Eastern shipping v CA

p2

First Metro Investment Corp. vs. Este Del Sol 369 SCRA 99 YHT vs CA PNB v CA E.Zobel v CA

p15 p24 p36 p50

Republic of the Philippines SUPREME COURT Manila EN BANC

G.R. No. 97412 July 12, 1994 EASTERN SHIPPING LINES, INC., petitioner, vs. HON. COURT OF APPEALS AND MERCANTILE INSURANCE COMPANY, INC., respondents. Alojada & Garcia and Jimenea, Dala & Zaragoza for petitoner. Zapa Law Office for private respondent.

VITUG, J.: The issues, albeit not completely novel, are: (a) whether or not a claim for damage sustained on a shipment of goods can be a solidary, or joint and several, liability of the common carrier, the arrastre operator and the customs broker; (b) whether the payment of legal interest on an award for loss or damage is to be computed from the time the complaint is filed or from the date the decision appealed from is rendered; and (c) whether the applicable rate of interest, referred to above, is twelve percent (12%) or six percent (6%). The findings of the court a quo, adopted by the Court of Appeals, on the antecedent and undisputed facts that have led to the controversy are hereunder reproduced: This is an action against defendants shipping company, arrastre operator and brokerforwarder for damages sustained by a shipment while in defendants' custody, filed by the insurer-subrogee who paid the consignee the value of such losses/damages. On December 4, 1981, two fiber drums of riboflavin were shipped from Yokohama, Japan for delivery vessel "SS EASTERN COMET" owned by defendant Eastern Shipping Lines under Bill of Lading No. YMA-8 (Exh. B). The shipment was insured under plaintiff's Marine Insurance Policy No. 81/01177 for P36,382,466.38. Upon arrival of the shipment in Manila on December 12, 1981, it was discharged unto the custody of defendant Metro Port Service, Inc. The latter excepted to one drum, said to be in bad order, which damage was unknown to plaintiff. On January 7, 1982 defendant Allied Brokerage Corporation received the shipment from defendant Metro Port Service, Inc., one drum opened and without seal (per "Request for Bad Order Survey." Exh. D).

On January 8 and 14, 1982, defendant Allied Brokerage Corporation made deliveries of the shipment to the consignee's warehouse. The latter excepted to one drum which contained spillages, while the rest of the contents was adulterated/fake (per "Bad Order Waybill" No. 10649, Exh. E). Plaintiff contended that due to the losses/damage sustained by said drum, the consignee suffered losses totaling P19,032.95, due to the fault and negligence of defendants. Claims were presented against defendants who failed and refused to pay the same (Exhs. H, I, J, K, L). As a consequence of the losses sustained, plaintiff was compelled to pay the consignee P19,032.95 under the aforestated marine insurance policy, so that it became subrogated to all the rights of action of said consignee against defendants (per "Form of Subrogation", "Release" and Philbanking check, Exhs. M, N, and O). (pp. 85-86, Rollo.) There were, to be sure, other factual issues that confronted both courts. Here, the appellate court said: Defendants filed their respective answers, traversing the material allegations of the complaint contending that: As for defendant Eastern Shipping it alleged that the shipment was discharged in good order from the vessel unto the custody of Metro Port Service so that any damage/losses incurred after the shipment was incurred after the shipment was turned over to the latter, is no longer its liability (p. 17, Record); Metroport averred that although subject shipment was discharged unto its custody, portion of the same was already in bad order (p. 11, Record); Allied Brokerage alleged that plaintiff has no cause of action against it, not having negligent or at fault for the shipment was already in damage and bad order condition when received by it, but nonetheless, it still exercised extra ordinary care and diligence in the handling/delivery of the cargo to consignee in the same condition shipment was received by it. From the evidence the court found the following: The issues are: 1. Whether or not the shipment sustained losses/damages; 2. Whether or not these losses/damages were sustained while in the custody of defendants (in whose respective custody, if determinable); 3. Whether or not defendant(s) should be held liable for the losses/damages (see plaintiff's pre-Trial Brief, Records, p. 34; Allied's pre-Trial Brief, adopting plaintiff's Records, p. 38). As to the first issue, there can be no doubt that the shipment sustained losses/damages. The two drums were shipped in good order and condition, as clearly shown by the Bill of Lading and Commercial Invoice which do not indicate any damages drum that was shipped (Exhs. B and C). But when on December 12, 1981 the shipment was delivered to defendant Metro Port Service, Inc., it excepted to one drum in bad order.

Correspondingly, as to the second issue, it follows that the losses/damages were sustained while in the respective and/or successive custody and possession of defendants carrier (Eastern), arrastre operator (Metro Port) and broker (Allied Brokerage). This becomes evident when the Marine Cargo Survey Report (Exh. G), with its "Additional Survey Notes", are considered. In the latter notes, it is stated that when the shipment was "landed on vessel" to dock of Pier # 15, South Harbor, Manila on December 12, 1981, it was observed that "one (1) fiber drum (was) in damaged condition, covered by the vessel's Agent's Bad Order Tally Sheet No. 86427." The report further states that when defendant Allied Brokerage withdrew the shipment from defendant arrastre operator's custody on January 7, 1982, one drum was found opened without seal, cello bag partly torn but contents intact. Net unrecovered spillages was 15 kgs. The report went on to state that when the drums reached the consignee, one drum was found with adulterated/faked contents. It is obvious, therefore, that these losses/damages occurred before the shipment reached the consignee while under the successive custodies of defendants. Under Art. 1737 of the New Civil Code, the common carrier's duty to observe extraordinary diligence in the vigilance of goods remains in full force and effect even if the goods are temporarily unloaded and stored in transit in the warehouse of the carrier at the place of destination, until the consignee has been advised and has had reasonable opportunity to remove or dispose of the goods (Art. 1738, NCC). Defendant Eastern Shipping's own exhibit, the "Turn-Over Survey of Bad Order Cargoes" (Exhs. 3Eastern) states that on December 12, 1981 one drum was found "open". and thus held: WHEREFORE, PREMISES CONSIDERED, judgment is hereby rendered: A. Ordering defendants to pay plaintiff, jointly and severally: 1. The amount of P19,032.95, with the present legal interest of 12% per annum from October 1, 1982, the date of filing of this complaints, until fully paid (the liability of defendant Eastern Shipping, Inc. shall not exceed US$500 per case or the CIF value of the loss, whichever is lesser, while the liability of defendant Metro Port Service, Inc. shall be to the extent of the actual invoice value of each package, crate box or container in no case to exceed P5,000.00 each, pursuant to Section 6.01 of the Management Contract); 2. P3,000.00 as attorney's fees, and 3. Costs. B. Dismissing the counterclaims and crossclaim of defendant/cross-claimant Allied Brokerage Corporation.

SO ORDERED. (p. 207, Record). Dissatisfied, defendant's recourse to US. The appeal is devoid of merit. After a careful scrutiny of the evidence on record. We find that the conclusion drawn therefrom is correct. As there is sufficient evidence that the shipment sustained damage while in the successive possession of appellants, and therefore they are liable to the appellee, as subrogee for the amount it paid to the consignee. (pp. 8789, Rollo.) The Court of Appeals thus affirmed in toto the judgment of the court a quo. In this petition, Eastern Shipping Lines, Inc., the common carrier, attributes error and grave abuse of discretion on the part of the appellate court when I. IT HELD PETITIONER CARRIER JOINTLY AND SEVERALLY LIABLE WITH THE ARRASTRE OPERATOR AND CUSTOMS BROKER FOR THE CLAIM OF PRIVATE RESPONDENT AS GRANTED IN THE QUESTIONED DECISION; II. IT HELD THAT THE GRANT OF INTEREST ON THE CLAIM OF PRIVATE RESPONDENT SHOULD COMMENCE FROM THE DATE OF THE FILING OF THE COMPLAINT AT THE RATE OF TWELVE PERCENT PER ANNUM INSTEAD OF FROM THE DATE OF THE DECISION OF THE TRIAL COURT AND ONLY AT THE RATE OF SIX PERCENT PER ANNUM, PRIVATE RESPONDENT'S CLAIM BEING INDISPUTABLY UNLIQUIDATED. The petition is, in part, granted. In this decision, we have begun by saying that the questions raised by petitioner carrier are not all that novel. Indeed, we do have a fairly good number of previous decisions this Court can merely tack to. The common carrier's duty to observe the requisite diligence in the shipment of goods lasts from the time the articles are surrendered to or unconditionally placed in the possession of, and received by, the carrier for transportation until delivered to, or until the lapse of a reasonable time for their acceptance by, the person entitled to receive them (Arts. 1736-1738, Civil Code; Ganzon vs. Court of Appeals, 161 SCRA 646; Kui Bai vs. Dollar Steamship Lines, 52 Phil. 863). When the goods shipped either are lost or arrive in damaged condition, a presumption arises against the carrier of its failure to observe that diligence, and there need not be an express finding of negligence to hold it liable (Art. 1735, Civil Code; Philippine National Railways vs. Court of Appeals, 139 SCRA 87; Metro Port Service vs. Court of Appeals, 131 SCRA 365). There are, of course, exceptional cases when such presumption of fault is not observed but these cases, enumerated in Article 1734 1 of the Civil Code, are exclusive, not one of which can be applied to this case. The question of charging both the carrier and the arrastre operator with the obligation of properly delivering the goods to the consignee has, too, been passed upon by the Court. In Fireman's Fund Insurance vs. Metro Port Services (182 SCRA 455), we have explained, in holding the carrier and the arrastre operator liable in solidum,thus:

The legal relationship between the consignee and the arrastre operator is akin to that of a depositor and warehouseman (Lua Kian v. Manila Railroad Co., 19 SCRA 5 [1967]. The relationship between the consignee and the common carrier is similar to that of the consignee and the arrastre operator (Northern Motors, Inc. v. Prince Line, et al., 107 Phil. 253 [1960]). Since it is the duty of the ARRASTRE to take good care of the goods that are in its custody and to deliver them in good condition to the consignee, such responsibility also devolves upon the CARRIER. Both the ARRASTRE and the CARRIER are therefore charged with the obligation to deliver the goods in good condition to the consignee. We do not, of course, imply by the above pronouncement that the arrastre operator and the customs broker are themselves always and necessarily liable solidarily with the carrier, or vice-versa, nor that attendant facts in a given case may not vary the rule. The instant petition has been brought solely by Eastern Shipping Lines, which, being the carrier and not having been able to rebut the presumption of fault, is, in any event, to be held liable in this particular case. A factual finding of both the court a quo and the appellate court, we take note, is that "there is sufficient evidence that the shipment sustained damage while in the successive possession of appellants" (the herein petitioner among them). Accordingly, the liability imposed on Eastern Shipping Lines, Inc., the sole petitioner in this case, is inevitable regardless of whether there are others solidarily liable with it. It is over the issue of legal interest adjudged by the appellate court that deserves more than just a passing remark. Let us first see a chronological recitation of the major rulings of this Court: The early case of Malayan Insurance Co., Inc., vs. Manila Port Service, 2 decided 3 on 15 May 1969, involved a suit for recovery of money arising out of short deliveries and pilferage of goods. In this case, appellee Malayan Insurance (the plaintiff in the lower court) averred in its complaint that the total amount of its claim for the value of the undelivered goods amounted to P3,947.20. This demand, however, was neither established in its totality nor definitely ascertained. In the stipulation of facts later entered into by the parties, in lieu of proof, the amount of P1,447.51 was agreed upon. The trial court rendered judgment ordering the appellants (defendants) Manila Port Service and Manila Railroad Company to pay appellee Malayan Insurance the sum of P1,447.51 with legal interest thereon from the date the complaint was filed on 28 December 1962 until full payment thereof. The appellants then assailed, inter alia, the award of legal interest. In sustaining the appellants, this Court ruled: Interest upon an obligation which calls for the payment of money, absent a stipulation, is the legal rate. Such interest normally is allowable from the date of demand, judicial or extrajudicial. The trial court opted for judicial demand as the starting point.
But then upon the provisions of Article 2213 of the Civil Code, interest "cannot be recovered upon unliquidated claims or damages, except when the demand can be established with reasonable certainty." And as was held by this Court in Rivera vs. Perez, 4 L-6998, February 29, 1956, if the suit were for damages, "unliquidated and not known until definitely ascertained, assessed and determined by the courts after proof (Montilla c.Corporacion de P.P. Agustinos, 25 Phil. 447; Lichauco v. Guzman, 38 Phil. 302)," then, interest "should be from the date of the decision." (Emphasis supplied)

