Intal, and praying that
the writ of execution be quashed and that a writ of preliminary injunction
be issued. On 31 January 1959 the plaintiff objected to her motion. On 6
February 1959 she filed a reply thereto. On the same day, 6 February, the Court
denied her motion. Hence, this appeal certified by the Court of Appeals to this
Court as stated at the beginning of this opinion.
It is true that on 26 June 1952 Jose M. Bagtas, Jr., son of the appellant by the late
defendant, returned the Sindhi and Bhagnari bulls to Roman Remorin,
Superintendent of the NVB Station, Bureau of Animal Industry, Bayombong,
Nueva Vizcaya, as evidenced by a memorandum receipt signed by the latter
(Exhibit 2). That is why in its objection of 31 January 1959 to the appellant's
motion to quash the writ of execution the appellee prays "that another writ of
execution in the sum of P859.53 be issued against the estate of defendant
deceased Jose V. Bagtas." She cannot be held liable for the two bulls which
already had been returned to and received by the appellee.
The appellant contends that the Sahiniwal bull was accidentally killed during a
raid by the Huk in November 1953 upon the surrounding barrios of Hacienda
Felicidad Intal, Baggao, Cagayan, where the animal was kept, and that as such
death was due to force majeure she is relieved from the duty of returning the
bull or paying its value to the appellee. The contention is without merit.
The loan by the appellee to the late defendant Jose V. Bagtas of the three bulls
for breeding purposes for a period of one year from 8 May 1948 to 7 May 1949,
later on renewed for another year as regards one bull, was subject to the
payment by the borrower of breeding fee of 10% of the book value of the bulls.
The appellant contends that the contract was commodatum and that, for that
reason, as the appellee retained ownership or title to the bull it should suffer its
loss due to force majeure. A contract of commodatum is essentially
gratuitous.1 If the breeding fee be considered a compensation, then the contract
would be a lease of the bull. Under article 1671 of the Civil Code the lessee
would be subject to the responsibilities of a possessor in bad faith, because
she had continued possession of the bull after the expiry of the contract. And
even if the contract be commodatum, still the appellant is liable, because article
1942 of the Civil Code provides that a bailee in a contract of commodatum —
. . . is liable for loss of the things, even if it should be through a fortuitous event:
(2) If he keeps it longer than the period stipulated . . .
(3) If the thing loaned has been delivered with appraisal of its value, unless
there is a stipulation exempting the bailee from responsibility in case of a
fortuitous event;
The original period of the loan was from 8 May 1948 to 7 May 1949. The loan
of one bull was renewed for another period of one year to end on 8 May 1950.
But the appellant kept and used the bull until November 1953 when during a
Huk raid it was killed by stray bullets. Furthermore, when lent and delivered to
the deceased husband of the appellant the bulls had each an appraised book
value, to with: the Sindhi, at P1,176.46, the Bhagnari at P1,320.56 and the
Sahiniwal at P744.46. It was not stipulated that in case of loss of the bull due to
fortuitous event the late husband of the appellant would be exempt from
liability.
The appellant's contention that the demand or prayer by the appellee for the
return of the bull or the payment of its value being a money claim should be
presented or filed in the intestate proceedings of the defendant who died on 23
October 1951, is not altogether without merit. However, the claim that his civil
personality having ceased to exist the trial court lost jurisdiction over the case
against him, is untenable, because section 17 of Rule 3 of the Rules of Court
provides that —
After a party dies and the claim is not thereby extinguished, the court shall
order, upon proper notice, the legal representative of the deceased to appear
and to be substituted for the deceased, within a period of thirty (30) days, or
within such time as may be granted. . . .
and after the defendant's death on 23 October 1951 his counsel failed to comply
with section 16 of Rule 3 which provides that —
Whenever a party to a pending case dies . . . it shall be the duty of his attorney to
inform the court promptly of such death . . . and to give the name and residence
of the executory administrator, guardian, or other legal representative of the
deceased . . . .
The notice by the probate court and its publication in the Voz de Manila that
Felicidad M. Bagtas had been issue letters of administration of the estate of the
late Jose Bagtas and that "all persons having claims for monopoly against the
deceased Jose V. Bagtas, arising from contract express or implied, whether the
same be due, not due, or contingent, for funeral expenses and expenses of the
last sickness of the said decedent, and judgment for monopoly against him, to
file said claims with the Clerk of this Court at the City Hall Bldg., Highway 54,
Quezon City, within six (6) months from the date of the first publication of this
order, serving a copy thereof upon the aforementioned Felicidad M. Bagtas, the
appointed administratrix of the estate of the said deceased," is not a notice to
the court and the appellee who were to be notified of the defendant's
death in accordance with the above-quoted rule, and there was no reason
for such failure to notify, because the attorney who appeared for the defendant
was the same who represented the administratrix in the special proceedings
instituted for the administration and settlement of his estate. The appellee or its
attorney or representative could not be expected to know of the death of the
defendant or of the administration proceedings of his estate instituted in
another court that if the attorney for the deceased defendant did not notify the
plaintiff or its attorney of such death as required by the rule.
As the appellant already had returned the two bulls to the appellee, the estate of
the late defendant is only liable for the sum of P859.63, the value of the bull
which has not been returned to the appellee, because it was killed while in
the custody of the administratrix of his estate. This is the amount prayed for by
the appellee in its objection on 31 January 1959 to the motion filed on 7 January
1959 by the appellant for the quashing of the writ of execution.
Special proceedings for the administration and settlement of the estate of the
deceased Jose V. Bagtas having been instituted in the Court of First Instance of
Rizal (Q-200), the money judgment rendered in favor of the appellee cannot be
enforced by means of a writ of execution but must be presented to the probate
court for payment by the appellant, the administratrix appointed by the court.
ACCORDINGLY, the writ of execution appealed from is set aside, without
pronouncement as to costs
1. ₱959,611.96 under Letter of Credit No. 479 AD covered by Trust Receipt No.
106;4
2. ₱1,191,137.13 under Letter of Credit No. 563 AD covered by Trust Receipt No.
113;5 and
3. ₱3,500,000 under the trust loan covered by a notarized Promissory Note. 6
Ching was the Senior Vice President of PBM. In his personal capacity and not as
a corporate officer, Ching signed a Deed of Suretyship dated 21 July 1977
binding himself as follows:
xxx as primary obligor(s) and not as mere guarantor(s), hereby warrant to the
TRADERS ROYAL BANK, its successors and assigns, the due and punctual
payment by the following individuals and/or companies/firms, hereinafter
called the DEBTOR(S), of such amounts whether due or not, as indicated
opposite their respective names, to wit:
NAME OF DEBTOR(S) AMOUNT OF OBLIGATION
PHIL. BLOOMING MILLS TEN MILLION PESOS
CORP.
(₱ 10,000,000.00)
owing to said TRADERS ROYAL BANK, hereafter called the CREDITOR, as
evidenced by all notes, drafts, overdrafts and other credit obligations of every
kind and nature contracted/incurred by said DEBTOR(S) in favor of said
CREDITOR.
In case of default by any and/or all of the DEBTOR(S) to pay the whole or part of
said indebtedness herein secured at maturity, I/We, jointly and severally, agree
and engage to the CREDITOR, its successors and assigns, the prompt payment,
without demand or notice from said CREDITOR, of such notes, drafts, overdrafts
and other credit obligations on which the DEBTOR(S) may now be indebted or
may hereafter become indebted to the CREDITOR, together with all interests,
penalty and other bank charges as may accrue thereon and all expenses which
may be incurred by the latter in collecting any or all such instruments.
I/WE further warrant the due and faithful performance by the DEBTOR(S) of all
the obligations to be performed under any contracts, evidencing
indebtedness/obligations and any supplements, amendments, charges or
modifications made thereto, including but not limited to, the due and punctual
payment by the said DEBTOR(S).
I/WE hereby expressly waive notice of acceptance of this suretyship, and also
presentment, demand, protest and notice of dishonor of any and all such
instruments, loans, advances, credits, or other indebtedness or obligations
hereinbefore referred to.
MY/OUR liability on this Deed of Suretyship shall be solidary, direct and
immediate and not contingent upon the pursuit by the CREDITOR, its successors
or assigns, of whatever remedies it or they may have against the DEBTOR(S) or
the securities or liens it or they may possess; and I/WE hereby agree to be and
remain bound upon this suretyship, irrespective of the existence, value or
condition of any collateral, and notwithstanding also that all obligations of the
DEBTOR(S) to you outstanding and unpaid at any time may exceed the
aggregate principal sum herein above stated.