The case of Reformina vs. Tomol, 5 rendered on 11 October 1985, was for "Recovery of Damages for Injury to Person and Loss of Property." After trial, the lower court decreed: WHEREFORE, judgment is hereby rendered in favor of the plaintiffs and third party defendants and against the defendants and third party plaintiffs as follows: Ordering defendants and third party plaintiffs Shell and Michael, Incorporated to pay jointly and severally the following persons: xxx xxx xxx (g) Plaintiffs Pacita F. Reformina and Francisco Reformina the sum of P131,084.00 which is the value of the boat F B Pacita III together with its accessories, fishing gear and equipment minus P80,000.00 which is the value of the insurance recovered and the amount of P10,000.00 a month as the estimated monthly loss suffered by them as a result of the fire of May 6, 1969 up to the time they are actually paid or already the total sum of P370,000.00 as of June 4, 1972 with legal interest from the filing of the complaint until paid and to pay attorney's fees of P5,000.00 with costs against defendants and third party plaintiffs. (Emphasis supplied.) On appeal to the Court of Appeals, the latter modified the amount of damages awarded but sustained the trial court in adjudging legal interest from the filing of the complaint until fully paid. When the appellate court's decision became final, the case was remanded to the lower court for execution, and this was when the trial court issued its assailed resolution which applied the 6% interest per annum prescribed in Article 2209 of the Civil Code. In their petition for review on certiorari, the petitioners contended that Central Bank Circular No. 416, providing thus By virtue of the authority granted to it under Section 1 of Act 2655, as amended, 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 (12%) percent per annum. This Circular shall take effect immediately. (Emphasis found in the text) should have, instead, been applied. This Court 6 ruled: The judgments spoken of and referred to are judgments in litigations involving loans or forbearance of any money, goods or credits. Any other kind of monetary judgment which has nothing to do with, nor involving loans or forbearance of any money, goods or credits does not fall within the coverage of the said law for it is not within the ambit of the authority granted to the Central Bank. xxx xxx xxx Coming to the case at bar, the decision herein sought to be executed is one rendered in an Action for Damages for injury to persons and loss of property and does not involve any loan, much less forbearances of any money, goods or credits. As correctly argued by the private respondents, the law applicable to the said case is Article 2209 of the New Civil Code which reads

Art. 2209. If the obligation consists in the payment of a sum of money, and the debtor incurs in delay, the indemnity for damages, there being no stipulation to the contrary, shall be the payment of interest agreed upon, and in the absence of stipulation, the legal interest which is six percent per annum. The above rule was reiterated in Philippine Rabbit Bus Lines, Inc., v. Cruz, 7 promulgated on 28 July 1986. The case was for damages occasioned by an injury to person and loss of property. The trial court awarded private respondent Pedro Manabat actual and compensatory damages in the amount of P72,500.00 with legal interest thereon from the filing of the complaint until fully paid. Relying on the Reformina v. Tomol case, this Court 8modified the interest award from 12% to 6% interest per annum but sustained the time computation thereof, i.e., from the filing of the complaint until fully paid. In Nakpil and Sons vs. Court of Appeals, 9 the trial court, in an action for the recovery of damages arising from the collapse of a building, ordered, inter alia, the "defendant United Construction Co., Inc. (one of the petitioners) . . . to pay the plaintiff, . . . , the sum of P989,335.68 with interest at the legal rate from November 29, 1968, the date of the filing of the complaint until full payment . . . ." Save from the modification of the amount granted by the lower court, the Court of Appeals sustained the trial court's decision. When taken to this Court for review, the case, on 03 October 1986, was decided, thus: WHEREFORE, the decision appealed from is hereby MODIFIED and considering the special and environmental circumstances of this case, we deem it reasonable to render a decision imposing, as We do hereby impose, upon the defendant and the third-party defendants (with the exception of Roman Ozaeta) a solidary (Art. 1723, Civil Code, Supra. p. 10) indemnity in favor of the Philippine Bar Association of FIVE MILLION (P5,000,000.00) Pesos to cover all damages (with the exception to attorney's fees) occasioned by the loss of the building (including interest charges and lost rentals) and an additional ONE HUNDRED THOUSAND (P100,000.00) Pesos as and for attorney's fees, the total sum being payable upon the finality of this decision. Upon failure to pay on such finality, twelve (12%) per cent interest per annum shall be imposed upon aforementioned amounts from finality until paid. Solidary costs against the defendant and third-party defendants (Except Roman Ozaeta). (Emphasis supplied) A motion for reconsideration was filed by United Construction, contending that "the interest of twelve (12%) per cent per annum imposed on the total amount of the monetary award was in contravention of law." The Court 10 ruled out the applicability of the Reformina and Philippine Rabbit Bus Lines cases and, in its resolution of 15 April 1988, it explained: There should be no dispute that the imposition of 12% interest pursuant to Central Bank Circular No. 416 . . . is applicable only in the following: (1) loans; (2) forbearance of any money, goods or credit; and (3) rate allowed in judgments (judgments spoken of refer to judgments involving loans or forbearance of any money, goods or credits. (Philippine Rabbit Bus Lines Inc. v. Cruz, 143 SCRA 160-161 [1986]; Reformina v. Tomol, Jr., 139 SCRA 260 [1985]). It is true that in the instant case, there is neither a loan or a forbearance, but then no interest is actually imposed provided the sums referred to in the judgment are paid upon the finality of the judgment. It is delay in the payment of such final judgment, that will cause the imposition of the interest.

It will be noted that in the cases already adverted to, the rate of interest is imposed on the total sum, from the filing of the complaint until paid; in other words, as part of the judgment for damages. Clearly, they are not applicable to the instant case. (Emphasis supplied.) The subsequent case of American Express International, Inc., vs. Intermediate Appellate Court 11 was a petition for review on certiorari from the decision, dated 27 February 1985, of the then Intermediate Appellate Court reducing the amount of moral and exemplary damages awarded by the trial court, to P240,000.00 and P100,000.00, respectively, and its resolution, dated 29 April 1985, restoring the amount of damages awarded by the trial court, i.e., P2,000,000.00 as moral damages and P400,000.00 as exemplary damages with interest thereon at 12% per annum from notice of judgment, plus costs of suit. In a decision of 09 November 1988, this Court, while recognizing the right of the private respondent to recover damages, held the award, however, for moral damages by the trial court, later sustained by the IAC, to be inconceivably large. The Court 12 thus set aside the decision of the appellate court and rendered a new one, "ordering the petitioner to pay private respondent the sum of One Hundred Thousand (P100,000.00) Pesos as moral damages, with six (6%) percent interest thereon computed from the finality of this decision until paid. (Emphasis supplied) Reformina came into fore again in the 21 February 1989 case of Florendo v. Ruiz 13 which arose from a breach of employment contract. For having been illegally dismissed, the petitioner was awarded by the trial court moral and exemplary damages without, however, providing any legal interest thereon. When the decision was appealed to the Court of Appeals, the latter held: WHEREFORE, except as modified hereinabove the decision of the CFI of Negros Oriental dated October 31, 1972 is affirmed in all respects, with the modification that defendants-appellants, except defendant-appellant Merton Munn, are ordered to pay, jointly and severally, the amounts stated in the dispositive portion of the decision, including the sum of P1,400.00 in concept of compensatory damages, with interest at the legal rate from the date of the filing of the complaint until fully paid(Emphasis supplied.) The petition for review to this Court was denied. The records were thereupon transmitted to the trial court, and an entry of judgment was made. The writ of execution issued by the trial court directed that only compensatory damages should earn interest at 6% per annum from the date of the filing of the complaint. Ascribing grave abuse of discretion on the part of the trial judge, a petition for certiorari assailed the said order. This Court said: . . . , it is to be noted that the Court of Appeals ordered the payment of interest "at the legal rate" from the time of the filing of the complaint. . . Said circular [Central Bank Circular No. 416] does not apply to actions based on a breach of employment contract like the case at bar. (Emphasis supplied) The Court reiterated that the 6% interest per annum on the damages should be computed from the time the complaint was filed until the amount is fully paid. Quite recently, the Court had another occasion to rule on the matter. National Power Corporation vs. Angas, 14decided on 08 May 1992, involved the expropriation of certain parcels of land. After conducting a hearing on the complaints for eminent domain, the trial court ordered the petitioner to pay the private respondents certain sums of money as just compensation for their lands so expropriated "with legal interest thereon . . . until fully paid." Again, in applying the 6% legal interest per annum under the Civil Code, the Court 15 declared:

. . . , (T)he transaction involved is clearly not a loan or forbearance of money, goods or credits but expropriation of certain parcels of land for a public purpose, the payment of which is without stipulation regarding interest, and the interest adjudged by the trial court is in the nature of indemnity for damages. The legal interest required to be paid on the amount of just compensation for the properties expropriated is manifestly in the form of indemnity for damages for the delay in the payment thereof. Therefore, since the kind of interest involved in the joint judgment of the lower court sought to be enforced in this case is interest by way of damages, and not by way of earnings from loans, etc. Art. 2209 of the Civil Code shall apply. Concededly, there have been seeming variances in the above holdings. The cases can perhaps be classified into two groups according to the similarity of the issues involved and the corresponding rulings rendered by the court. The "first group" would consist of the cases of Reformina v. Tomol (1985), Philippine Rabbit Bus Lines v. Cruz(1986), Florendo v. Ruiz (1989) and National Power Corporation v. Angas (1992). In the "second group" would be Malayan Insurance Company v.Manila Port Service (1969), Nakpil and Sons v. Court of Appeals (1988), and American Express International v.Intermediate Appellate Court (1988). In the "first group", the basic issue focuses on the application of either the 6% (under the Civil Code) or 12% (under the Central Bank Circular) interest per annum. It is easily discernible in these cases that there has been a consistent holding that the Central Bank Circular imposing the 12% interest per annum applies only to loans or forbearance 16 of money, goods or credits, as well as to judgments involving such loan or forbearance of money, goods or credits, and that the 6% interest under the Civil Code governs when the transaction involves the payment of indemnities in the concept of damage arising from the breach or a delay in the performance of obligations in general. Observe, too, that in these cases, a common time frame in the computation of the 6% interest per annum has been applied, i.e., from the time the complaint is filed until the adjudged amount is fully paid. The "second group", did not alter the pronounced rule on the application of the 6% or 12% interest per annum, 17depending on whether or not the amount involved is a loan or forbearance, on the one hand, or one of indemnity for damage, on the other hand. Unlike, however, the "first group" which remained consistent in holding that the running of the legal interest should be from the time of the filing of the complaint until fully paid, the "second group" varied on the commencement of the running of the legal interest. Malayan held that the amount awarded should bear legal interest from the date of the decision of the court a quo,explaining that "if the suit were for damages, 'unliquidated and not known until definitely ascertained, assessed and determined by the courts after proof,' then, interest 'should be from the date of the decision.'" American Express International v. IAC, introduced a different time frame for reckoning the 6% interest by ordering it to be "computed from the finality of (the) decision until paid." The Nakpil and Sons case ruled that 12% interest per annum should be imposed from the finality of the decision until the judgment amount is paid. The ostensible discord is not difficult to explain. The factual circumstances may have called for different applications, guided by the rule that the courts are vested with discretion, depending on the equities of each case, on the award of interest. Nonetheless, it may not be unwise, by way of clarification and reconciliation, to suggest the following rules of thumb for future guidance. I. When an obligation, regardless of its source, i.e., law, contracts, quasi-contracts, delicts or quasidelicts 18 is breached, the contravenor can be held liable for damages. 19 The provisions under Title XVIII on "Damages" of the Civil Code govern in determining the measure of recoverable damages. 20

II. With regard particularly to an award of interest in the concept of actual and compensatory damages, the rate of interest, as well as the accrual thereof, is imposed, as follows: 1. When the obligation is breached, and it consists in the payment of a sum of money, i.e., a loan or forbearance of money, the interest due should be that which may have been stipulated in writing. 21 Furthermore, the interest due shall itself earn legal interest from the time it is judicially demanded. 22 In the absence of stipulation, the rate of interest shall be 12% per annum to be computed from default, i.e., from judicial or extrajudicial demand under and subject to the provisions of Article 1169 23 of the Civil Code. 2. When an obligation, not constituting a loan or forbearance of money, is breached, an interest on the amount of damages awarded may be imposed at the discretion of the court 24 at the rate of 6% per annum. 25 No interest, however, shall be adjudged on unliquidated claims or damages except when or until the demand can be established with reasonable certainty. 26 Accordingly, where the demand is established with reasonable certainty, the interest shall begin to run from the time the claim is made judicially or extrajudicially (Art. 1169, Civil Code) but when such certainty cannot be so reasonably established at the time the demand is made, the interest shall begin to run only from the date the judgment of the court is made (at which time the quantification of damages may be deemed to have been reasonably ascertained). The actual base for the computation of legal interest shall, in any case, be on the amount finally adjudged. 3. When the judgment of the court awarding a sum of money becomes final and executory, the rate of legal interest, whether the case falls under paragraph 1 or paragraph 2, above, shall be 12% per annum from such finality until its satisfaction, this interim period being deemed to be by then an equivalent to a forbearance of credit. WHEREFORE, the petition is partly GRANTED. The appealed decision is AFFIRMED with the MODIFICATION that the legal interest to be paid is SIX PERCENT (6%) on the amount due computed from the decision, dated 03 February 1988, of the court a quo. A TWELVE PERCENT (12%) interest, in lieu of SIX PERCENT (6%), shall be imposed on such amount upon finality of this decision until the payment thereof. SO ORDERED. Narvasa, C.J., Cruz, Feliciano, Padilla, Bidin, Regalado, Davide, Jr., Romero, Bellosillo, Melo, Quiason, Puno and Kapunan, JJ., concur. Mendoza, J., took no part.

#Footnotes

1 Art. 1734. Common carriers are responsible for the loss, destruction, or deterioration of the goods, unless the same is due to any of the following causes only: (1) Flood, storm, earthquake, lightning, or other natural disaster or calamity; (2) Act of the public enemy in war, whether international or civil;

(3) Act or omission of the shipper or owner of the goods; (4) The character of the goods or defects in the packing or in the containers; (5) Order or act of competent public authority. 2 28 SCRA 65. 3 Penned by Justice Conrado Sanchez, concurred in by Justices Jose B.L. Reyes, Arsenio Dizon, Querube Makalintal, Calixto Zaldivar, Enrique Fernando, Francisco Capistrano, Claudio Teehankee and Antonio Barredo, Chief Justice Roberto Concepcion and Justice Fred Ruiz Castro were on official leave. 4 The correct caption of the case is "Claro Rivera vs. Amadeo Matute, L-6998, 29 February 1956," 98 Phil. 516. 5 139 SCRA 260, 265. 6 Penned by Justice Serafin Cuevas, concurred in by Justices Hermogenes Concepcion, Jr., Vicente Abad Santos, Ameurfina Melencio-Herrera, Venicio Escolin, Lorenzo Relova, Hugo Gutierrez, Jr., Buenaventura de la Fuente, Nestor Alampay and Lino Patajo. Justice Ramon Aquino concurred in the result. Justice Efren Plana filed a concurring and dissenting opinion, concurred in by Justice Claudio Teehankee while Chief Justice Felix Makasiar concurred with the separate opinion of Justice Plana. 7 143 SCRA 158. 8 Penned by then Justice, now Chief Justice, Andres Narvasa, concurred in by Justices Pedro Yap, Ameurfina Melencio-Herrera, Isagani A. Cruz and Edgardo Paras. 9 160 SCRA 334. 10 Penned by Justice Edgardo Paras, with the concurrence of Justices Marcelo Fernan, Teodoro Padilla, Abdulwahid Bidin, and Irene Cortes. Justice Hugo Gutierrez, Jr., took no part because he was the ponente in the Court of Appeals. 11 167 SCRA 209. 12 Rendered per curiam with the concurrence of then Chief Justice Marcelo Fernan, Justices Andres Narvasa, Isagani A. Cruz, Emilio Gancayco, Teodoro Padilla, Abdulwahid Bidin, Abraham Sarmiento, Irene Cortes, Carolina Grio-Aquino, Leo Medialdea and Florenz Regalado. Justices Ameurfina Melencio-Herrera and Hugo Gutierrez, Jr., took no part because they did not participate in the deliberations. Justices Edgardo Paras and Florentino Feliciano also took no part. 13 170 SCRA 461. 14 208 SCRA 542.

15 Penned by Justice Edgardo Paras with the concurrence of Justices Ameurfina Melencio-Herrera, Teodoro Padilla, Florenz Regalado and Rodolfo Nocon. 16 Black's Law Dictionary (1990 ed., 644) citing the case of Hafer v. Spaeth, 22 Wash. 2d 378, 156 P.2d 408, 411 defines the word forbearance, within the context of usury law, as a contractual obligation of lender or creditor to refrain, during given period of time, from requiring borrower or debtor to repay loan or debt then due and payable. 17 In the case of Malayan Insurance, the application of the 6% and 12% interest per annum has no bearing considering that this case was decided upon before the issuance of Circular No. 416 by the Central Bank. 18 Art. 1157. Obligations arise from. (1) Law; (2) Contracts; (3) Quasi-contracts; (4) Acts or omissions punished by law; and (5) Qausi-delicts." 19 Art. 1170. Those who in the performance of their obligations are guilty of fraud, negligence, or delay, and those who in any manner contravene the tenor thereof, are liable for damages. 20 Art. 2195. The provisions of this Title (on Damages) shall be respectively applicable to all obligations mentioned in article 1157. 21 Art. 1956. No interest shall be due unless it has been expressly stipulated in writing. 22 Art. 2212. Interest due shall earn legal interest from the time it is judicially demanded, although the obligation may be silent upon this point. 23 Art. 1169. Those obliged to deliver or to do something incur in delay from the time the obligee judicially or extrajudicially demands from them the fulfillment of their obligation. "However, the demand by the creditor shall not be necessary in order that delay may exist: (1) When the obligation or the law expressly so declare; or (2) When from the nature and the circumstances of the obligation it appears that the designation of the time when the thing is to be delivered or the service is to be rendered was a controlling motive for the establishment of the contract; or

(3) When demand would be useless, as when the obligor has rendered it beyond his power to perform. "In reciprocal obligations, neither party incurs in delay if the other does not comply or is not ready to comply in a proper manner with what is incumbent upon him. From the moment one of the parties fulfills his obligation, delay by the other begins." 24 Art. 2210. Interest may, in the discretion of the court, be allowed upon damages awarded for breach of contract. Art. 2211. In crimes and quasi-delicts, interest as a part of the damages may, in a proper case, be adjudicated in the discretion of the court. 25 Art. 2209. If the obligation consists in the payment of a sum of money, and the debtor incurs in delay, the indemnity for damages, there being no stipulation to the contrary, shall be the payment of the interest agreed upon, and in the absence of stipulation, the legal interest, which is six per cent per annum. 26 Art. 2213. Interest cannot be recovered upon unliquidated claims or damages, except when the demand can be established with reasonable certainty.

G.R. No. 141811. November 15, 2001]

FIRST METRO INVESTMENT CORPORATION, petitioner, vs. ESTE DEL SOL MOUNTAIN RESERVE, INC., VALENTIN S. DAEZ, JR., MANUEL Q. SALIENTES, MA. ROCIO A. DE VEGA, ALEXANDER G. ASUNCION, ALBERTO* M. LADORES, VICENTE M. DE VERA, JR., and FELIPE B. SESE, respondents. DECISION
DE LEON, JR., J.:

Before us is a petition for review on certiorari of the Decision[1] of the Court of Appeals[2] dated November 8, 1999 in CA-G.R. CV No. 53328 reversing the Decision[3] of the Regional Trial Court of Pasig City, Branch 159 dated June 2, 1994 in Civil Case No. 39224. Essentially, the Court of Appeals found and declared that the fees provided for in the Underwriting and Consultancy Agreements executed by and between petitioner First Metro Investment Corp. (FMIC) and respondent Este del Sol Mountain Reserve, Inc. (Este del Sol) simultaneously with the Loan Agreement dated January 31, 1978 were mere subterfuges to camouflage the usurious interest charged by petitioner FMIC. The facts of the case are as follows: It appears that on January 31, 1978, petitioner FMIC granted respondent Este del Sol a loan of Seven Million Three Hundred Eighty-Five Thousand Five Hundred Pesos (P7,385,500.00) to finance the construction and development of the Este del Sol Mountain Reserve, a sports/resort complex project located at Barrio Puray, Montalban, Rizal.[4] Under the terms of the Loan Agreement, the proceeds of the loan were to be released on staggered basis. Interest on the loan was pegged at sixteen (16%) percent per annum based on the diminishing balance. The loan was payable in thirty-six (36) equal and consecutive monthly amortizations to commence at the beginning of the thirteenth month from the date of the first release in accordance with the Schedule of Amortization.[5] In case of default, an acceleration clause was, among others, provided and the amount due was made subject to a twenty (20%) percent one-time penalty on the amount due and such amount shall bear interest at the highest rate permitted by law from the date of default until full payment thereof plus liquidated damages at the rate of two (2%) percent per month compounded quarterly on the unpaid balance and accrued interests together with all the penalties, fees, expenses or charges thereon until the unpaid balance is fully paid, plus attorneys fees equivalent to twenty-five (25%) percent of the sum sought to be recovered, which in no case shall be less than Twenty Thousand Pesos (P20,000.00) if the services of a lawyer were hired.[6] In accordance with the terms of the Loan Agreement, respondent Este del Sol executed several documents[7] as security for payment, among them, (a) a Real Estate Mortgage dated January 31, 1978 over two (2) parcels of land being utilized as the site of its development project with an area of approximately One Million Twenty-Eight Thousand and Twenty-Nine

(1,028,029) square meters and particularly described in TCT Nos. N-24332 and N-24356 of the Register of Deeds of Rizal, inclusive of all improvements, as well as all the machineries, equipment, furnishings and furnitures existing thereon; and (b) individual Continuing Suretyship agreements by co-respondents Valentin S. Daez, Jr., Manuel Q. Salientes, Ma. Rocio A. De Vega, Alexander G. Asuncion, Alberto M. Ladores, Vicente M. De Vera, Jr. and Felipe B. Sese, all dated February 2, 1978, to guarantee the payment of all the obligations of respondent Este del Sol up to the aggregate sum of Seven Million Five Hundred Thousand Pesos (P7,500,000 00) each.[8] Respondent Este del Sol also executed, as provided for by the Loan Agreement, an Underwriting Agreement on January 31, 1978 whereby petitioner FMIC shall underwrite on a best-efforts basis the public offering of One Hundred Twenty Thousand (120,000) common shares of respondent Este del Sols capital stock for a one-time underwriting fee of Two Hundred Thousand Pesos (P200,000.00). In addition to the underwriting fee, the Underwriting Agreement provided that for supervising the public offering of the shares, respondent Este del Sol shall pay petitioner FMIC an annual supervision fee of Two Hundred Thousand Pesos (P200,000.00) per annum for a period of four (4) consecutive years. The Underwriting Agreement also stipulated for the payment by respondent Este del Sol to petitioner FMIC a consultancy fee of Three Hundred Thirty-Two Thousand Five Hundred Pesos (P332,500.00) per annum for a period of four (4) consecutive years. Simultaneous with the execution of and in accordance with the terms of the Underwriting Agreement, a Consultancy Agreement was also executed on January 31, 1978 whereby respondent Este del Sol engaged the services of petitioner FMIC for a fee as consultant to render general consultancy services.[9] In three (3) letters all dated February 22, 1978 petitioner billed respondent Este del Sol for the amounts of [a] Two Hundred Thousand Pesos (P200,000.00) as the underwriting fee of petitioner FMIC in connection with the public offering of the common shares of stock of respondent Este del Sol; [b] One Million Three Hundred Thirty Thousand Pesos (P1,330,000.00) as consultancy fee for a period of four (4) years; and [c] Two Hundred Thousand Pesos (P200,000.00) as supervision fee for the year beginning February, 1978, in accordance to the Underwriting Agreement.[10] The said amounts of fees were deemed paid by respondent Este del Sol to petitioner FMIC which deducted the same from the first release of the loan. Since respondent Este del Sol failed to meet the schedule of repayment in accordance with a revised Schedule of Amortization, it appeared to have incurred a total obligation of Twelve Million Six Hundred Seventy-Nine Thousand Six Hundred Thirty Pesos and Ninety-Eight Centavos (P12,679,630.98) per the petitioners Statement of Account dated June 23, 1980,[11] to wit:

STATEMENT OF ACCOUNT OF ESTE DEL SOL MOUNTAIN RESERVE, INC. AS OF JUNE 23, 1980 PARTICULARS Total amount due as of 11-22-78 per revised amortization schedule dated AMOUNT

1-378 Interest on P7,999,631.42 @ 16% p.a. from 11-22-78 to 2-22-79 (92 days) Balance .46 One time penalty of 20% of the entire unpaid obligations under Section 6.02 (ii) of Loan Agreement Past due interest under Section 6.02 (iii) of loan Agreement: @ 19% p.a. from 2-22-79 to 11-30-79 (281 days) @ 21% p.a. from 11-30-79 to 6-23-80 (206 days) Other charges publication of extra judicial foreclosure of REM made on 5-23-80 & 6-680 Total Amount Due and Collectible as of June 23, 1980 P7,999,631.42 327,096.04 8,326,727

1,665,345.49

1,481,879.93

1,200,714.10

4,964.00 P12,679,630.98

Accordingly, petitioner FMIC caused the extrajudicial foreclosure of the real estate mortgage on June 23, 1980.[12] At the public auction, petitioner FMIC was the highest bidder of the mortgaged properties for Nine Million Pesos (P9,000,000.00). The total amount of Three Million One Hundred Eighty-Eight Thousand Six Hundred Thirty Pesos and Seventy-Five Centavos (P3,188,630.75) was deducted therefrom, that is, for the publication fee for the publication of the Sheriffs Notice of Sale, Four Thousand Nine Hundred Sixty-Four Pesos (P4,964.00); for Sheriffs fees for conducting the foreclosure proceedings, Fifteen Thousand Pesos (P15,000.00); and for Attorneys fees, Three Million One Hundred Sixty-Eight Thousand Six Hundred Sixty-Six Pesos and Seventy-Five Centavos (P3,168,666.75). The remaining balance of Five Million Eight Hundred Eleven Thousand Three Hundred Sixty-Nine Pesos and Twenty-Five Centavos (P5,811,369.25) was applied to interests and penalty charges and partly against the principal, due as of June 23, 1980, thereby leaving a balance of Six Million Eight