In the event of judicial proceedings, I/WE hereby expressly agree to pay the
creditor for and as attorney’s fees a sum equivalent to TEN PER CENTUM (10%)
of the total indebtedness (principal and interest) then unpaid, exclusive of all
costs or expenses for collection allowed by law.7 (Emphasis supplied)
On 24 March and 6 August 1980, TRB granted PBM letters of credit on
application of Ching in his capacity as Senior Vice President of PBM. Ching
later accomplished and delivered to TRB trust receipts, which acknowledged
receipt in trust for TRB of the merchandise subject of the letters of credit. Under
the trust receipts, PBM had the right to sell the merchandise for cash with the
obligation to turn over the entire proceeds of the sale to TRB as payment of
PBM’s indebtedness. Letter of Credit No. 479 AD, covered by Trust Receipt No.
106, has a face value of US$591,043, while Letter of Credit No. 563 AD, covered
by Trust Receipt No. 113, has a face value of US$155,460.34.
Ching further executed an Undertaking for each trust receipt, which uniformly
provided that:
xxx
6. All obligations of the undersigned under the agreement of trusts shall bear
interest at the rate of __ per centum ( __%) per annum from the date due until
paid.
7. [I]n consideration of the Trust Receipt, the undersigned hereby jointly and
severally undertake and agree to pay on demand on the said BANK, all sums and
amounts of money which said BANK may call upon them to pay arising out of,
pertaining to, and/or in any manner connected with this receipt. In case it is
necessary to collect the draft covered by the Trust Receipt by or through an
attorney-at-law, the undersigned hereby further agree(s) to pay an additional of
10% of the total amount due on the draft as attorney’s fees, exclusive of all
costs, fees and other expenses of collection but shall in no case be less than
₱200.00"8 (Emphasis supplied)
On 27 April 1981, PBM obtained a ₱3,500,000 trust loan from TRB. Ching signed
as co-maker in the notarized Promissory Note evidencing this trust loan. The
Promissory Note reads:
FOR VALUE RECEIVED THIRTY (30) DAYS after date, I/We, jointly and
severally, promise to pay the TRADERS ROYAL BANK or order, at its Office in
4th Floor, Kanlaon Towers Bldg., Roxas Blvd., Pasay City, the sum of Pesos:
THREE MILLION FIVE HUNDRED THOUSAND ONLY (₱3,500,000.00), Philippine
Currency, with the interest rate of Eighteen Percent (18%) per annum until fully
paid.
In case of non-payment of this note at maturity, I/We, jointly and severally,
agree to pay an additional amount equivalent to two per cent (2%) of the
principal sum per annum, as penalty and collection charges in the form of
liquidated damages until fully paid, and the further sum of ten percent (10%)
thereof in full, without any deduction, as and for attorney’s fees whether
actually incurred or not, exclusive of costs and other judicial/extrajudicial
expenses; moreover, I/We jointly and severally, further empower and authorize
the TRADERS ROYAL BANK at its option, and without notice to set off or to
apply to the payment of this note any and all funds, which may be in its hands
on deposit or otherwise belonging to anyone or all of us, and to hold as security
therefor any real or personal property which may be in its possession or control
by virtue of any other contract.9 (Emphasis supplied)
PBM defaulted in its payment of Trust Receipt No. 106 (Letter of Credit No. 479
AD) for ₱959,611.96, and of Trust Receipt No. 113 (Letter of Credit No. 563 AD)
for ₱1,191,137.13. PBM also defaulted on its ₱3,500,000 trust loan.
On 1 April 1982, PBM and Ching filed a petition for suspension of payments
with the Securities and Exchange Commission ("SEC"), docketed as SEC Case No.
2250.10 The petition sought to suspend payment of PBM’s obligations and
prayed that the SEC allow PBM to continue its normal business operations free
from the interference of its creditors. One of the listed creditors of PBM was
TRB.11
On 9 July 1982, the SEC placed all of PBM’s assets, liabilities, and obligations
under the rehabilitation receivership of Kalaw, Escaler and Associates.12
On 13 May 1983, ten months after the SEC placed PBM under rehabilitation
receivership, TRB filed with the trial court a complaint for collection against
PBM and Ching. TRB asked the trial court to order defendants to pay solidarily
the following amounts:
(1) ₱6,612,132.74 exclusive of interests, penalties, and bank charges
[representing its indebtedness arising from the letters of credit issued to its
various suppliers];
(2) ₱4,831,361.11, exclusive of interests, penalties, and other bank charges [due
and owing from the trust loan of 27 April 1981 evidenced by a promissory
note];
(3) ₱783,300.00 exclusive of interests, penalties, and other bank charges [due
and owing from the money market loan of 1 April 1981 evidenced by a
promissory note];
(4) To order defendant Ching to pay ₱10,000,000.00 under the Deed of
Suretyship in the event plaintiff can not recover the full amount of PBM’s
indebtedness from the latter;
(5) The sum equivalent to 10% of the total sum due as and for attorney’s fees;
(6) Such other amounts that may be proven by the plaintiff during the trial, by
way of damages and expenses for litigation.13
On 25 May 1983, TRB moved to withdraw the complaint against PBM on the
ground that the SEC had already placed PBM under receivership. 14 The trial
court thus dismissed the complaint against PBM.15
On 23 June 1983, PBM and Ching also moved to dismiss the complaint on the
ground that the trial court had no jurisdiction over the subject matter of the
case. PBM and Ching invoked the assumption of jurisdiction by the SEC over all
of PBM’s assets and liabilities.16
TRB filed an opposition to the Motion to Dismiss. TRB argued that (1) Ching is
being sued in his personal capacity as a surety for PBM; (2) the SEC decision
declaring PBM in suspension of payments is not binding on TRB; and (3)
Presidential Decree No. 1758 ("PD No. 1758"), 17 which Ching relied on to
support his assertion that all claims against PBM are suspended, does not apply
to Ching as the decree regulates corporate activities only. 18
In its order dated 15 August 1983, 19 the trial court denied the motion to dismiss
with respect to Ching and affirmed its dismissal of the case with respect to PBM.
The trial court stressed that TRB was holding Ching liable under the Deed of
Suretyship. As Ching’s obligation was solidary, the trial court ruled that TRB
could proceed against Ching as surety upon default of the principal debtor PBM.
The trial court also held that PD No. 1758 applied only to corporations,
partnerships and associations and not to individuals.
Upon the trial court’s denial of his Motion for Reconsideration, Ching filed a
Petition for Certiorari and Prohibition 20 before the Court of Appeals. The
appellate court granted Ching’s petition and ordered the dismissal of the case.
The appellate court ruled that the SEC assumed jurisdiction over Ching and PBM
to the exclusion of courts or tribunals of coordinate rank.
TRB assailed the Court of Appeals’ Decision 21 before this Court. In Traders
Royal Bank v. Court of Appeals,22 this Court upheld TRB and ruled that Ching
was merely a nominal party in SEC Case No. 2250. Creditors may sue individual
sureties of debtor corporations, like Ching, in a separate proceeding before
regular courts despite the pendency of a case before the SEC involving the
debtor corporation.
In his Answer dated 6 November 1989, Ching denied liability as surety and
accommodation co-maker of PBM. He claimed that the SEC had already issued a
decision23 approving a revised rehabilitation plan for PBM’s creditors, and that
PBM obtained the credit accommodations for corporate purposes that did not
redound to his personal benefit. He further claimed that even as a surety, he has
the right to the defenses personal to PBM. Thus, his liability as surety would
attach only if, after the implementation of payments scheduled under the
rehabilitation plan, there would remain a balance of PBM’s debt to
TRB.24 Although Ching admitted PBM’s availment of the credit accommodations,
he did not show any proof of payment by PBM or by him.
TRB admitted certain partial payments on the PBM account made by PBM itself
and by the SEC-appointed receiver. 25 Thus, the trial court had to resolve the
following remaining issues:
1. How much exactly is the corporate defendant’s outstanding obligation to the
plaintiff?
2. Is defendant Alfredo Ching personally answerable, and for exactly how much?
26
TRB presented Mr. Lauro Francisco, loan officer of the Remedial Management
Department of TRB, and Ms. Carla Pecson, manager of the International
Department of TRB, as witnesses. Both witnesses testified to the following:
1. The existence of a Deed of Suretyship dated 21 July 1977 executed by Ching
for PBM’s liabilities to TRB up to ₱10,000,000; 27
2. The application of PBM and grant by TRB on 13 March 1980 of Letter of
Credit No. 479 AD for US$591,043, and the actual availment by PBM of the full
proceeds of the credit accommodation;28
3. The application of PBM and grant by TRB on 6 August 1980 of Letter of Credit
No. 563 AD for US$156,000, and the actual availment by PBM of the full
proceeds of the credit accommodation;29 and
4. The existence of a trust loan of ₱3,500,000 evidenced by a notarized
Promissory Note dated 27 April 1981 wherein Ching bound himself solidarily
with PBM;30 and
5. Per TRB’s computation, Ching is liable for ₱19,333,558.16 as of 31 October
1991.31
Ching presented Atty. Vicente Aranda, corporate secretary and First Vice
President of the Human Resources Department of TRB, as witness. Ching sought
to establish that TRB’s Board of Directors adopted a resolution fixing the PBM
account at an amount lower than what TRB wanted to collect from Ching. The
trial court allowed Atty. Aranda to testify over TRB’s manifestation that the
Answer failed to plead the subject matter of his testimony. Atty. Aranda
produced TRB Board Resolution No. 5935, series of 1990, which contained the
minutes of the special meeting of TRB’s Board of Directors held on 8 June
1990.32 In the resolution, the Board of Directors advised TRB’s Management "not
to release Alfredo Ching from his JSS liability to the bank."33 The resolution also
stated the following:
a) Accept the ₱1.373 million deposits remitted over a period of 17 years or until
2006 which shall be applied directly to the account (as remitted per hereto
attached schedule). The amount of ₱1.373 million shall be considered as full
payment of PBM’s account. (The receiver is amenable to this alternative)
The initial deposit/remittance which amounts to ₱150,000.00 shall be remitted
upon approval of the above and conforme to PISCOR and PBM. Subsequent
deposits shall start on the 3rd year and annually thereafter (every June 30th of
the year) until June 30, 2006.
Failure to pay one annual installment shall make the whole obligation due and
demandable.
b) Write-off immediately ₱4.278 million. The balance [of] ₱1.373 million to
remain outstanding in the books of the Bank. Said balance will equal the
deposits to be remitted to the Bank for a period of 17 years. 34
However, Atty. Aranda himself testified that both items (a) and (b) quoted
above were never complied with or implemented. Not only was there no initial
deposit of ₱150,000 as required in the resolution, TRB also disapproved the
document prepared by the receiver, which would have released Ching from his
suretyship.35
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 states that the
guaranty is to secure advances to be made "from time to time," it 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," 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.

The Ruling of the Court

Whether Ching is liable for obligations PBM contracted after execution of the
Deed of Suretyship

Ching is liable for credit obligations contracted by PBM against TRB before and
after the execution of the 21 July 1977 Deed of Suretyship. This is evident from
the tenor of the deed itself, referring to amounts PBM "may now be indebted or
may hereafter become indebted" to TRB.

The law expressly allows a suretyship for "future debts". Article 2053 of the
Civil Code provides:

A guaranty may also be given as security for future debts, the amount of which
is not yet known; there can be no claim against the guarantor until the debt is
liquidated. A conditional obligation may also be secured. (Emphasis supplied)
Furthermore, this Court has ruled in Diño v. Court of Appeals50 that:
Under the Civil Code, a guaranty may be given to secure even future debts, the
amount of which may not be known at the time the guaranty is executed. This is
the basis for contracts denominated as continuing guaranty or suretyship. 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
G.R. No. L-53955 January 13, 1989
THE MANILA BANKING CORPORATION, plaintiff-appellee,
vs.
ANASTACIO TEODORO, JR. and GRACE ANNA TEODORO, defendants-
appellants.
The facts of the case as found by the trial court are as follows:
On April 25, 1966, Anastacio Jr and Grace with Anastacio Teodoro, Sr., executed
in favor of plaintiff a Promissory Note (No. 11487) for the sum of P10,420.00
payable in 120 days, or on August 25, 1966, at 12% interest per annum.
Defendants failed to pay the said amount inspire of repeated demands and the
obligation as of September 30, 1969 stood at P 15,137.11 including accrued
interest and service charge.
On May 3, 1966 and June 20, 1966, defendants Anastacio Teodoro, Sr. (Father)
and Anastacio Teodoro, Jr. (Son) executed in favor of plaintiff two Promissory
Notes (Nos. 11515 and 11699) for P8,000.00 and P1,000.00 respectively,
payable in 120 days at 12% interest per annum. Father and Son made a partial
payment on the May 3, 1966 promissory Note but none on the June 20, 1966
Promissory Note, leaving still an unpaid balance of P8,934.74 as of September
30, 1969 including accrued interest and service charge.
The three Promissory Notes stipulated that any interest due if not paid at the
end of every month shall be added to the total amount then due, the whole
amount to bear interest at the rate of 12% per annum until fully paid; and in
case of collection through an attorney-at-law, the makers shall, jointly and
severally, pay 10% of the amount over-due as attorney's fees, which in no case
shall be leas than P200.00.
It appears that on January 24, 1964, the Son executed in favor of plaintiff a
Deed of Assignment of Receivables from the Emergency Employment
Administration in the sum of P44,635.00. The Deed of Assignment provided
that it was for and in consideration of certain credits, loans, overdrafts and other
credit accommodations extended to defendants as security for the payment of said
sum and the interest thereon, and that defendants do hereby remise, release
and quitclaim all its rights, title, and interest in and to the accounts
receivables. Further.
(1) The title and right of possession to said accounts receivable is to remain in
the assignee, and it shall have the right to collect the same from the debtor, and
whatsoever the Assignor does in connection with the collection of said accounts,
it agrees to do as agent and representative of the Assignee and in trust for said
Assignee ;
xxx xxx xxx
(6) The Assignor guarantees the existence and legality of said accounts
receivable, and the due and punctual payment thereof unto the assignee, ... on
demand, ... and further, that Assignor warrants the solvency and credit
worthiness of each and every account.
(7) The Assignor does hereby guarantee the payment when due on all sums
payable under the contracts giving rise to the accounts receivable ... including
reasonable attorney's fees in enforcing any rights against the debtors of the
assigned accounts receivable and will pay upon demand, the entire unpaid
balance of said contract in the event of non-payment by the said debtors of any
monthly sum at its due date or of any other default by said debtors;
xxx xxx xxx
(9) ... This Assignment shall also stand as a continuing guarantee for any and all
whatsoever there is or in the future there will be justly owing from the Assignor
to the Assignee ...
In their stipulations of Fact, it is admitted by the parties that plaintiff extended
loans to defendants on the basis and by reason of certain contracts entered into
by the defunct Emergency Employment Administration (EEA) with
defendants for the fabrication of fishing boats, and that the Philippine
Fisheries Commission succeeded the EEA after its abolition; that non-payment
of the notes was due to the failure of the Commission to pay defendants after
the latter had complied with their contractual obligations; and that the
President of plaintiff Bank took steps to collect from the Commission, but no
collection was effected.
For failure of defendants to pay the sums due on the Promissory Note, this
action was instituted on November 13, 1969, originally against the Father, Son,
and the latter's wife. Because the Father died, however, during the pendency of
the suit, the case as against him was dismiss under the provisions of Section 21,
Rule 3 of the Rules of Court. The action, then is against defendants Son and his
wife for the collection of the sum of P 15,037.11 on Promissory Note No. 14487;
and against defendant Son for the recovery of P 8,394.7.4 on Promissory Notes
Nos. 11515 and 11699, plus interest on both amounts at 12% per annum from
September 30, 1969 until fully paid, and 10% of the amounts due as attorney's
fees.
Neither of the parties presented any testimonial evidence and submitted the
case for decision based on their Stipulations of Fact and on then, documentary
evidence.
The issues, as defined by the parties are: (1) whether or not plaintiff claim is
already considered paid by the Deed of Assign. judgment of Receivables by
the Son; and (2) whether or not it is plaintiff who should directly sue the
Philippine Fisheries Commission for collection.' (Record on Appeal, p. 29-
32).
On April 17, 1972, the trial court rendered its judgment adverse to defendants.
On June 8, 1972, defendants filed a motion for reconsideration (Record on
Appeal, p. 33) which was denied by the trial court in its order of June 14, 1972
(Record on Appeal, p. 37). On June 23, 1972, defendants filed with the lower
court their notice of appeal together with the appeal bond (Record on Appeal, p.
38). The record of appeal was forwarded to the Court of Appeals on August 22,
1972 (Record on Appeal, p. 42).
In their appeal (Brief for the Appellants, Rollo, p. 12), appellants raised a single
assignment of error, that is —
THAT THE DECISION IN QUESTION AMOUNTS TO A JUDICIAL REMAKING OF
THE CONTRACT BETWEEN THE PARTIES, IN VIOLATION OF LAW; HENCE,
TANTAMOUNT TO LACK OR EXCESS OF JURISDICTION.
As the appeal involves a pure question of law, the Court of Appeals, in its
resolution promulgated on March 6, 1980, certified the case to this Court (Rollo,
p. 24). The record on Appeal was forwarded to this Court on March 31, 1980
(Rollo, p. 1).
In the resolution of May 30, 1980, the First Division of this Court ordered that
the case be docketed and declared submitted for decision (Rollo, p. 33).
On March 7, 1988, considering the length of time that the case has been pending
with the Court and to determine whether supervening events may have
rendered the case moot and academic, the Court resolved (1) to require the
parties to MOVE IN THE PREMISES within thirty days from notice, and in case
they fail to make the proper manifestation within the required period, (2) to
consider the case terminated and closed with the entry of judgment accordingly
made thereon (Rollo, p. 40).