Hundred Sixty-Three Thousand Two Hundred Ninety-Seven Pesos and Seventy-Three Centavos (P6,863,297.73) on the principal amount of the loan as of June 23, 1980.[13] Failing to secure from the individual respondents, as sureties of the loan of respondent Este del Sol by virtue of their continuing surety agreements, the payment of the alleged deficiency balance, despite individual demands sent to each of them,[14] petitioner instituted on November 11, 1980 the instant collection suit[15]against the respondents to collect the alleged deficiency balance of Six Million Eight Hundred Sixty-Three Thousand Two Hundred Ninety-Seven Pesos and Seventy-Three Centavos (P6,863,297.73) plus interest thereon at twenty-one (21%) percent per annum from June 24, 1980 until fully paid, and twenty-five (25%) percent thereof as and for attorneys fees and costs. In their Answer, the respondents sought the dismissal of the case and set up several special and affirmative defenses, foremost of which is that the Underwriting and Consultancy Agreements executed simultaneously with and as integral parts of the Loan Agreement and which provided for the payment of Underwriting, Consultancy and Supervision fees were in reality subterfuges resorted to by petitioner FMIC and imposed upon respondent Este del Sol to camouflage the usurious interest being charged by petitioner FMIC.[16] The petitioner FMIC presented as its witnesses during the trial: Cesar Valenzuela, its former Senior Vice-President, Felipe Neri, its Vice-President for Marketing, and Dennis Aragon, an Account Manager of its Account Management Group, as well as documentary evidence. On the other hand, co-respondents Vicente M. De Vera, Jr. and Valentin S. Daez, Jr., and Perfecto Doroja, former Senior Manager and Assistant Vice-President of FMIC, testified for the respondents. After the trial, the trial court rendered its decision in favor of petitioner FMIC, the dispositive portion of which reads:

WHEREFORE, judgment is hereby rendered in favor of plaintiff and against defendants, ordering defendants jointly and severally to pay to plaintiff the amount of P6,863,297.73 plus 21% interest per annum, from June 24, 1980, until the entire amount is fully paid, plus the amount equivalent to 25% of the total amount due, as attorneys fees, plus costs of suit. Defendants counterclaims are dismissed, for lack of merit.
Finding the decision of the trial court unacceptable, respondents interposed an appeal to the Court of Appeals. On November 8, 1999, the appellate court reversed the challenged decision of the trial court. The appellate court found and declared that the fees provided for in the Underwriting and Consultancy Agreements were mere subterfuges to camouflage the excessively usurious interest charged by the petitioner FMIC on the loan of respondent Este del Sol; and that the stipulated penalties, liquidated damages and attorneys fees were excessive, iniquitous, unconscionable and revolting to the conscience, and declared that in lieu thereof, the stipulated one time twenty (20%) percent penalty on the amount due and ten (10%) percent of the amount due as attorneys fees would be reasonable and suffice to compensate petitioner FMIC for those items. Thus, the appellate court dismissed the complaint as against the individual respondents sureties and ordered petitioner FMIC to pay or reimburse respondent Este del Sol the amount of

Nine Hundred Seventy-One Thousand Pesos (P971,000.00) representing the difference between what is due to the petitioner and what is due to respondent Este del Sol, based on the following computation:[17]

A: DUE TO THE [PETITIONER] Principal of Loan P7,382,500.00 Add: 20% one-time Penalty 1,476,500.00 Attorneys fees 900,000.00 Less: Proceeds of foreclosure Sale Deficiency B. DUE TO [RESPONDENT ESTE DEL SOL] Return of usurious interest in the form of: Underwriting fee P 200,000.00 Supervision fee 200,000.00 Consultancy fee 1,330,000.00 Total amount due Este

P9,759,000.00 9,000,000.00 P 759,000.00

P 1,730,000.00

The appellee is, therefore, obliged to return to the appellant Este del Sol the difference of P971,000.00 or (P1,730,000.00 less P759,000.00).
Petitioner moved for reconsideration of the appellate courts adverse decision. However, this was denied in a Resolution[18]dated February 9, 2000 of the appellate court. Hence, the instant petition anchored on the following assigned errors:[19]

THE APPELLATE COURT HAS DECIDED QUESTIONS OF SUBSTANCE IN A WAY NOT IN ACCORD WITH LAW AND WITH APPLICABLE DECISIONS OF THIS HONORABLE COURT WHEN IT: a] HELD THAT ALLEGEDLY THE UNDERWRITING AND CONSULTANCY AGREEMENTS SHOULD NOT BE CONSIDERED SEPARATE AND DISTINCT FROM THE LOAN AGREEMENT, AND INSTEAD, THEY SHOULD BE CONSIDERED AS A SINGLE CONTRACT. b] HELD THAT THE UNDERWRITING AND CONSULTANCY AGREEMENTS ARE MERE SUBTERFUGES TO CAMOUFLAGE THE USURIOUS INTEREST CHARGED BY THE PETITIONER.

c] REFUSED TO CONSIDER THE TESTIMONIES OF PETITIONERS WITNESSES ON THE SERVICES PERFORMED BY PETITIONER. d] REFUSED TO CONSIDER THE FACT [i] THAT RESPONDENTS HAD WAIVED THEIR RIGHT TO SEEK RECOVERY OF THE AMOUNTS THEY PAID TO PETITIONER, AND [ii] THAT RESPONDENTS HAD ADMITTED THE VALIDITY OF THE UNDERWRITING AND CONSULTANCY AGREEMENTS. e] MADE AN ERRONEOUS COMPUTATION ON SUPPOSEDLY WHAT IS DUE TO EACH PARTY AFTER THE FORECLOSURE SALE, AS SHOWN IN PP. 34-35 OF THE ASSAILED DECISION, EVEN GRANTING JUST FOR THE SAKE OF ARGUMENT THAT THE APPELLATE COURT WAS CORRECT IN STIGMATIZING [i] THE PROVISIONS OF THE LOAN AGREEMENT THAT REFER TO STIPULATED PENALTIES, LIQUIDATED DAMAGES AND ATTORNEYS FEES AS SUPPOSEDLY EXCESSIVE, INIQUITOUS AND UNCONSCIONABLE AND REVOLTING TO THE CONSCIENCE AND [ii] THE UNDERWRITING, SUPERVISION AND CONSULTANCY SERVICES AGREEMENT AS SUPPOSEDLY MERE SUBTERFUGES TO CAMOUFLAGE THE USURIOUS INTEREST CHARGED UPON THE RESPONDENT ESTE BY PETITIONER. f] REFUSED TO CONSIDER THE FACT THAT RESPONDENT ESTE, AND THUS THE INDIVIDUAL RESPONDENTS, ARE STILL OBLIGATED TO THE PETITIONER.
Petitioner essentially assails the factual findings and conclusion of the appellate court that the Underwriting and Consultancy Agreements were executed to conceal a usurious loan. Inquiry upon the veracity of the appellate courts factual findings and conclusion is not the function of this Court for the Supreme Court is not a trier of facts. Only when the factual findings of the trial court and the appellate court are opposed to each other does this Court exercise its discretion to re-examine the factual findings of both courts and weigh which, after considering the record of the case, is more in accord with law and justice. After a careful and thorough review of the record including the evidence adduced, we find no reason to depart from the findings of the appellate court. First, there is no merit to petitioner FMICs contention that Central Bank Circular No. 905 which took effect on January 1, 1983 and removed the ceiling on interest rates for secured and unsecured loans, regardless of maturity, should be applied retroactively to a contract executed on January 31, 1978, as in the case at bar, that is, while the Usury Law was in full force and effect. It is an elementary rule of contracts that the laws, in force at the time the contract was made and entered into, govern it.[20] More significantly, Central Bank Circular No. 905 did not repeal nor in any way amend the Usury Law but simply suspended the latters effectivity. [21] The illegality of usury is wholly the creature of legislation. A Central Bank Circular cannot repeal a

law. Only a law can repeal another law.[22] Thus, retroactive application of a Central Bank Circular cannot, and should not, be presumed.[23] Second, when a contract between two (2) parties is evidenced by a written instrument, such document is ordinarily the best evidence of the terms of the contract. Courts only need to rely on the face of written contracts to determine the intention of the parties. However, this rule is not without exception.[24] The form of the contract is not conclusive for the law will not permit a usurious loan to hide itself behind a legal form. Parol evidence is admissible to show that a written document though legal in form was in fact a device to cover usury. If from a construction of the whole transaction it becomes apparent that there exists a corrupt intention to violate the Usury Law, the courts should and will permit no scheme, however ingenious, to becloud the crime of usury.[25] In the instant case, several facts and circumstances taken altogether show that the Underwriting and Consultancy Agreements were simply cloaks or devices to cover an illegal scheme employed by petitioner FMIC to conceal and collect excessively usurious interest, and these are: a) The Underwriting and Consultancy Agreements are both dated January 31, 1978 which is the same date of the Loan Agreement.[26] Furthermore, under the Underwriting Agreement payment of the supervision and consultancy fees was set for a period of four (4) years[27] to coincide ultimately with the term of the Loan Agreement.[28] This fact means that all the said agreements which were executed simultaneously were set to mature or shall remain effective during the same period of time. b) The Loan Agreement dated January 31, 1978 stipulated for the execution and delivery of an underwriting agreement[29]and specifically mentioned that such underwriting agreement is a condition precedent[30]for petitioner FMIC to extend the loan to respondent Este del Sol, indicating and as admitted by petitioner FMICs employees,[31] that such Underwriting Agreement is part and parcel of the Loan Agreement.[32] c) Respondent Este del Sol was billed by petitioner on February 28, 1978 One Million Three Hundred Thirty Thousand Pesos (P1,330,000.00)[33] as consultancy fee despite the clear provision in the Consultancy Agreement that the said agreement is for Three Hundred ThirtyTwo Thousand Five Hundred Pesos (P332,500.00) per annum for four (4) years and that only the first year consultancy fee shall be due upon signing of the said consultancy agreement.[34] d) The Underwriting, Supervision and Consultancy fees in the amounts of Two Hundred Thousand Pesos (P200,000.00), Two Hundred Thousand Pesos (P200,000.00) and One Million Three Hundred Thirty Thousand Pesos (P1,330,000.00), respectively, were billed by petitioner to respondent Este del Sol on February 22, 1978,[35] that is, on the same occasion of the first partial release of the loan in the amount of Two Million Three Hundred Eighty-Two Thousand Five Hundred Pesos (P2,382,500.00).[36] It is from this first partial release of the loan that the said corresponding bills for Underwriting, Supervision and Consultancy fees were deducted and apparently paid, thus, reverting back to petitioner FMIC the total amount of One Million Seven Hundred Thirty Thousand Pesos (P1,730,000.00) as part of the amount loaned to respondent Este del Sol.[37] e) Petitioner FMIC was in fact unable to organize an underwriting/selling syndicate to sell any share of stock of respondent Este del Sol and much less to supervise such a syndicate, thus

failing to comply with its obligation under the Underwriting Agreement.[38] Besides, there was really no need for an Underwriting Agreement since respondent Este del Sol had its own licensed marketing arm to sell its shares and all its shares have been sold through its marketing arm.[39] f) Petitioner FMIC failed to comply with its obligation under the Consultancy Agreement,[40] aside from the fact that there was no need for a Consultancy Agreement, since respondent Este del Sols officers appeared to be more competent to be consultants in the development of the projected sports/resort complex.[41] All the foregoing established facts and circumstances clearly belie the contention of petitioner FMIC that the Loan, Underwriting and Consultancy Agreements are separate and independent transactions. The Underwriting and Consultancy Agreements which were executed and delivered contemporaneously with the Loan Agreement on January 31, 1978 were exacted by petitioner FMIC as essential conditions for the grant of the loan. An apparently lawful loan is usurious when it is intended that additional compensation for the loan be disguised by an ostensibly unrelated contract providing for payment by the borrower for the lenders services which are of little value or which are not in fact to be rendered, such as in the instant case. [42] In this connection, Article 1957 of the New Civil Code clearly provides that:

Art. 1957. Contracts and stipulations, under any cloak or device whatever, intended to circumvent the laws against usury shall be void. The borrower may recover in accordance with the laws on usury.
In usurious loans, the entire obligation does not become void because of an agreement for usurious interest; the unpaid principal debt still stands and remains valid but the stipulation as to the usurious interest is void, consequently, the debt is to be considered without stipulation as to the interest.[43] The reason for this rule was adequately explained in the case of Angel Jose Warehousing Co., Inc. v. Child Enterprises[44]where this Court held:

In simple loan with stipulation of usurious interest, the prestation of the debtor to pay the principal debt, which is the cause of the contract (Article 1350, Civil Code), is not illegal. The illegality lies only as to the prestation to pay the stipulated interest; hence, being separable, the latter only should be deemed void, since it is the only one that is illegal.
Thus, the nullity of the stipulation on the usurious interest does not affect the lenders right to receive back the principal amount of the loan. With respect to the debtor, the amount paid as interest under a usurious agreement is recoverable by him, since the payment is deemed to have been made under restraint, rather than voluntarily.[45] This Court agrees with the factual findings and conclusion of the appellate court, to wit:

We find the stipulated penalties, liquidated damages and attorneys fees, excessive, iniquitous and unconscionable and revolting to the conscience as they hardly allow the borrower any chance of survival in case of default. And true enough, ESTE folded up when the appellee extrajudicially foreclosed on its (ESTEs) development project and

literally closed its offices as both the appellee and ESTE were at the time holding office in the same building. Accordingly, we hold that 20% penalty on the amount due and 10% of the proceeds of the foreclosure sale as attorneys fees would suffice to compensate the appellee, especially so because there is no clear showing that the appellee hired the services of counsel to effect the foreclosure; it engaged counsel only when it was seeking the recovery of the alleged deficiency.
Attorneys fees as provided in penal clauses are in the nature of liquidated damages. So long as such stipulation does not contravene any law, morals, or public order, it is binding upon the parties. Nonetheless, courts are empowered to reduce the amount of attorneys fees if the same is iniquitous or unconscionable.[46] Articles 1229 and 2227 of the New Civil Code provide that:

Art. 1229. The judge shall equitably reduce the penalty when the principal obligation has been partly or irregularly complied with by the debtor. Even if there has been no performance, the penalty may also be reduced by the courts if it is iniquitous or unconscionable. Art. 2227. Liquidated damages, whether intended as an indemnity or a penalty, shall be equitably reduced if they are iniquitous or unconscionable.
In the case at bar, the amount of Three Million One Hundred Eighty-Eight Thousand Six Hundred Thirty Pesos and Seventy-Five Centavos (P3,188,630.75) for the stipulated attorneys fees equivalent to twenty-five (25%) percent of the alleged amount due, as of the date of the auction sale on June 23, 1980, is manifestly exorbitant and unconscionable. Accordingly, we agree with the appellate court that a reduction of the attorneys fees to ten (10%) percent is appropriate and reasonable under the facts and circumstances of this case. Lastly, there is no merit to petitioner FMICs contention that the appellate court erred in awarding an amount allegedly not asked nor prayed for by respondents. Whether the exact amount of the relief was not expressly prayed for is of no moment for the reason that the relief was plainly warranted by the allegations of the respondents as well as by the facts as found by the appellate court. A party is entitled to as much relief as the facts may warrant.[47] In view of all the foregoing, the Court is convinced that the appellate court committed no reversible error in its challenged Decision. WHEREFORE, the instant petition is hereby DENIED, and the assailed Decision of the Court of Appeals is AFFIRMED. Costs against petitioner. SO ORDERED. Bellosillo, (Chairman), Mendoza, Quisumbing, and Buena, JJ., concur.

[G.R. No. 126780. February 17, 2005]

YHT

REALTY CORPORATION, ERLINDA LAINEZ and ANICIA PAYAM, petitioners, vs. THE COURT OF APPEALS and MAURICE McLOUGHLIN, respondents. DECISION

TINGA, J.:

The primary question of interest before this Court is the only legal issue in the case: It is whether a hotel may evade liability for the loss of items left with it for safekeeping by its guests, by having these guests execute written waivers holding the establishment or its employees free from blame for such loss in light of Article 2003 of the Civil Code which voids such waivers. Before this Court is a Rule 45 petition for review of the Decision[1] dated 19 October 1995 of the Court of Appeals which affirmed the Decision[2] dated 16 December 1991 of the Regional Trial Court (RTC), Branch 13, of Manila, finding YHT Realty Corporation, Brunhilda Mata-Tan (Tan), Erlinda Lainez (Lainez) and Anicia Payam (Payam) jointly and solidarily liable for damages in an action filed by Maurice McLoughlin (McLoughlin) for the loss of his American and Australian dollars deposited in the safety deposit box of Tropicana Copacabana Apartment Hotel, owned and operated by YHT Realty Corporation. The factual backdrop of the case follow. Private respondent McLoughlin, an Australian businessman-philanthropist, used to stay at Sheraton Hotel during his trips to the Philippines prior to 1984 when he met Tan. Tan befriended McLoughlin by showing him around, introducing him to important people, accompanying him in visiting impoverished street children and assisting him in buying gifts for the children and in distributing the same to charitable institutions for poor children. Tan convinced McLoughlin to transfer from Sheraton Hotel to Tropicana where Lainez, Payam and Danilo Lopez were employed. Lopez served as manager of the hotel while Lainez and Payam had custody of the keys for the safety deposit boxes of Tropicana. Tan took care of McLoughlins booking at the Tropicana where he started staying during his trips to the Philippines from December 1984 to September 1987. [3] On 30 October 1987, McLoughlin arrived from Australia and registered with Tropicana. He rented a safety deposit box as it was his practice to rent a safety deposit box every time he registered at Tropicana in previous trips. As a tourist, McLoughlin was aware of the procedure observed by Tropicana relative to its safety deposit boxes. The safety deposit box could only be opened through the use of two keys, one of which is given to the registered guest, and the other remaining in the possession of the management of the hotel. When a registered guest wished to open his safety deposit box, he alone could personally request the management who then would assign one of

its employees to accompany the guest and assist him in opening the safety deposit box with the two keys.[4] McLoughlin allegedly placed the following in his safety deposit box: Fifteen Thousand US Dollars (US$15,000.00) which he placed in two envelopes, one envelope containing Ten Thousand US Dollars (US$10,000.00) and the other envelope Five Thousand US Dollars (US$5,000.00); Ten Thousand Australian Dollars (AUS$10,000.00) which he also placed in another envelope; two (2) other envelopes containing letters and credit cards; two (2) bankbooks; and a checkbook, arranged side by side inside the safety deposit box.[5] On 12 December 1987, before leaving for a brief trip to Hongkong, McLoughlin opened his safety deposit box with his key and with the key of the management and took therefrom the envelope containing Five Thousand US Dollars (US$5,000.00), the envelope containing Ten Thousand Australian Dollars (AUS$10,000.00), his passports and his credit cards.[6]McLoughlin left the other items in the box as he did not check out of his room at the Tropicana during his short visit to Hongkong. When he arrived in Hongkong, he opened the envelope which contained Five Thousand US Dollars (US$5,000.00) and discovered upon counting that only Three Thousand US Dollars (US$3,000.00) were enclosed therein.[7] Since he had no idea whether somebody else had tampered with his safety deposit box, he thought that it was just a result of bad accounting since he did not spend anything from that envelope.[8] After returning to Manila, he checked out of Tropicana on 18 December 1987 and left for Australia. When he arrived in Australia, he discovered that the envelope with Ten Thousand US Dollars (US$10,000.00) was short of Five Thousand US Dollars (US$5,000). He also noticed that the jewelry which he bought in Hongkong and stored in the safety deposit box upon his return to Tropicana was likewise missing, except for a diamond bracelet.[9] When McLoughlin came back to the Philippines on 4 April 1988, he asked Lainez if some money and/or jewelry which he had lost were found and returned to her or to the management. However, Lainez told him that no one in the hotel found such things and none were turned over to the management. He again registered at Tropicana and rented a safety deposit box. He placed therein one (1) envelope containing Fifteen Thousand US Dollars (US$15,000.00), another envelope containing Ten Thousand Australian Dollars (AUS$10,000.00) and other envelopes containing his traveling papers/documents. On 16 April 1988, McLoughlin requested Lainez and Payam to open his safety deposit box. He noticed that in the envelope containing Fifteen Thousand US Dollars (US$15,000.00), Two Thousand US Dollars (US$2,000.00) were missing and in the envelope previously containing Ten Thousand Australian Dollars (AUS$10,000.00), Four Thousand Five Hundred Australian Dollars (AUS$4,500.00) were missing.[10] When McLoughlin discovered the loss, he immediately confronted Lainez and Payam who admitted that Tan opened the safety deposit box with the key assigned to him.[11]McLoughlin went up to his room where Tan was staying and confronted her. Tan admitted that she had stolen McLoughlins key and was able to open the safety deposit

box with the assistance of Lopez, Payam and Lainez. [12] Lopez also told McLoughlin that Tan stole the key assigned to McLoughlin while the latter was asleep. [13] McLoughlin requested the management for an investigation of the incident. Lopez got in touch with Tan and arranged for a meeting with the police and McLoughlin. When the police did not arrive, Lopez and Tan went to the room of McLoughlin at Tropicana and thereat, Lopez wrote on a piece of paper a promissory note dated 21 April 1988. The promissory note reads as follows:

I promise to pay Mr. Maurice McLoughlin the amount of AUS$4,000.00 and US$2,000.00 or its equivalent in Philippine currency on or before May 5, 1988.

[14]

Lopez requested Tan to sign the promissory note which the latter did and Lopez also signed as a witness. Despite the execution of promissory note by Tan, McLoughlin insisted that it must be the hotel who must assume responsibility for the loss he suffered. However, Lopez refused to accept the responsibility relying on the conditions for renting the safety deposit box entitled Undertaking For the Use Of Safety Deposit Box,[15] specifically paragraphs (2) and (4) thereof, to wit:

2. To release and hold free and blameless TROPICANA APARTMENT HOTEL from any liability arising from any loss in the contents and/or use of the said deposit box for any cause whatsoever, including but not limited to the presentation or use thereof by any other person should the key be lost;
. . .

4. To return the key and execute the RELEASE in favor of TROPICANA APARTMENT HOTEL upon giving up the use of the box.
[16]

On 17 May 1988, McLoughlin went back to Australia and he consulted his lawyers as to the validity of the abovementioned stipulations. They opined that the stipulations are void for being violative of universal hotel practices and customs. His lawyers prepared a letter dated 30 May 1988 which was signed by McLoughlin and sent to President Corazon Aquino.[17]The Office of the President referred the letter to the Department of Justice (DOJ) which forwarded the same to the Western Police District (WPD).[18] After receiving a copy of the indorsement in Australia, McLoughlin came to the Philippines and registered again as a hotel guest of Tropicana. McLoughlin went to Malacaang to follow up on his letter but he was instructed to go to the DOJ. The DOJ directed him to proceed to the WPD for documentation. But McLoughlin went back to Australia as he had an urgent business matter to attend to. For several times, McLoughlin left for Australia to attend to his business and came back to the Philippines to follow up on his letter to the President but he failed to obtain any concrete assistance.[19]

McLoughlin left again for Australia and upon his return to the Philippines on 25 August 1989 to pursue his claims against petitioners, the WPD conducted an investigation which resulted in the preparation of an affidavit which was forwarded to the Manila City Fiscals Office. Said affidavit became the basis of preliminary investigation. However, McLoughlin left again for Australia without receiving the notice of the hearing on 24 November 1989. Thus, the case at the Fiscals Office was dismissed for failure to prosecute. Mcloughlin requested the reinstatement of the criminal charge for theft. In the meantime, McLoughlin and his lawyers wrote letters of demand to those having responsibility to pay the damage. Then he left again for Australia. Upon his return on 22 October 1990, he registered at the Echelon Towers at Malate, Manila. Meetings were held between McLoughlin and his lawyer which resulted to the filing of a complaint for damages on 3 December 1990 against YHT Realty Corporation, Lopez, Lainez, Payam and Tan (defendants) for the loss of McLoughlins money which was discovered on 16 April 1988. After filing the complaint, McLoughlin left again for Australia to attend to an urgent business matter. Tan and Lopez, however, were not served with summons, and trial proceeded with only Lainez, Payam and YHT Realty Corporation as defendants. After defendants had filed their Pre-Trial Brief admitting that they had previously allowed and assisted Tan to open the safety deposit box, McLoughlin filed anAmended/Supplemental Complaint[20] dated 10 June 1991 which included another incident of loss of money and jewelry in the safety deposit box rented by McLoughlin in the same hotel which took place prior to 16 April 1988. [21] The trial court admitted the Amended/Supplemental Complaint. During the trial of the case, McLoughlin had been in and out of the country to attend to urgent business in Australia, and while staying in the Philippines to attend the hearing, he incurred expenses for hotel bills, airfare and other transportation expenses, long distance calls to Australia, Meralco power expenses, and expenses for food and maintenance, among others.[22] After trial, the RTC of Manila rendered judgment in favor of McLoughlin, the dispositive portion of which reads:

WHEREFORE, above premises considered, judgment is hereby rendered by this Court in favor of plaintiff and against the defendants, to wit:
1. Ordering defendants, jointly and severally, to pay plaintiff the sum of US$11,400.00 or its equivalent in Philippine Currency of P342,000.00, more or less, and the sum of AUS$4,500.00 or its equivalent in Philippine Currency of P99,000.00, or a total of P441,000.00, more or less, with 12% interest from April 16 1988 until said amount has been paid to plaintiff (Item 1, Exhibit CC); Ordering defendants, jointly and severally to pay plaintiff the sum of P3,674,238.00 as actual and consequential damages arising from the loss of his Australian and American dollars and jewelries complained against and in prosecuting his claim and rights administratively and judicially (Items II, III, IV, V, VI, VII, VIII, and IX, Exh. CC);

2.

3. 4. 5. 6.

Ordering defendants, jointly and severally, to pay plaintiff the sum of P500,000.00 as moral damages (Item X, Exh. CC); Ordering defendants, jointly and severally, to pay plaintiff the sum of P350,000.00 as exemplary damages (Item XI, Exh. CC); And ordering defendants, jointly and severally, to pay litigation expenses in the sum of P200,000.00 (Item XII, Exh. CC); Ordering defendants, jointly and severally, to pay plaintiff the sum of P200,000.00 as attorneys fees, and a fee of P3,000.00 for every appearance; and

7. Plus costs of suit.

SO ORDERED.