On April 27, 1988, appellee moved for a resolution of the appeal review
interposed by defendants-appellants (Rollo, p. 41).
The major issues raised in this case are as follows: (1) whether or not the
assignment of receivables has the effect of payment of all the loans
contracted by appellants from appellee bank; and (2) whether or not
appellee bank must first exhaust all legal remedies against the Philippine
Fisheries Commission before it can proceed against appellants for
collections of loan under the promissory notes which are plaintiffs bases in the
action for collection in Civil Case No. 78178.
Assignment of credit is an agreement by virtue of which the owner of a
credit, known as the assignor, by a legal cause, such as sale, dation in
payment, exchange or donation, and without the need of the consent of the
debtor, transfers his credit and its accessory rights to another, known as
the assignee, who acquires the power to enforce it to the same extent as
the assignor could have enforced it against the debtor. ... It may be in the
form of a sale, but at times it may constitute a dation in payment, such as when a
debtor, in order to obtain a release from his debt, assigns to his creditor a credit
he has against a third person, or it may constitute a donation as when it is by
gratuitous title; or it may even be merely by way of guaranty, as when the
creditor gives as a collateral, to secure his own debt in favor of the assignee,
without transmitting ownership. The character that it may assume determines
its requisites and effects. its regulation, and the capacity of the parties to
execute it; and in every case, the obligations between assignor and assignee
will depend upon the judicial relation which is the basis of the assignment:
(Tolentino, Commentaries and Jurisprudence on the Civil Code of the
Philippines, Vol. 5, pp. 165-166).
There is no question as to the validity of the assignment of receivables executed
by appellants in favor of appellee bank.
The issue is with regard to its legal effects.
I
It is evident that the assignment of receivables executed by appellants on
January 24, 1964 did not transfer the ownership of the receivables to
appellee bank and release appellants from their loans with the bank incurred
under promissory notes Nos. 11487,11515 and 11699.
The Deed of Assignment provided that it was for and in consideration of certain
credits, loans, overdrafts, and their credit accommodations in the sum of
P10,000.00 extended to appellants by appellee bank, and as security for the
payment of said sum and the interest thereon; that appellants as assignors,
remise, release, and quitclaim to assignee bank all their rights, title and interest
in and to the accounts receivable assigned (lst paragraph). It was further
stipulated that the assignment will also stand as a continuing guaranty for
future loans of appellants to appellee bank and correspondingly the assignment
shall also extend to all the accounts receivable; appellants shall also obtain in
the future, until the consideration on the loans secured by appellants from
appellee bank shall have been fully paid by them (No. 9).
The position of appellants, however, is that the deed of assignment is a
quitclaim in consideration of their indebtedness to appellee bank, not mere
guaranty, in view of the following provisions of the deed of assignment:
... the Assignor do hereby remise, release and quit-claim unto said assignee all
its rights, title and interest in the accounts receivable described hereunder.
(Emphasis supplied by appellants, first par., Deed of Assignment).
... that the title and right of possession to said account receivable is to remain in
said assignee and it shall have the right to collect directly from the debtor, and
whatever the Assignor does in connection with the collection of said accounts, it
agrees to do so as agent and representative of the Assignee and it trust for said
Assignee ...(Ibid. par. 2 of Deed of Assignment).' (Record on Appeal, p. 27)
The character of the transactions between the parties is not, however,
determined by the language used in the document but by their intention. Thus,
the Court, quoting from the American Jurisprudence (68 2d, Secured
Transaction, Section 50) said:
The characters of the transaction between the parties is to be determined by
their intention, regardless of what language was used or what the form of the
transfer was. If it was intended to secure the payment of money, it must be
construed as a pledge. However, even though a transfer, if regarded by itself,
appellate to have been absolute, its object and character might still be
qualified and explained by a contemporaneous writing declaring it to have
been a deposit of the property as collateral security. It has been Id that a
transfer of property by the debtor to a creditor, even if sufficient on its farm to
make an absolute conveyance, should be treated as a pledge if the debt
continues in existence and is not discharged by the transfer, and that
accordingly, the use of the terms ordinarily exporting conveyance, of
absolute ownership will not be given that effect in such a transaction if they
are also commonly used in pledges and mortgages and therefore do not
unqualifiedly indicate a transfer of absolute ownership, in the absence of
clear and ambiguous language or other circumstances excluding an intent
to pledge. (Lopez v. Court of Appeals, 114 SCRA 671 [1982]).
Definitely, the assignment of the receivables did not result from a sale
transaction. It cannot be said to have been constituted by virtue of a dation in
payment for appellants' loans with the bank evidenced by promissory note Nos.
11487, 11515 and 11699 which are the subject of the suit for collection in Civil
Case No. 78178. At the time the deed of assignment was executed, said
loans were non-existent yet. The deed of assignment was executed on
January 24, 1964 (Exh. "G"), while promissory note No. 11487 is dated
April 25, 1966 (Exh. 'A), promissory note 11515, dated May 3, 1966 (Exh.
'B'), promissory note 11699, on June 20, 1966 (Exh. "C"). At most, it was a
dation in payment for P10,000.00, the amount of credit from appellee bank
indicated in the deed of assignment. At the time the assignment was executed,
there was no obligation to be extinguished except the amount of P10,000.00.
Moreover, in order that an obligation may be extinguished by another which
substitutes the same, it is imperative that it be so declared in unequivocal terms,
or that the old and the new obligations be on every point incompatible with each
other (Article 1292, New Civil Code).
Obviously, the deed of assignment was intended as collateral security for
the bank loans of appellants, as a continuing guaranty for whatever sums would
be owing by defendants to plaintiff, as stated in stipulation No. 9 of the deed.
In case of doubt as to whether a transaction is a pledge or a dation in
payment, the presumption is in favor of pledge, the latter being the lesser
transmission of rights and interests (Lopez v. Court of Appeals, supra).
In one case, the assignments of rights, title and interest of the defendant in the
contracts of lease of two buildings as well as her rights, title and interest in the
land on which the buildings were constructed to secure an overdraft from a
bank amounting to P110,000.00 which was increased to P150,000.00, then to
P165,000.00 was considered by the Court to be documents of mortgage
contracts inasmuch as they were executed to guarantee the principal
obligations of the defendant consisting of the overdrafts or the indebtedness
resulting therefrom. The Court ruled that an assignment to guarantee an
obligation is in effect a mortgage and not an absolute conveyance of title which
confers ownership on the assignee (People's Bank & Trust Co. v. Odom, 64 Phil.
126 [1937]).
II
As to whether or not appellee bank must have to exhaust all legal
remedies against the Philippine Fisheries Commission before it can
proceed against appellants for collection of loans under their promissory
notes, must also be answered in the negative.
The obligation of appellants under the promissory notes not having been
released by the assignment of receivables, appellants remain as the principal
debtors of appellee bank rather than mere guarantors. The deed of
assignment merely guarantees said obligations. That 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, under
Article 2058 of the New Civil Code does not therefore apply to them. It is of
course of the essence of a contract of pledge or mortgage 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 (Article 2087, New
Civil Code). In the instant case, appellants are both the principal debtors and the
pledgors or mortgagors. Resort to one is, therefore, resort to the other.
Appellee bank did try to collect on the pledged receivables. As the Emergency
Employment Agency (EEA) which issued the receivables had been abolished,
the collection had to be coursed through the Office of the President which
disapproved the same (Record on Appeal, p. 16). The receivable became
virtually worthless leaving appellants' loans from appellee bank unsecured. It is
but proper that after their repeated demands made on appellants for the
settlement of their obligations, appellee bank should proceed against
appellants. It would be an exercise in futility to proceed against a defunct office
for the collection of the receivables pledged.
WHEREFORE, the appeal is Dismissed for lack of merit and the appealed
decision of the trial court is affirmed in toto.
G.R. No. 142381             October 15, 2003
PHILIPPINE BLOOMING MILLS, INC., and ALFREDO CHING, petitioners,
vs.
COURT OF APPEALS and TRADERS ROYAL BANK, respondents.
Antecedent Facts
This case stems from an action to compel Ching to pay TRB the following
amounts:
1. ₱959,611.96 under Letter of Credit No. 479 AD covered by Trust Receipt No.
106;4
2. ₱1,191,137.13 under Letter of Credit No. 563 AD covered by Trust Receipt No.
113;5 and
3. ₱3,500,000 under the trust loan covered by a notarized Promissory Note. 6
Ching was the Senior Vice President of PBM. In his personal capacity and not as
a corporate officer, Ching signed a Deed of Suretyship dated 21 July 1977
binding himself as follows:
xxx as primary obligor(s) and not as mere guarantor(s), hereby warrant to the
TRADERS ROYAL BANK, its successors and assigns, the due and punctual
payment by the following individuals and/or companies/firms, hereinafter
called the DEBTOR(S), of such amounts whether due or not, as indicated
opposite their respective names, to wit:
NAME OF DEBTOR(S) AMOUNT OF OBLIGATION
PHIL. BLOOMING MILLS TEN MILLION PESOS
CORP.