[23]

The trial court found that McLoughlins allegations as to the fact of loss and as to the amount of money he lost were sufficiently shown by his direct and straightforward manner of testifying in court and found him to be credible and worthy of belief as it was established that McLoughlins money, kept in Tropicanas safety deposit box, was taken by Tan without McLoughlins consent. The taking was effected through the use of the master key which was in the possession of the management. Payam and Lainez allowed Tan to use the master key without authority from McLoughlin. The trial court added that if McLoughlin had not lost his dollars, he would not have gone through the trouble and personal inconvenience of seeking aid and assistance from the Office of the President, DOJ, police authorities and the City Fiscals Office in his desire to recover his losses from the hotel management and Tan.[24] As regards the loss of Seven Thousand US Dollars (US$7,000.00) and jewelry worth approximately One Thousand Two Hundred US Dollars (US$1,200.00) which allegedly occurred during his stay at Tropicana previous to 4 April 1988, no claim was made by McLoughlin for such losses in his complaint dated 21 November 1990 because he was not sure how they were lost and who the responsible persons were. But considering the admission of the defendants in their pre-trial brief that on three previous occasions they allowed Tan to open the box, the trial court opined that it was logical and reasonable to presume that his personal assets consisting of Seven Thousand US Dollars (US$7,000.00) and jewelry were taken by Tan from the safety deposit box without McLoughlins consent through the cooperation of Payam and Lainez. [25] The trial court also found that defendants acted with gross negligence in the performance and exercise of their duties and obligations as innkeepers and were therefore liable to answer for the losses incurred by McLoughlin.[26] Moreover, the trial court ruled that paragraphs (2) and (4) of the Undertaking For The Use Of Safety Deposit Box are not valid for being contrary to the express mandate of Article 2003 of the New Civil Code and against public policy. [27] Thus, there being fraud or wanton conduct on the part of defendants, they should be responsible for all damages which may be attributed to the non-performance of their contractual obligations.[28]

The Court of Appeals affirmed the disquisitions made by the lower court except as to the amount of damages awarded. The decretal text of the appellate courts decision reads:

THE FOREGOING CONSIDERED, the appealed Decision is hereby AFFIRMED but modified as follows: The appellants are directed jointly and severally to pay the plaintiff/appellee the following amounts: 1) 2) 3) 4) 5) P153,200.00 representing the peso equivalent of US$2,000.00 and AUS$4,500.00; P308,880.80, representing the peso value for the air fares from Sidney [sic] to Manila and back for a total of eleven (11) trips; One-half of P336,207.05 or P168,103.52 representing payment to Tropicana Apartment Hotel; One-half of P152,683.57 or P76,341.785 representing payment to Echelon Tower; One-half of P179,863.20 or P89,931.60 for the taxi xxx transportation from the residence to Sidney [sic] Airport and from MIA to the hotel here in Manila, for the eleven (11) trips; One-half of P7,801.94 or P3,900.97 representing Meralco power expenses; One-half of P356,400.00 or P178,000.00 representing expenses for food and maintenance; P50,000.00 for moral damages; P10,000.00 as exemplary damages; and

6) 7) 8) 9)

10) P200,000 representing attorneys fees. With costs. SO ORDERED.

[29]

Unperturbed, YHT Realty Corporation, Lainez and Payam went to this Court in this appeal by certiorari. Petitioners submit for resolution by this Court the following issues: (a) whether the appellate courts conclusion on the alleged prior existence and subsequent loss of the subject money and jewelry is supported by the evidence on record; (b) whether the finding of gross negligence on the part of petitioners in the performance of their duties as innkeepers is supported by the evidence on record; (c) whether the Undertaking For The Use of Safety Deposit Box admittedly executed by private respondent is null and void; and (d) whether the damages awarded to private respondent, as well as the amounts thereof, are proper under the circumstances.[30] The petition is devoid of merit. It is worthy of note that the thrust of Rule 45 is the resolution only of questions of law and any peripheral factual question addressed to this Court is beyond the bounds of this mode of review. Petitioners point out that the evidence on record is insufficient to prove the fact of prior existence of the dollars and the jewelry which had been lost while deposited in the safety deposit boxes of Tropicana, the basis of the trial court and the appellate court being the sole testimony of McLoughlin as to the contents thereof. Likewise, petitioners dispute the finding of gross negligence on their part as not supported by the evidence on record. We are not persuaded. We adhere to the findings of the trial court as affirmed by the appellate court that the fact of loss was established by the credible testimony in open court by McLoughlin. Such findings are factual and therefore beyond the ambit of the present petition. The trial court had the occasion to observe the demeanor of McLoughlin while testifying which reflected the veracity of the facts testified to by him. On this score, we give full credence to the appreciation of testimonial evidence by the trial court especially if what is at issue is the credibility of the witness. The oft-repeated principle is that where the credibility of a witness is an issue, the established rule is that great respect is accorded to the evaluation of the credibility of witnesses by the trial court. [31] The trial court is in the best position to assess the credibility of witnesses and their testimonies because of its unique opportunity to observe the witnesses firsthand and note their demeanor, conduct and attitude under grilling examination.[32] We are also not impressed by petitioners argument that the finding of gross negligence by the lower court as affirmed by the appellate court is not supported by evidence. The evidence reveals that two keys are required to open the safety deposit boxes of Tropicana. One key is assigned to the guest while the other remains in the possession of the management. If the guest desires to open his safety deposit box, he must request the management for the other key to open the same. In other words, the guest alone cannot open the safety deposit box without the assistance of the management or its employees. With more reason that access to the safety deposit box should be denied if the one requesting for the opening of the safety deposit box is a stranger. Thus, in case of loss of any item deposited in the safety deposit box, it is

inevitable to conclude that the management had at least a hand in the consummation of the taking, unless the reason for the loss is force majeure. Noteworthy is the fact that Payam and Lainez, who were employees of Tropicana, had custody of the master key of the management when the loss took place. In fact, they even admitted that they assisted Tan on three separate occasions in opening McLoughlins safety deposit box.[33] This only proves that Tropicana had prior knowledge that a person aside from the registered guest had access to the safety deposit box. Yet the management failed to notify McLoughlin of the incident and waited for him to discover the taking before it disclosed the matter to him. Therefore, Tropicana should be held responsible for the damage suffered by McLoughlin by reason of the negligence of its employees. The management should have guarded against the occurrence of this incident considering that Payam admitted in open court that she assisted Tan three times in opening the safety deposit box of McLoughlin at around 6:30 A.M. to 7:30 A.M. while the latter was still asleep.[34] In light of the circumstances surrounding this case, it is undeniable that without the acquiescence of the employees of Tropicana to the opening of the safety deposit box, the loss of McLoughlins money could and should have been avoided. The management contends, however, that McLoughlin, by his act, made its employees believe that Tan was his spouse for she was always with him most of the time. The evidence on record, however, is bereft of any showing that McLoughlin introduced Tan to the management as his wife. Such an inference from the act of McLoughlin will not exculpate the petitioners from liability in the absence of any showing that he made the management believe that Tan was his wife or was duly authorized to have access to the safety deposit box. Mere close companionship and intimacy are not enough to warrant such conclusion considering that what is involved in the instant case is the very safety of McLoughlins deposit. If only petitioners exercised due diligence in taking care of McLoughlins safety deposit box, they should have confronted him as to his relationship with Tan considering that the latter had been observed opening McLoughlins safety deposit box a number of times at the early hours of the morning. Tans acts should have prompted the management to investigate her relationship with McLoughlin. Then, petitioners would have exercised due diligence required of them. Failure to do so warrants the conclusion that the management had been remiss in complying with the obligations imposed upon hotel-keepers under the law. Under Article 1170 of the New Civil Code, those who, in the performance of their obligations, are guilty of negligence, are liable for damages. As to who shall bear the burden of paying damages, Article 2180, paragraph (4) of the same Code provides that the owners and managers of an establishment or enterprise are likewise responsible for damages caused by their employees in the service of the branches in which the latter are employed or on the occasion of their functions. Also, this Court has ruled that if an employee is found negligent, it is presumed that the employer was negligent in selecting and/or supervising him for it is hard for the victim to prove the negligence of such employer.[35] Thus, given the fact that the loss of McLoughlins money was consummated through the negligence of Tropicanas employees in allowing Tan to open

the safety deposit box without the guests consent, both the assisting employees and YHT Realty Corporation itself, as owner and operator of Tropicana, should be held solidarily liable pursuant to Article 2193.[36] The issue of whether the Undertaking For The Use of Safety Deposit Box executed by McLoughlin is tainted with nullity presents a legal question appropriate for resolution in this petition. Notably, both the trial court and the appellate court found the same to be null and void. We find no reason to reverse their common conclusion. Article 2003 is controlling, thus:

Art. 2003. The hotel-keeper cannot free himself from responsibility by posting notices to the effect that he is not liable for the articles brought by the guest. Any stipulation between the hotel-keeper and the guest whereby the responsibility of the former as set forth in Articles 1998 to 2001 is suppressed or diminished shall be void.
[37]

Article 2003 was incorporated in the New Civil Code as an expression of public policy precisely to apply to situations such as that presented in this case. The hotel business like the common carriers business is imbued with public interest. Catering to the public, hotelkeepers are bound to provide not only lodging for hotel guests and security to their persons and belongings. The twin duty constitutes the essence of the business. The law in turn does not allow such duty to the public to be negated or diluted by any contrary stipulation in so-called undertakings that ordinarily appear in prepared forms imposed by hotel keepers on guests for their signature. In an early case,[38] the Court of Appeals through its then Presiding Justice (later Associate Justice of the Court) Jose P. Bengzon, ruled that to hold hotelkeepers or innkeeper liable for the effects of their guests, it is not necessary that they be actually delivered to the innkeepers or their employees. It is enough that such effects are within the hotel or inn.[39] With greater reason should the liability of the hotelkeeper be enforced when the missing items are taken without the guests knowledge and consent from a safety deposit box provided by the hotel itself, as in this case. Paragraphs (2) and (4) of the undertaking manifestly contravene Article 2003 of the New Civil Code for they allow Tropicana to be released from liability arising from any loss in the contents and/or use of the safety deposit box for any cause whatsoever.[40] Evidently, the undertaking was intended to bar any claim against Tropicana for any loss of the contents of the safety deposit box whether or not negligence was incurred by Tropicana or its employees. The New Civil Code is explicit that the responsibility of the hotel-keeper shall extend to loss of, or injury to, the personal property of the guests even if caused by servants or employees of the keepers of hotels or inns as well as by strangers, except as it may proceed from any force majeure.[41] It is the loss through force majeure that may spare the hotel-keeper from liability. In the case at bar, there is no showing that the act of the thief or robber was done with the use of arms or through an irresistible force to qualify the same as force majeure.[42] Petitioners likewise anchor their defense on Article 2002[43] which exempts the hotelkeeper from liability if the loss is due to the acts of his guest, his family, or visitors. Even

a cursory reading of the provision would lead us to reject petitioners contention. The justification they raise would render nugatory the public interest sought to be protected by the provision. What if the negligence of the employer or its employees facilitated the consummation of a crime committed by the registered guests relatives or visitor? Should the law exculpate the hotel from liability since the loss was due to the act of the visitor of the registered guest of the hotel? Hence, this provision presupposes that the hotel-keeper is not guilty of concurrent negligence or has not contributed in any degree to the occurrence of the loss. A depositary is not responsible for the loss of goods by theft, unless his actionable negligence contributes to the loss.[44] In the case at bar, the responsibility of securing the safety deposit box was shared not only by the guest himself but also by the management since two keys are necessary to open the safety deposit box. Without the assistance of hotel employees, the loss would not have occurred. Thus, Tropicana was guilty of concurrent negligence in allowing Tan, who was not the registered guest, to open the safety deposit box of McLoughlin, even assuming that the latter was also guilty of negligence in allowing another person to use his key. To rule otherwise would result in undermining the safety of the safety deposit boxes in hotels for the management will be given imprimatur to allow any person, under the pretense of being a family member or a visitor of the guest, to have access to the safety deposit box without fear of any liability that will attach thereafter in case such person turns out to be a complete stranger. This will allow the hotel to evade responsibility for any liability incurred by its employees in conspiracy with the guests relatives and visitors. Petitioners contend that McLoughlins case was mounted on the theory of contract, but the trial court and the appellate court upheld the grant of the claims of the latter on the basis of tort.[45] There is nothing anomalous in how the lower courts decided the controversy for this Court has pronounced a jurisprudential rule that tort liability can exist even if there are already contractual relations. The act that breaks the contract may also be tort.[46] As to damages awarded to McLoughlin, we see no reason to modify the amounts awarded by the appellate court for the same were based on facts and law. It is within the province of lower courts to settle factual issues such as the proper amount of damages awarded and such finding is binding upon this Court especially if sufficiently proven by evidence and not unconscionable or excessive. Thus, the appellate court correctly awarded McLoughlin Two Thousand US Dollars (US$2,000.00) and Four Thousand Five Hundred Australian dollars (AUS$4,500.00) or their peso equivalent at the time of payment,[47] being the amounts duly proven by evidence.[48] The alleged loss that took place prior to 16 April 1988 was not considered since the amounts alleged to have been taken were not sufficiently established by evidence. The appellate court also correctly awarded the sum of P308,880.80, representing the peso value for the air fares from Sydney to Manila and back for a total of eleven (11) trips; [49] one-half of P336,207.05 or P168,103.52 representing payment to Tropicana; [50] one-half of P152,683.57 or P76,341.785 representing payment to Echelon Tower;[51] one-half of P179,863.20 or P89,931.60 for the taxi or transportation expenses from McLoughlins residence to Sydney Airport and from MIA to the hotel here in Manila, for the eleven (11) trips;[52] one-half of P7,801.94 or P3,900.97 representing Meralco power

expenses;[53] one-half ofP356,400.00 or P178,000.00 representing expenses for food and maintenance.[54] The amount of P50,000.00 for moral damages is reasonable. Although trial courts are given discretion to determine the amount of moral damages, the appellate court may modify or change the amount awarded when it is palpably and scandalously excessive. Moral damages are not intended to enrich a complainant at the expense of a defendant. They are awarded only to enable the injured party to obtain means, diversion or amusements that will serve to alleviate the moral suffering he has undergone, by reason of defendants culpable action.[55] The awards of P10,000.00 as exemplary damages and P200,000.00 representing attorneys fees are likewise sustained. WHEREFORE, foregoing premises considered, the Decision of the Court of Appeals dated 19 October 1995 is hereby AFFIRMED. Petitioners are directed, jointly and severally, to pay private respondent the following amounts:

(1) (2) (3) (4) (5)

US$2,000.00 and AUS$4,500.00 or their peso equivalent at the time of payment; P308,880.80, representing the peso value for the air fares from Sydney to Manila and back for a total of eleven (11) trips; One-half of P336,207.05 or P168,103.52 representing payment to Tropicana Copacabana Apartment Hotel; One-half of P152,683.57 or P76,341.785 representing payment to Echelon Tower; One-half of P179,863.20 or P89,931.60 for the taxi or transportation expense from McLoughlins residence to Sydney Airport and from MIA to the hotel here in Manila, for the eleven (11) trips; One-half of P7,801.94 or P3,900.97 representing Meralco power expenses; One-half of P356,400.00 or P178,200.00 representing expenses for food and maintenance; P50,000.00 for moral damages; P10,000.00 as exemplary damages; and

(6) (7) (8) (9)

(10) P200,000 representing attorneys fees.

With costs.
SO ORDERED. Puno, (Chairman), Callejo, Sr., and Chico-Nazario, JJ., concur. Austria-Martinez, J., no part.

Republic of the Philippines SUPREME COURT Manila THIRD DIVISION

G.R. No. 33174 July 4, 1991 PHILIPPINE NATIONAL BANK, petitioner, vs. THE HONORABLE COURT OF APPEALS (Special Fourth Division), LUZON SURETY CO., INC., and ESTANISLAO E. DEPUSOY, trading under the style of E.E. DEPUSOY CONSTRUCTION, respondents. Domingo A. Santiago, Jr., Lucas R. Vidad, Nicolas C. Alino, Cesar T. Basa and Roland A. Niedo for petitioner. Tolentino, Cruz, Reyes, Lava & Manuel for respondent Luzon Surety Co., Inc. F.M. Ejercito for respondent E.E. Depusoy Construction.

DAVIDE, JR., J.:p Before Us is a petition for the review on certiorari of the decision of the Court of Appeals promulgated on 12 December 1970 in CA-G.R. No. 36615-R 1 affirming, with modification, the decision of the then Court of First Instance (now Regional Trial Court) of Manila, Branch VII, dated 30 September 1959 in Civil Case No. 35163 2 an action for collection of sum of money filed by petitioner against private respondents. The dispositive portion of the trial court's decision reads: IN VIEW WHEREOF: 1. The case against Luzon Surety Co. is dismissed but its counterclaim is also dismissed for lack of sufficient merit; 2. Defendant Estanislao Depusoy is condemned to pay unto the Philippine National Bank the respective sums as principal of P35,000.00, P30,000.00, P10,000.00, and P25,000.00 together with the interests as outlined in the statement of account set forth in the body of this decision. No pronouncements as to costs.
SO ORDERED. 3

The dispositive portion of the decision of respondent Court of Appeals reads:

WHEREFORE, with the modification that the defendant Depusoy shall pay 10% interest on the amount of the judgment, the decision of the trial court is hereby affirmed in all other respects. Without pronouncement as to costs. 4

However, immediately preceding this is a paragraph reading: We agree with the appellant that the trial court erred in not sentencing Estanislao Depusoy to pay attorney's fees equivalent to 10% of the amount due. This is expressly provided for in the promissory notes, and as it does not appear to be unreasonable, the stipulations of the parties should be given effect. As carefully summarized by the Court of Appeals, the relevant facts in this case are as follows: On August 6, 1955, Estanislao Depusoy, doing business under the name of E.E. Depusoy Construction, and the Republic of the Philippines, represented by the Director of Public Works, entered into a building contract, Exhibit 2-Luzon, for the construction of the GSIS building at Arroceros Street, Manila, Depusoy to furnish all materials, labor, plans, and supplies needed in the construction. Depusoy applied for credit accommodation with the plaintiff. This was approved by the Board of Directors in various resolutions subject to the conditions that he would assign all payments to be received from the Bureau of Public Works of the GSIS to the bank, furnish a surety bond, and the surety to deposit P10,000.00 to the plaintiff. The total accommodation granted to Depusoy was P100,000.00. This was later extended by another P10,000.00 and P25,000.00, but in no case should the loan exceed P100,000.00, Exhibits K-1, K-2, K-3 and K-4. In compliance with these conditions, Depusoy executed a Deed of Assignment of all money to be received by him from the GSIS as follows: That I, Estanislao Depusoy, of legal age, Filipino, married to Lourdes G. Gonzales, doing business under the style of E. E. San Beda Subdivision, Manila, for and in consideration of certain loans, overdrafts or other credit accommodations to be granted by the PHILIPPINE NATIONAL BANK, Manila, have assigned, transferred and conveyed and by these presents do hereby assign, transfer and convey unto the said PHILIPPINE NATIONAL BANK, its successors and assigns all payment to be received from my contract with the Bureau of Public Works, Republic of the Philippines date (sic) August 6, 1955. By virtue of this assignment it is hereby understood that the assignor hereby acknowledges the monies, sums or payments due from the Bureau of Public Works, Republic of the Philippines, and which are hereby assigned to the PHILIPPINE NATIONAL BANK as monies, sums and payments belonging to the PHILIPPINE NATIONAL BANK, and that any act or misappropriation or conversion which the assignor or the latter's representatives may commit with respect to the said sums, monies and payments will subject the assignor or the latter's representatives to the criminal liabilities imposed by the Penal Code and such other damages which the Civil Code provides. It is further understood that the PHILIPPINE NATIONAL BANK can collect and receive any and all sums, monies and payments abovementioned from the Bureau of Public Works, Republic of the Philippines, and for that matter said bank is hereby authorized to indorse for deposit or for encashment any and all checks, treasury warrants, money orders, drafts and other kinds of negotiable

instruments that might be issued in connection with the payment herein assigned. This assignment shall be irrevocable subject to the terms and conditions of the promissory notes, overdrafts and any other kind of documents which the PHILIPPINE NATIONAL BANK have (sic) required or may require the assignor to execute to evidence the above-mentioned obligation. Luzon thereafter executed two surety bonds, one for the sum of P40,000.00 Exhibit D, and the other for P60,000.00, Exhibit E. Exhibit its D and E, except for the amount, are expressed in the same words as follows: That we, E. E. DEPUSOY CONSTRUCTION CO., of 32 2nd Street, San Beda Subdv., Manila, as principal and LUZON SURETY COMPANY, INC., a corporation duly organized and existing under and by virtue of the laws of the Philippines, as surety, are held and firmly bound unto the PHILIPPINE NATIONAL BANK of Manila in the sum of SIXTY THOUSAND PESOS ONLY (P60,000.00), Philippine Currency, for the payment of which sum, well and truly to be made, we bind ourselves, our heirs, executors, administrators, successors, and assigns, jointly and severally, firmly by these presents: The conditions of the obligation are as follows: WHEREAS, the above bounden principal, on the . . . . day of September, 1956 in consideration of a certain loan of (P60,000.00) executed a Deed of Assignment in favor of the Philippine National Bank on all payments to be received by him from the Bureau of Public Works in connection with a contract dated August 6, 1956. WHEREAS, said PHILIPPINE NATIONAL BANK, requires said principal to give a good and sufficient bond in the above stated sum to secure the full and faithful performance on his part of said Agreement. NOW, THEREFORE, if the principal shall well and truly perform and fulfill all the undertakings, covenants, terms, conditions and agreement stipulated in said Agreement then, this obligation shall be null and void; otherwise, it shall remain in full force and effect. The liability of LUZON SURETY COMPANY, INC., under this bond will expire January 31, 1957. Furthermore, it is hereby agreed and understood that the LUZON SURETY COMPANY, INC. will not be liable for any claim not discovered and presented to the company within THREE (3) months from the expiration of this bond and that the obligee hereby waives his right to file any court action against the surety after the termination of the period of the three months above mentioned. With the consent of Luzon, the bond was extended for another 6 months from January 31, 1957.

Under the credit accommodation granted by the plaintiff bank, Depusoy obtained several amounts from the bank. On January 14, 1957, Depusoy received P50,000.00 from the bank which he promised to pay in installments on the dates therein indicated, Exhibit A. On January 17, 1957, he received another P50,000.00 under the same conditions as the promissory note Exhibit A, except with respect to the time of payment. Under this arrangement all payments made by the GSIS were payable to the Philippine National Bank. The treasury warrants or checks, however, were not sent directly to the plaintiff. They were received by Depusoy, who in turn delivered them to the plaintiff bank. The plaintiff then applied the money thus received, first, to the payment of the amount due on the promissory notes at the time of the receipt of the treasury warrants or checks, and the balance was credited to the current account of Depusoy with the plaintiff bank. A total of P1,309,461.89 were (sic) paid by the GSIS to the plaintiff bank for the account of Estanislao Depusoy, Exhibit 1-Luzon. Of this amount, P246,408.91 were (sic) paid according to Exhibit 1 for the importation of construction materials, and P1,063,408.91 were (sic) received by the Loans and Discounts Department of the plaintiff bank. This amount was disposed off by the plaintiffs Loans & Discounts Department as follows: a) P795,976.64 were (sic) credited to the current account of Depusoy with the plaintiff; b) P20,000.00 were (sic) credited to the plaintiffs Foreign Department; c) P2,552.94 were (sic) credited to the payment of interest; and d) P210,000.00 were (sic) applied to the principal of indebtedness. (Exh. N-1).
Depusoy defaulted in his building contract with the Bureau of Public Works, and sometime in September, 1957, the Bureau of Public Works rescinded its contract with Depusoy. No further amounts were thereafter paid by the GSIS to the plaintiff bank. The amount of the loan of Depusoy which remains unpaid, including interest, is over P100,000.00. Demands for payment were made upon Depusoy and Luzon, and as no payment was made, . . . 5

herein petitioner filed with the trial court a complaint (Civil Case No. 35163) against Estanislao Depusoy and private respondent Luzon Surety Co. Inc. (LSCI). After trial on the merits, the trial court rendered a decision the dispositive portion of which is above adverted to. In dismissing the case as against LSCI, the trial court ruled that the surety bonds it issued, Exhs. "D" and "E";
. . . guaranteed only the faithful performance of the deed of assignments, Exhibit C, and nothing else. That the bonds were extended by the letters Exhs. E and I did not change their conditions. . . . 6

Petitioner appealed from said decision to the Court of Appeals, (C.A.-G.R. No. 6615-R) relying on the following assigned errors:

I The trial court erred in holding that defendant-appellee Luzon Surety Company, Inc. "guaranteed only the faithful performance of the deed of assignment, Exh. "C", and nothing else"; in holding the defense of the appellee Luzon Surety Company, Inc., that there has been no breach of the terms and conditions of the bonds Exhs. "D" and "E"; in finding that the "bonds" can only be therefore understood to guarantee that the payment due from the GSIS to Depusoy would be delivered unto the bank. II The trial court erred in not finding that the bonds (Exhs. "D" and "E") should be read jointly with the resolutions approving the loan (Exhs. "K" to "K-5"), the promissory notes and the deed of assignment in the determination of the true intent of the parties in the execution of the bonds which are the basis of the liability of the defendantappellee Luzon Surety Company, Inc., in not considering resolutions Exhs. "K" to "K5"; promissory notes Exhs. "B", "G", and "H" and the deed of assignment, Exh. "C" as integral parts of the surety bonds Exhs. "D" and "E" as therein incorporated by reference in said surety bonds as such necessarily bound the appellee Luzon Surety Company to their terms. III The trial court erred in not construing the terms of the bonds in favor of the plaintiffappellant PNB and against the defendant-appellee Luzon Surety Company, Inc. IV The lower court erred in not holding that the bonds Exhs. "D" and "E" and letters of extension Exhs. "F" and "I" were compensated surety agreements executed as required by PNB board resolution Exhs. "K" to "K-5" for the purpose of securing the payment to the PNB of the amount advanced by the said bank to the appellee Estanislao Depusoy to finance the construction of the GSIS building subject to the construction contract Exh. "2-Luzon" or Exh. "O-PNB"; in not finding that Exhs. "F" and "I" are indubitable proofs that defendant-appellee Luzon Surety Company, Inc., is liable for the repayment of the P100,000.00 loan and the additional accommodations granted to the defendant-appellee Estanislao Depusoy; and in not finding and holding that Exhs. "D" and "E" in the sense that they have been extended so as to secure new accommodations aside from the original obligation mentioned in said bonds. V The trial court erred in finding that all payments due from the GSIS construction to Depusoy were actually delivered unto the bank; and in not finding that Depusoy made diversions from these amounts for which the surety should be bound to answer under the terms of its bonds. VI