(₱ 10,000,000.00)
owing to said TRADERS ROYAL BANK, hereafter called the CREDITOR, as
evidenced by all notes, drafts, overdrafts and other credit obligations of every
kind and nature contracted/incurred by said DEBTOR(S) in favor of said
CREDITOR.
In case of default by any and/or all of the DEBTOR(S) to pay the whole or part of
said indebtedness herein secured at maturity, I/We, jointly and severally, agree
and engage to the CREDITOR, its successors and assigns, the prompt payment,
without demand or notice from said CREDITOR, of such notes, drafts, overdrafts
and other credit obligations on which the DEBTOR(S) may now be indebted or
may hereafter become indebted to the CREDITOR, together with all interests,
penalty and other bank charges as may accrue thereon and all expenses which
may be incurred by the latter in collecting any or all such instruments.
I/WE further warrant the due and faithful performance by the DEBTOR(S) of all
the obligations to be performed under any contracts, evidencing
indebtedness/obligations and any supplements, amendments, charges or
modifications made thereto, including but not limited to, the due and punctual
payment by the said DEBTOR(S).
I/WE hereby expressly waive notice of acceptance of this suretyship, and also
presentment, demand, protest and notice of dishonor of any and all such
instruments, loans, advances, credits, or other indebtedness or obligations
hereinbefore referred to.
MY/OUR liability on this Deed of Suretyship shall be solidary, direct and
immediate and not contingent upon the pursuit by the CREDITOR, its successors
or assigns, of whatever remedies it or they may have against the DEBTOR(S) or
the securities or liens it or they may possess; and I/WE hereby agree to be and
remain bound upon this suretyship, irrespective of the existence, value or
condition of any collateral, and notwithstanding also that all obligations of the
DEBTOR(S) to you outstanding and unpaid at any time may exceed the
aggregate principal sum herein above stated.
In the event of judicial proceedings, I/WE hereby expressly agree to pay the
creditor for and as attorney’s fees a sum equivalent to TEN PER CENTUM (10%)
of the total indebtedness (principal and interest) then unpaid, exclusive of all
costs or expenses for collection allowed by law.7 (Emphasis supplied)
On 24 March and 6 August 1980, TRB granted PBM letters of credit on
application of Ching in his capacity as Senior Vice President of PBM. Ching later
accomplished and delivered to TRB trust receipts, which acknowledged receipt
in trust for TRB of the merchandise subject of the letters of credit. Under the
trust receipts, PBM had the right to sell the merchandise for cash with the
obligation to turn over the entire proceeds of the sale to TRB as payment of
PBM’s indebtedness. Letter of Credit No. 479 AD, covered by Trust Receipt No.
106, has a face value of US$591,043, while Letter of Credit No. 563 AD, covered
by Trust Receipt No. 113, has a face value of US$155,460.34.
Ching further executed an Undertaking for each trust receipt, which uniformly
provided that:
xxx
6. All obligations of the undersigned under the agreement of trusts shall bear
interest at the rate of __ per centum ( __%) per annum from the date due until
paid.
7. [I]n consideration of the Trust Receipt, the undersigned hereby jointly and
severally undertake and agree to pay on demand on the said BANK, all sums and
amounts of money which said BANK may call upon them to pay arising out of,
pertaining to, and/or in any manner connected with this receipt. In case it is
necessary to collect the draft covered by the Trust Receipt by or through an
attorney-at-law, the undersigned hereby further agree(s) to pay an additional of
10% of the total amount due on the draft as attorney’s fees, exclusive of all
costs, fees and other expenses of collection but shall in no case be less than
₱200.00"8 (Emphasis supplied)
On 27 April 1981, PBM obtained a ₱3,500,000 trust loan from TRB. Ching signed
as co-maker in the notarized Promissory Note evidencing this trust loan. The
Promissory Note reads:
FOR VALUE RECEIVED THIRTY (30) DAYS after date, I/We, jointly and
severally, promise to pay the TRADERS ROYAL BANK or order, at its Office in
4th Floor, Kanlaon Towers Bldg., Roxas Blvd., Pasay City, the sum of Pesos:
THREE MILLION FIVE HUNDRED THOUSAND ONLY (₱3,500,000.00), Philippine
Currency, with the interest rate of Eighteen Percent (18%) per annum until fully
paid.
In case of non-payment of this note at maturity, I/We, jointly and severally,
agree to pay an additional amount equivalent to two per cent (2%) of the
principal sum per annum, as penalty and collection charges in the form of
liquidated damages until fully paid, and the further sum of ten percent (10%)
thereof in full, without any deduction, as and for attorney’s fees whether
actually incurred or not, exclusive of costs and other judicial/extrajudicial
expenses; moreover, I/We jointly and severally, further empower and authorize
the TRADERS ROYAL BANK at its option, and without notice to set off or to
apply to the payment of this note any and all funds, which may be in its hands
on deposit or otherwise belonging to anyone or all of us, and to hold as security
therefor any real or personal property which may be in its possession or control
by virtue of any other contract.9 (Emphasis supplied)
PBM defaulted in its payment of Trust Receipt No. 106 (Letter of Credit No. 479
AD) for ₱959,611.96, and of Trust Receipt No. 113 (Letter of Credit No. 563 AD)
for ₱1,191,137.13. PBM also defaulted on its ₱3,500,000 trust loan.
On 1 April 1982, PBM and Ching filed a petition for suspension of payments
with the Securities and Exchange Commission ("SEC"), docketed as SEC Case No.
2250.10 The petition sought to suspend payment of PBM’s obligations and
prayed that the SEC allow PBM to continue its normal business operations free
from the interference of its creditors. One of the listed creditors of PBM was
TRB.11
On 9 July 1982, the SEC placed all of PBM’s assets, liabilities, and obligations
under the rehabilitation receivership of Kalaw, Escaler and Associates. 12
On 13 May 1983, ten months after the SEC placed PBM under rehabilitation
receivership, TRB filed with the trial court a complaint for collection against
PBM and Ching. TRB asked the trial court to order defendants to pay solidarily
the following amounts:
(1) ₱6,612,132.74 exclusive of interests, penalties, and bank charges
[representing its indebtedness arising from the letters of credit issued to its
various suppliers];
(2) ₱4,831,361.11, exclusive of interests, penalties, and other bank charges [due
and owing from the trust loan of 27 April 1981 evidenced by a promissory
note];
(3) ₱783,300.00 exclusive of interests, penalties, and other bank charges [due
and owing from the money market loan of 1 April 1981 evidenced by a
promissory note];
(4) To order defendant Ching to pay ₱10,000,000.00 under the Deed of
Suretyship in the event plaintiff can not recover the full amount of PBM’s
indebtedness from the latter;
(5) The sum equivalent to 10% of the total sum due as and for attorney’s fees;
(6) Such other amounts that may be proven by the plaintiff during the trial, by
way of damages and expenses for litigation.13
On 25 May 1983, TRB moved to withdraw the complaint against PBM on the
ground that the SEC had already placed PBM under receivership. 14 The trial
court thus dismissed the complaint against PBM.15
On 23 June 1983, PBM and Ching also moved to dismiss the complaint on the
ground that the trial court had no jurisdiction over the subject matter of the
case. PBM and Ching invoked the assumption of jurisdiction by the SEC over all
of PBM’s assets and liabilities.16
TRB filed an opposition to the Motion to Dismiss. TRB argued that (1) Ching is
being sued in his personal capacity as a surety for PBM; (2) the SEC decision
declaring PBM in suspension of payments is not binding on TRB; and (3)
Presidential Decree No. 1758 ("PD No. 1758"), 17 which Ching relied on to
support his assertion that all claims against PBM are suspended, does not apply
to Ching as the decree regulates corporate activities only. 18
In its order dated 15 August 1983, 19 the trial court denied the motion to dismiss
with respect to Ching and affirmed its dismissal of the case with respect to PBM.
The trial court stressed that TRB was holding Ching liable under the Deed of
Suretyship. As Ching’s obligation was solidary, the trial court ruled that TRB
could proceed against Ching as surety upon default of the principal debtor PBM.
The trial court also held that PD No. 1758 applied only to corporations,
partnerships and associations and not to individuals.
Upon the trial court’s denial of his Motion for Reconsideration, Ching filed a
Petition for Certiorari and Prohibition 20 before the Court of Appeals. The
appellate court granted Ching’s petition and ordered the dismissal of the case.
The appellate court ruled that the SEC assumed jurisdiction over Ching and PBM
to the exclusion of courts or tribunals of coordinate rank.
TRB assailed the Court of Appeals’ Decision 21 before this Court. In Traders
Royal Bank v. Court of Appeals,22 this Court upheld TRB and ruled that Ching
was merely a nominal party in SEC Case No. 2250. Creditors may sue individual
sureties of debtor corporations, like Ching, in a separate proceeding before
regular courts despite the pendency of a case before the SEC involving the
debtor corporation.
In his Answer dated 6 November 1989, Ching denied liability as surety and
accommodation co-maker of PBM. He claimed that the SEC had already issued a
decision23 approving a revised rehabilitation plan for PBM’s creditors, and that
PBM obtained the credit accommodations for corporate purposes that did not
redound to his personal benefit. He further claimed that even as a surety, he has
the right to the defenses personal to PBM. Thus, his liability as surety would
attach only if, after the implementation of payments scheduled under the
rehabilitation plan, there would remain a balance of PBM’s debt to
TRB.24 Although Ching admitted PBM’s availment of the credit accommodations,
he did not show any proof of payment by PBM or by him.
TRB admitted certain partial payments on the PBM account made by PBM itself
and by the SEC-appointed receiver. 25 Thus, the trial court had to resolve the
following remaining issues:
1. How much exactly is the corporate defendant’s outstanding obligation to the
plaintiff?
2. Is defendant Alfredo Ching personally answerable, and for exactly how much?
26
TRB presented Mr. Lauro Francisco, loan officer of the Remedial Management
Department of TRB, and Ms. Carla Pecson, manager of the International
Department of TRB, as witnesses. Both witnesses testified to the following:
1. The existence of a Deed of Suretyship dated 21 July 1977 executed by Ching
for PBM’s liabilities to TRB up to ₱10,000,000; 27
2. The application of PBM and grant by TRB on 13 March 1980 of Letter of
Credit No. 479 AD for US$591,043, and the actual availment by PBM of the full
proceeds of the credit accommodation;28
3. The application of PBM and grant by TRB on 6 August 1980 of Letter of Credit
No. 563 AD for US$156,000, and the actual availment by PBM of the full
proceeds of the credit accommodation;29 and
4. The existence of a trust loan of ₱3,500,000 evidenced by a notarized
Promissory Note dated 27 April 1981 wherein Ching bound himself solidarily
with PBM;30 and
5. Per TRB’s computation, Ching is liable for ₱19,333,558.16 as of 31 October
1991.31
Ching presented Atty. Vicente Aranda, corporate secretary and First Vice
President of the Human Resources Department of TRB, as witness. Ching sought
to establish that TRB’s Board of Directors adopted a resolution fixing the PBM
account at an amount lower than what TRB wanted to collect from Ching. The
trial court allowed Atty. Aranda to testify over TRB’s manifestation that the
Answer failed to plead the subject matter of his testimony. Atty. Aranda
produced TRB Board Resolution No. 5935, series of 1990, which contained the
minutes of the special meeting of TRB’s Board of Directors held on 8 June
1990.32 In the resolution, the Board of Directors advised TRB’s Management "not
to release Alfredo Ching from his JSS liability to the bank." 33 The resolution also
stated the following:
a) Accept the ₱1.373 million deposits remitted over a period of 17 years or until
2006 which shall be applied directly to the account (as remitted per hereto
attached schedule). The amount of ₱1.373 million shall be considered as full
payment of PBM’s account. (The receiver is amenable to this alternative)
The initial deposit/remittance which amounts to ₱150,000.00 shall be remitted
upon approval of the above and conforme to PISCOR and PBM. Subsequent
deposits shall start on the 3rd year and annually thereafter (every June 30th of
the year) until June 30, 2006.
Failure to pay one annual installment shall make the whole obligation due and
demandable.
b) Write-off immediately ₱4.278 million. The balance [of] ₱1.373 million to
remain outstanding in the books of the Bank. Said balance will equal the
deposits to be remitted to the Bank for a period of 17 years. 34
However, Atty. Aranda himself testified that both items (a) and (b) quoted
above were never complied with or implemented. Not only was there no initial
deposit of ₱150,000 as required in the resolution, TRB also disapproved the
document prepared by the receiver, which would have released Ching from his
suretyship.35
The Ruling of the Trial Court
The trial court found Ching liable to TRB for ₱19,333,558.16 under the Deed of
Suretyship. The trial court explained:
[T]he liability of Ching as a surety attaches independently from his capacity as a
stockholder of the Philippine Blooming Mills. Indisputably, under the Deed of
Suretyship defendant Ching unconditionally agreed to assume PBM’s liability to
the plaintiff in the event PBM defaulted in the payment of the said obligation in
addition to whatever penalties, expenses and bank charges that may occur by
reason of default. Clear enough, under the Deed of Suretyship (Exh. J), defendant
Ching bound himself jointly and severally with PBM in the payment of the
latter’s obligation to the plaintiff. The obligation being solidary, the plaintiff
Bank can hold Ching liable upon default of the principal debtor. This is explicitly
provided in Article 1216 of the New Civil Code already quoted above. 36
The dispositive portion of the trial court’s Decision reads:
WHEREFORE, judgment is hereby rendered declaring defendant Alfredo Ching
liable to plaintiff bank in the amount of ₱19,333,558.16 (NINETEEN MILLION
THREE HUNDRED THIRTY THREE THOUSAND FIVE HUNDRED FIFTY EIGHT &
16/100) as of October 31, 1991, and to pay the legal interest thereon from such
date until it is fully paid. To pay plaintiff 5% of the entire amount by way of
attorney’s fees.
SO ORDERED.37
The Ruling of the Court of Appeals
On appeal, Ching stated that as surety and solidary debtor, he should benefit
from the changed nature of the obligation as provided in Article 1222 of the
Civil Code, which reads:
Article 1222. A solidary debtor may, in actions filed by the creditor, avail himself
of all defenses which are derived from the nature of the obligation and of those
which are personal to him, or pertain to his own share. With respect to those
which personally belong to the others, he may avail himself thereof only as
regards that part of the debt for which the latter are responsible.
Ching claimed that his liability should likewise be reduced since the equitable
apportionment of PBM’s remaining assets among its creditors under the
rehabilitation proceedings would have the effect of reducing PBM’s liability. He
also claimed that the amount for which he was being held liable was excessive.
He contended that the outstanding principal balance, as stated in TRB Board
Resolution No. 5893-1990, was only ₱5,650,749.09. 38 Ching also contended that
he was not liable for interest, as the loan documents did not stipulate the
interest rate, pursuant to Article 1956 of the Civil Code. 39 Finally, Ching asserted
that the Deed of Suretyship executed on 21 July 1977 could not guarantee
obligations incurred after its execution.40
TRB did not file its appellee’s brief. Thus, the Court of Appeals resolved to
submit the case for decision.41
The Court of Appeals considered the following issues for its determination:
1. Whether the Answer of Ching amounted to an admission of liability.
2. Whether Ching can still be sued as a surety after the SEC placed PBM under
rehabilitation receivership, and if in the affirmative, for how much. 42
The Court of Appeals resolved the first two questions in favor of TRB. The
appellate court stated:
Ching did not deny under oath the genuineness and due execution of the L/Cs,
Trust Receipts, Undertaking, Deed of Surety, and the 3.5 Million Peso
Promissory Note upon which TRB’s action rested. He is, therefore, presumed to
be liable unless he presents evidence showing payment, partially or in full, of
these obligations (Investment and Underwriting Corporation of the Philippines
v. Comptronics Philippines, Inc. and Gene v. Tamesis, 192 SCRA 725 [1990]).
As surety of a corporation placed under rehabilitation receivership, Ching can
answer separately for the obligations of debtor PBM (Rizal Banking Corporation
v. Court of Appeals, Philippine Blooming Mills, Inc., and Alfredo Ching, 178 SCRA
738 [1990], and Traders Royal Bank v. Philippine Blooming Mills and Alfredo
Ching, 177 SCRA 788 [1989]).
Even a[n] SEC injunctive order cannot suspend payment of the surety’s
obligation since the rehabilitation receivers are limited to the existing assets of
the corporation.43
The dispositive portion of the Decision of the Court of Appeals reads:
WHEREFORE, the judgment of the lower court is hereby AFFIRMED but
modified with respect to the amount of liability of defendant Alfredo Ching
which is lowered from ₱19,333,558.16 to ₱15,773,708.78 with legal interest of
12% per annum until it is fully paid.
SO ORDERED.44
The Court of Appeals denied Ching’s Motion for Reconsideration for lack of
merit.
Hence, this petition.
Issues
Ching assigns the following as errors of the Court of Appeals:
1. THE COURT OF APPEALS COMMITTED AN ERROR WHEN IT RULED THAT
PETITIONER ALFREDO CHING WAS LIABLE FOR OBLIGATIONS CONTRACTED
BY PBM LONG AFTER THE EXECUTION OF THE DEED OF SURETYSHIP.
2. THE COURT OF APPEALS COMMITTED AN ERROR WHEN IT RULED THAT
THE PETITIONERS WERE LIABLE FOR THE TRUST RECEIPTS DESPITE THE
FACT THAT PRIVATE RESPONDENT HAD PREVENTED THEIR FULFILLMENT.
3. THE COURT OF APPEALS COMMITTED AN ERROR WHEN IT FOUND
PETITIONER ALFREDO CHING LIABLE FOR ₱15,773,708.78 WITH LEGAL
INTEREST AT 12% PER ANNUM UNTIL FULLY PAID DESPITE THE FACT THAT
UNDER THE REHABILITATION PLAN OF PETITIONER PBM, WHICH WAS
APPROVED BY THE SECURITIES AND EXCHANGE COMMISSION, PRIVATE
RESPONDENT IS ONLY ENTITLED TO ₱1,373,415.00.45
Ching asserted that the Deed of Suretyship dated 21 July 1977 could not answer
for obligations not yet in existence at the time of its execution. Specifically,
Ching maintained that the Deed of Suretyship could not answer for debts
contracted by PBM in 1980 and 1981. Ching contended that no accessory
contract of suretyship could arise without an existing principal contract of loan.
Ching likewise argued that TRB could no longer claim on the trust receipts
because TRB had already taken the properties subject of the trust receipts.
Ching likewise maintained that his obligation as surety could not exceed the
₱1,373,415 apportioned to PBM under the SEC-approved rehabilitation plan.
In its Comment, TRB asserted that the first two assigned errors raised factual
issues not brought before the trial court. Furthermore, TRB pointed out that
Ching never presented PBM’s rehabilitation plan before the trial court. TRB also
stated that the Supreme Court ruling in Traders Royal Bank v. Court of
Appeals46 constitutes res judicata between the parties. Therefore, TRB could
proceed against Ching separately from PBM to enforce in full Ching’s liability as
surety.47
The Ruling of the Court
The petition has no merit.
The case before us is an offshoot of the trial court’s denial of Ching’s motion to
have the case dismissed against him. The petition is a thinly veiled attempt to
make this Court reconsider its decision in the prior case of Traders Royal Bank
v. Court of Appeals.48 This Court has already resolved the issue of Ching’s
separate liability as a surety despite the rehabilitation proceedings before the
SEC. We held in Traders Royal Bank that:
Although Ching was impleaded in SEC Case No. 2250, as a co-petitioner of PBM,
the SEC could not assume jurisdiction over his person and properties. The
Securities and Exchange Commission was empowered, as rehabilitation
receiver, to take custody and control of the assets and properties of PBM only,
for the SEC has jurisdiction over corporations only [and] not over private
individuals, except stockholders in an intra-corporate dispute (Sec. 5, P.D. 902-A
and Sec. 2 of P.D. 1758). Being a nominal party in SEC Case No. 2250, Ching’s
properties were not included in the rehabilitation receivership that the SEC
constituted to take custody of PBM’s assets. Therefore, the petitioner bank was
not barred from filing a suit against Ching, as a surety for PBM. An anomalous
situation would arise if individual sureties for debtor corporations may escape
liability by simply co-filing with the corporation a petition for suspension of
payments in the SEC whose jurisdiction is limited only to corporations and their
corporate assets.
xxx
Ching can be sued separately to enforce his liability as surety for PBM, as
expressly provided by Article 1216 of the New Civil Code.
xxx
It is elementary that a corporation has a personality distinct and separate from
its individual stockholders and members. Being an officer or stockholder of a
corporation does not make one’s property the property also of the corporation,
for they are separate entities (Adelio Cruz vs. Quiterio Dalisay, 152 SCRA 482).
Ching’s act of joining as a co-petitioner with PBM in SEC Case No. 2250 did not
vest in the SEC jurisdiction over his person or property, for jurisdiction does not
depend on the consent or acts of the parties but upon express provision of law
(Tolentino vs. Social Security System, 138 SCRA 428; Lee vs. Municipal Trial
Court of Legaspi City, Br. I, 145 SCRA 408). (Emphasis supplied)
Traders Royal Bank has fully resolved the issue regarding Ching’s liability as a
surety of the credit accommodations TRB extended to PBM. The decision
amounts to res judicata49 which bars Ching from raising the same issue again.
Hence, the only question that remains is the amount of Ching’s liability.
Nevertheless, we shall resolve the issues Ching has raised in his attempt to
escape liability under his surety.
Whether Ching is liable for obligations PBM contracted after execution of the
Deed of Suretyship
Ching is liable for credit obligations contracted by PBM against TRB before and
after the execution of the 21 July 1977 Deed of Suretyship. This is evident from
the tenor of the deed itself, referring to amounts PBM "may now be indebted or
may hereafter become indebted" to TRB.
The law expressly allows a suretyship for "future debts". Article 2053 of the
Civil Code provides:
A guaranty may also be given as security for future debts, the amount of which
is not yet known; there can be no claim against the guarantor until the debt is
liquidated. A conditional obligation may also be secured. (Emphasis supplied)
Furthermore, this Court has ruled in Diño v. Court of Appeals50 that:
Under the Civil Code, a guaranty may be given to secure even future debts, the
amount of which may not be known at the time the guaranty is executed. This is
the basis for contracts denominated as continuing guaranty or suretyship. 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 states that the
guaranty is to secure advances to be made "from time to time," it 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," 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.
Whether Ching’s liability is limited to the amount stated in PBM’s rehabilitation
plan
Ching would like this Court to rule that his liability is limited, at most, to the
amount stated in PBM’s rehabilitation plan. In claiming this reduced liability,
Ching invokes Article 1222 of the Civil Code which reads:
Art. 1222. A solidary debtor may, in actions filed by the creditor, avail himself of
all defenses which are derived from the nature of the obligation and of those
which are personal to him, or pertain to his own share. With respect to those
which personally belong to the others, he may avail himself thereof only as
regards that part of the debt for which the latter are responsible.
In granting the loan to PBM, TRB required Ching’s surety precisely to insure full
recovery of the loan in case PBM becomes insolvent or fails to pay in full. This
was the very purpose of the surety. Thus, Ching cannot use PBM’s failure to pay
in full as justification for his own reduced liability to TRB. As surety, Ching
agreed to pay in full PBM’s loan in case PBM fails to pay in full for any reason,
including its insolvency.
TRB, as creditor, has the right under the surety to proceed against Ching for the
entire amount of PBM’s loan. This is clear from Article 1216 of the Civil Code:
ART. 1216. The creditor may proceed against any one of the solidary debtors or
some or all of them simultaneously. The demand made against one of them shall
not be an obstacle to those which may subsequently be directed against the
others, so long as the debt has not been fully collected. (Emphasis supplied)
Ching further claims a reduced liability under TRB Board Resolution No. 5935.
This resolution states that PBM’s outstanding loans may be reduced to ₱1.373
million subject to certain conditions like the payment of ₱150,000 initial
payment.51 The resolution also states that TRB should not release Ching’s
solidary liability under his surety. The resolution even directs TRB’s
management to study Ching’s criminal liability under the trust documents. 52
Ching’s own witness testified that Resolution No. 5935 was never implemented.
For one, PBM or its receiver never paid the ₱150,000 initial payment to TRB.
TRB also rejected the document that PBM’s receiver presented which would
have released Ching from his suretyship. Clearly, Ching cannot rely on
Resolution No. 5935 to escape liability under his suretyship.
Ching’s attempts to have this Court review the factual issues of the case are
improper. It is not a function of the Supreme Court to assess and evaluate again
the evidence, testimonial and evidentiary, adduced by the parties particularly
where the findings of both the trial court and the appellate court coincide on the
matter.53
Whether Ching is liable for the trust receipts
Ching is still liable for the amounts stated in the letters of credit covered by the
trust receipts. Other than his bare allegations, Ching has not shown proof of
payment or settlement with TRB. Atty. Vicente Aranda, TRB’s corporate
secretary and First Vice President of its Human Resource Management
Department, testified that the conditions in the TRB board resolution presented
by Ching were not met or implemented, thus:
ATTY. AZURA
Q Going into the resolution itself. A certain stipulation ha[s] been outlined, and
may I refer you to condition or step No. 1, which reads: "a) Accept the ₱1.373
million deposits remitted over a period of 17 years or until 2006 which shall be
applied directly to the account (as remitted per hereto attached schedule). The
amount of ₱1.373 million shall be considered as full payment of PBM’s account.
(The receiver is amenable to this alternative.) The initial deposit/remittance
which amounts to ₱150,000.00 shall be remitted upon approval of the above
and conforme of PISCOR [xxx] and PBM. Subsequent deposits shall start on the
3rd year and annually thereafter (every June 30th of the year) until June 30,
2006.
Failure to pay one annual installment shall make the whole obligation due and
demandable. Now Mr. Witness, would you be in a position to inform [the court]
if these conditions listed in item (a) in Resolution No. 5935, series of 1990, were
implemented or met?
A Yes. I know for a fact that the conditions, more particularly the initial
deposit/remittance in the amount of ₱150,000.00 which have to be done with
approval was not remitted or met.
Q Will you clarify your answer. Would you be in a position to inform the court if
those conditions were met? Because your initial answer was yes.
A Yes sir, I am in a position to state that these conditions were not met.
Q Let me refer you to the condition listed as item (b) of the same resolution
which I read and quote: "Write off immediately ₱4.278 million. The balance of
₱1.373 million to remain outstanding in the books of the bank. Said balance will
be remitted to the Bank for a period of 17 years." Mr. Witness, would you be in a
position to inform the court if the bank implemented that particular condition?
A In the implementation of this settlement the receiver prepared a document
for approval and conformity of the bank. The said document would in effect
release the suretyship of Alfredo Ching and for that reason the bank refused or
denied fixing its conformity and approval with the court.
xxx
ATTY. ATIENZA ON REDIRECT EXAMINATION
Q Mr. Witness you stated that the reason why the plaintiff bank did not
implement these conditionalities [sic] was because the former defendant
corporation requested that the suretyship of Alfredo Ching be released, is that
correct?
A I did not say that. I said that in effect the document prepared by the lawyer of
the receiver xxx the bank would release the suretyship of Alfredo Ching, that is
why the bank is not amenable to such a document.
Q Despite this approved resolution the bank, because of said requirement or
conformity did not seek to implement these conditionalities [sic]?
A Yes sir because the conditions imposed by the board is not being followed in
that document because it was the condition of the board that the suretyship
should not be released but the document being presented to the bank for
signature and conformity in effect if signed would release the suretyship. So it
would be a violation with the approval of the board so the bank did not sign the
conformity.54
Ching also claims that TRB prevented PBM from fulfilling its obligations under
the trust receipts when TRB, together with other creditor banks, took hold of
PBM’s inventories, including the goods covered by the trust receipts. Ching
asserts that this act of TRB released him from liability under the suretyship.
Ching forgets that he executed, on behalf of PBM, separate Undertakings for
each trust receipt expressly granting to TRB the right to take possession of the
goods at any time to protect TRB’s interests. TRB may exercise such right
without waiving its right to collect the full amount of the loan to PBM. The
Undertakings also provide that any suspension of payment or any assignment
by PBM for the benefit of creditors renders the loan due and demandable. Thus,
the separate Undertakings uniformly provide:
2. That the said BANK may at any time cancel the foregoing trust and take
possession of said merchandise with the right to sell and dispose of the
same under such terms and conditions it may deem best, or of the proceeds
of such of the same as may then have been sold, wherever the said
merchandise or proceeds may then be found and all the provisions of the Trust
Receipt shall apply to and be deemed to include said above-mentioned
merchandise if the same shall have been made up or used in the manufacture of
any other goods, or merchandise, and the said BANK shall have the same rights
and remedies against the said merchandise in its manufactured state, or the
product of said manufacture as it would have had in the event that such
merchandise had remained [in] its original state and irrespective of the fact that
other and different merchandise is used in completing such manufacture. In the
event of any suspension, or failure or assignment for the benefit of creditors
on the part of the undersigned or of the non-fulfillment of any obligation, or
of the non-payment at maturity of any acceptance made under said credit, or
any other credit issued by the said BANK on account of the undersigned or of
the non-payment of any indebtedness on the part of the undersigned to the
said BANK, all obligations, acceptances, indebtedness and liabilities
whatsoever shall thereupon without notice mature and become due and
payable and the BANK may avail of the remedies provided
herein.55 (Emphasis supplied)
Presidential Decree No. 115 ("PD No. 115"), otherwise known as the Trust
Receipts Law, expressly allows TRB to take possession of the goods covered by
the trust receipts. Thus, Section of 7 of PD No. 115 states:
SECTION 7. Rights of the entruster. — The entruster shall be entitled to the
proceeds from the sale of the goods, documents or instruments released under a
trust receipt to the entrustee to the extent of the amount owing to the entruster
or as appears in the trust receipt, or to the return of the goods, documents or
instruments in case of non-sale, and to the enforcement of all other rights
conferred on him in the trust receipt provided such are not contrary to the
provisions of this Decree.
The entruster may cancel the trust and take possession of the goods,
documents or instruments subject of the trust or of the proceeds realized
therefrom at any time upon default or failure of the entrustee to comply
with any of the terms and conditions of the trust receipt or any other
agreement between the entruster and the entrustee, and the entruster in
possession of the goods, documents or instruments may, on or after default, give
notice to the entrustee of the intention to sell, and may, not less than five days
after serving or sending of such notice, sell the goods, documents or
instruments at public or private sale, and the entruster may, at a public sale,
become a purchaser. The proceeds of any such sale, whether public or
private, shall be applied (a) to the payment of the expenses thereof; (b) to
the payment of the expenses of re-taking, keeping and storing the goods,
documents or instruments; (c) to the satisfaction of the entrustee’s
indebtedness to the entruster. The entrustee shall receive any surplus but
shall be liable to the entruster for any deficiency. Notice of sale shall be
deemed sufficiently given if in writing, and either personally served on the
entrustee or sent by post-paid ordinary mail to the entrustee’s last known
business address. (Emphasis supplied)
Thus, even though TRB took possession of the goods covered by the trust
receipts, PBM and Ching remained liable for the entire amount of the loans
covered by the trust receipts.
Absent proof of payment or settlement of PBM and Ching’s credit obligations
with TRB, Ching’s liability is what the Deed of Suretyship stipulates, plus the
applicable interest and penalties. The trust receipts, as well as the Letter of
Undertaking dated 16 April 1980 56 executed by PBM, stipulate in writing the
payment of interest without specifying the rate. In such a case, the applicable
interest rate shall be the legal rate, which is now 12% per annum. 57 This is in
accordance with Central Bank Circular No. 416, which states:
By virtue of the authority granted to it under Section 1 of Act No. 2655, as
amended, otherwise known as the "Usury Law," the Monetary Board, in its
Resolution No. 1622 dated July 29, 1974, has prescribed that the rate of interest
for the loan or forbearance of any money, goods or credits and the rate allowed
in judgments, in the absence of express contract as to such rate of interest, shall
be twelve per cent (12%) per annum. (Emphasis supplied)
On the other hand, the Promissory Note evidencing the ₱3,500,000 trust loan
provides for 18% interest per annum plus 2% penalty interest per annum in
case of default. This stipulated interest should continue to run until full payment
of the ₱3,500,000 trust loan. In addition, the accrued interest on all the credit
accommodations should earn legal interest from the date of filing of the
complaint pursuant to Article 2212 of the Civil Code.
Art. 2212. Interest due shall earn legal interest from the time it is judicially
demanded, although the obligation may be silent upon this point.
The trial court found and the appellate court affirmed that the outstanding
principal amounts as of the filing of the complaint with the trial court on 13 May
1983 were ₱959,611.96 under Trust Receipt No. 106, ₱1,191,137.13 under
Trust Receipt No. 113, and ₱3,500,000 for the trust loan. As extracted from
TRB’s Statement of Account as of 31 October 1991, 58 the accrued interest on the
trust receipts and the trust loan as of the filing of the complaint on 13 May 1983
were ₱311,387.5159 under Trust Receipt No. 106, ₱338,739.81 60 under Trust
Receipt No. 113, and ₱1,287,616.4461 under the trust loan. The penalty interest
on the trust loan amounted to ₱137,315.07. 62 Ching did not rebut this Statement
of Account which TRB presented during trial.
Thus, the following is the summary of Ching’s liability under the suretyship as of
13 May 1983, the date of filing of TRB’s complaint with the trial court:
1. On Trust Receipt No. 106 (Letter of Credit No. 479 AD)
Outstanding Principal ₱ 959,611.96
Accrued Interest (12% per annum) 311,387.51
2. On Trust Receipt No. 113 (Letter of Credit No. 563 AD)
Outstanding Principal ₱ 1,191,137.13
Accrued Interest (12% per annum) 338,739.82
3. On the Trust Loan (Promissory Note)
Outstanding Principal ₱ 3,500,000.00
Accrued Interest (18% per annum) 1,287,616.44
Accrued Penalty Interest (2% per annum) 137,315.07
WHEREFORE, we AFFIRM the decision of the Court of Appeals with
MODIFICATION. Petitioner Alfredo Ching shall pay respondent Traders Royal
Bank the following (1) on the credit accommodations under the trust receipts,
the total principal amount of ₱2,150,749.09 with legal interest at 12% per
annum from 14 May 1983 until full payment; (2) on the trust loan evidenced by
the Promissory Note, the principal sum of ₱3,500,000 with 20% interest per
annum from 14 May 1983 until full payment; (3) on the total accrued interest as
of 13 May 1983, ₱2,075,058.84 with 12% interest per annum from 14 May 1983
until full payment. Petitioner Alfredo Ching shall also pay attorney’s fees to
respondent Traders Royal Bank equivalent to 5% of the total principal and
interest.
SO ORDERED.