The trial court erred in not finding that when appellee Depusoy incurred breach (sic) in his construction contract with the Bureau of Public Works said default on the part of the principal in his contract resulted in a consequent breach of his undertaking under the deed of assignment; and that consequently any breach in the undertaking of the principal in said deed of assignment communicated liability to the surety; in not finding likewise that breach on the part of the appellee Depusoy in his undertaking under the promissory notes meant breach of the terms of the deed of assignment which incorporated said promissory notes and that this breach in the deed of assignment communicated liability to the surety under the terms of the bonds; and that trial court (sic) erred in not finding that there was a breach of the bonds due to the failure of the appellee Luzon Surety Company, Inc. to see to it that the full amount of P1,309,461.89 remitted by the GSIS to the PNB was actually received by the PNB; in not finding that the PNB did not receive all the amounts still due to the said institutions as remitted by the GSIS under the terms of the deed of assignment. VII The trial court erred in not sentencing defendant-appellee Estanislao Depusoy to pay the attorney's fees equivalent to 10% of the amounts due and the costs of the suit. VIII The trial court erred in not admitting in the evidence proof of the amount actually received by the foreign department of the PNB and the letter of the GSIS to the PNB as part of the rebuttal evidence of the defendant-appellee (see evidences (sic) offered as part of the record on appeal for purposes of review). IX
The trial court erred in relying exclusively for its decision on the relation of facts presented by the appellee-Luzon Surety Company; disregarding evidences (sic) presented by the PNB consist of documentary evidences (sic) disclosing patent facts appearing on the face of said documents and that consequently the decision is not based on the real facts and law of the case; and consequently dismissing the case against the Luzon Surety.7

In due course the Court of Appeals rendered the decision adverted to above. In disposing of the assigned errors, it patiently examined and analyzed the facts and made an extensive, exhaustive and well-reasoned disquisition thereon which We deem necessary to quote: The assignment of error maybe (sic) reduced into one single question, what is the obligation of Luzon under the surety bonds, or, stated otherwise, what obligation had been guaranteed by Luzon under the terms of the surety bonds? It is the contention of the plaintiff that the surety bonds, Exhibits D and E, guaranteed the payment of the loans or the debt of Depusoy to the plaintiff to the extent of P100,000.00. Luzon, however, contends that what it guaranteed was the performance of Depusoy of his obligation under the Deed of Assignment, Exhibit C, and not other agreements between Depusoy and the bank. This contention was upheld by the lower court. This, we believe is the correct construction of the surety bonds. Under the surety bonds, Depusoy and Luzon bound themselves to the plaintiff in the sum of P100,000.00. It recited that the principal, Depusoy, and Luzon bound themselves jointly and severally to the PNB under the following conditions: that "in consideration of a certain

loan, Depusoy executed a Deed of Assignment in favor of the PNB on all payments to be received by him from the Bureau of Public Works in connection with a contract of August 6, 1956"; that the PNB required the principal to give a good and sufficient bond to secure the full and faithful performance on his part of said agreement; and that, "if the principal shall well and truly perform and fulfill all the undertakings, covenants, terms and conditions, and agreements stipulated in said agreement, this obligation shall be null and void". Now, what are the undertakings, covenants, terms, conditions, and agreements stipulated in the said agreement or Deed of Assignment? The undertakings of the principal Depusoy, under the Deed of Assignment, Exhibit C, were to assign, transfer, and convey to the plaintiff bank all payments to be received by Depusoy from the Bureau of Public Works; that Depusoy acknowledged that such sums assigned and received by the plaintiff would belong to the PNB, and if any conversion should be made by the assignor or his representative, he would be criminally liable; that the PNB could collect and receive all sums and monies, and payments, and the bank was authorized to endorse for deposit or for encashment all checks or money orders, or negotiable instruments that it might receive in connection with the assignment. Nowhere in the Deed of Assignment nor in the bonds did Luzon guarantee that Depusoy would pay his indebtedness to the plaintiff and that upon Depusoy's default, Luzon would be liable. When the terms of the agreement are clear, there can be no room for construction. If the intention of the parties, and particularly of Luzon, was to guarantee the payment of the debt of Depusoy to the plaintiff, the bonds would have recited in its preamble that the principal was indebted to the PNB and that the PNB required the principal to give a good and sufficient bond to secure the faithful performance on his part of the terms of the promissory notes. Instead of doing so, it recited that in consideration of a certain loan, the principal had executed a Deed of Assignment. The recital of the loan in the amount of P40,000.00, Exhibit D and P60,000.00, Exhibit E, is merely a statement of the cause or consideration of the Deed of Assignment and not a statement of the obligation. The Deed of Assignment necessarily was executed for a consideration, otherwise, it would be null and void. The obligation recited in the surety bonds, Exhibits D and E, is not the loan, but the Deed of Assignment; and that precisely was what was guaranteed by Luzon in the bonds, Exhibits D and E, as shown by the following: 1) Contrary to the usual practice of the plaintiff, Luzon did not sign the promissory notes, Exhibits A and B; 2) Although the resolutions of the Board of Directors required that the surety should make a deposit of P10,000.00, Luzon did not make such a deposit, the verbal testimony of Delfin Santiago, Manager of the Loans and Discounts Department, to the contrary notwithstanding. The documentary evidence was submitted to prove that was the fact; 3) Delfin Santiago finally admitted that what was guaranteed was not the loan but the Deed of Assignment. Delfin Santiago testified as follows: Q Did you inform the Luzon Surety Company, Inc. of your actuation on this fact, that is in your giving Mr. Depusoy portions of the payments made by the GSIS

to the Philippine National Bank pursuant to the Deed of Assignment? A No, because I understand that the Luzon Surety Company, Inc. stands as surety on that assignment on which the full payment of the contract is assigned to the payments. (TSN, p. 54) xxx xxx xxx Q Usually Mr. Santiago, it is the practice of the Philippine National Bank in cases where a surety company guarantees the account of the borrower, the Philippine National Bank requires the surety company to sign the promissory note as a co-maker, is it not? A In case the condition is approved, the surety I remember very well, the last accommodation given to Mr. Depusoy . . . that was the condition, but the Luzon Surety Company, Inc. did not want to sign, so at the request of the Luzon Surety Company, Inc. and Mr. Depusoy, the approved accommodation was modified in such a way as only to the surety bond. ATTY. NERI: If Your Honor please. We object to the question, it was not covered by the direct examination. COURT: Answer. A Well, apparently that was the intention because you decided to sign jointly and severally the promissory note. Q And because that was our intention the Philippine National Bank agreed to that desire of Luzon Surety Company, Inc. by issuing only a similar surety bond and not signing as co-maker, and jointly and severally on the promissory note? ATTY. NERI: Objection Your Honor, the contract is the best evidence. COURT: Answer. A As usual, as at the beginning, we take it that your bonding the Deed of Assignment is the understanding that all payments for the whole contract will go to us. (TSN, pp. 55-57, July 21, 1958) xxx xxx xxx

Q Did you read the terms of the bond? A Yes, sir, that's right. Q And you further noted in the bond it merely guaranteed the deed of assignment, is that correct? of Mr. Depusoy? A Yes, sir. ATTY. CRUZ: And not this particular loan, is it not? ATTY. NERI: We refer to the document, Your Honor. COURT: Sustained. (TSN, pp. 9-10, June 26, 1959) xxx xxx xxx ATTY. NERI: Now, Mr. Depusoy in his testimony stated that when you received these amounts from the GSIS and issued credit memos . . . in favor of Mr. Depusoy, you did not notify the Luzon Surety Company, Inc. of the fact of the issuance of this (sic) credit memos in favor of Mr. Depusoy will you state to this Honorable Court the reason why is that you did not give notice to the Luzon Surety Company, Inc.? A I did not notify the Luzon Surety Company, Inc. of this transaction because the bond filed by the Luzon Surety Company, Inc., but the terms of the bond filed by Luzon Surety Company is that they understand the transaction of Mr. Depusoy with the Philippine National Bank. COURT: They understand the transaction to be. . . WITNESS: . . . The nature of the transaction with Mr. Depusoy in the sense that as we . . . as appearing in this bond Exhibit D . . . all payments to be received by him from the Bureau of Public Works in connection with the contract to secure the full and faithfully performance on his part of the said agreement, the agreement referred to is the assignment of payment in connection with the contract of Mr. Depusoy with the GSIS. (TSN, pp. 27-29 June 1, 1959)

In support of his contention that the surety bond was intended to guarantee the loan, the appellant gave the following grounds or reasons: 1) The resolution of the Board of Directors of the plaintiff approving the loan or credit accommodation to Depusoy required that Depusoy should put up a bond executed by the Luzon Surety Company, Inc., Exhibits K-3, K-4 and K-5. The resolutions of the Board of Directors were unilateral acts of the plaintiff and were conditions imposed upon the debtor, Depusoy, Luzon was not a party to these resolutions and under the rule of res inter alios acta, they cannot bind or prejudice Luzon in the absence of evidence that the terms of the resolutions had been brought to the attention of Luzon and that it had acceded thereto. All that the bond stated is that the PNB required the principal to give a good and sufficient bond. There can be no other consideration for the execution of the bonds other than stated thereon in the absence of allegation that they did not express the true intention of the parties. 2) Appellant contends that the promissory notes and the building contract mentioned in the Deed of Assignment became part and parcel of the Deed of Assignment under the principle of incorporation by reference. We agree that the Deed of Assignment became part and parcel of the bond, but to say that all promissory notes, overdrafts, and any other kind of documents which the PNB might require the assignor to execute to evidence the aforementioned obligation were also incorporated by reference to the surety bond and became obligation of Luzon is to include in the assignment, covenants and obligations beyond the contemplation of the parties. The appellant relies on the last paragraph of the Deed of Assignment which reads: "This assignment shall be irrevocable and subject to the terms and conditions of the promissory notes, overdrafts, and any other kind of document which the PNB can require or may require the assignor to execute to evidence the above-mentioned obligation". It is argued that under this stipulation, Luzon guaranteed the payment of the promissory notes which are the subject of this action and also the building contract between Depusoy, its principal, and the Bureau of Public Works. This is a very farfetched construction. This paragraph does not impose any obligation upon Depusoy. All that was required of Depusoy was to execute such documents which might be required by the PNB to evidence the Deed of Assignment. The words of the phrase "subject to" are words of qualification and not of contract (Cox vs. Vat 149, 110 pp. 96-148 CCH 147) and means subject to, meaning under the control, power or dominion or subordinate to and not being words of contract imposing upon defendant no contractual obligation (40 Words & Phrases 386-389). What was evidently intended is the Deed of Assignment when it stated "subject to the terms and conditions of the promissory notes and overdrafts" was that any amount received by the PNB would be applied to the payment of the promissory notes and overdrafts in accordance with their terms and conditions as they fell due because the Deed of Assignment was executed not for the purpose of making the PNB the owner of all the monies received from the GSIS, but as a security for the payment of the debt of Depusoy arising from the credit accommodation granted to him by the appellant. And that this was the intention is evident from the fact that upon receipt of the treasury warrants and checks from the GSIS, the appellant applied the same to the payment

of the debt of Depusoy which was due with interest and the remainder was credited to Depusoy's current account. This balance was subject to the free disposal of Depusoy. Hence, out of the over P1 million received by the Loans & Discounts Department of the appellant, almost P800,000.00 were credited to the current account of Depusoy and only a little over P200,000.00 was applied to his debt. Appellant contends that since in the Deed of Assignment, Depusoy undertook to assign, transfer, and convey to PNB all payments to be received by him from his contract with the Bureau of Public Works, Luzon had thereby guaranteed the faithful performance by Depusoy of his building contract with the Bureau of Public Works, and Depusoy having defaulted in his building contract by reason of which the Bureau of Public Works rescinded the building contract, the PNB did not receive from the GSIS the full contract price of over P2 million. This indeed is a very far-fetched construction of the contract. What was transferred or assigned by Depusoy to the PNB were all payments to be received by him under the contract with the Bureau of Public Works. Necessarily, what was to be received by Depusoy depends upon his performance under the contract. As long as he faithfully performed the contract, he would receive from the GSIS the amount due him. From the moment he defaulted and failed to comply with the terms of the contract, he would receive nothing and he could not assign what he did not have. To argue that under the terms of the Deed of Assignment, Luzon also guaranteed the faithful performance of the building contract of Depusoy with the Bureau of Public Works is fanciful and wishful thinking. 3) Appellant also contends that under Exhibits F and I, it can be seen that what was really intended to be guaranteed by the surety agreement was the payment of the loan. We quote Exhibits F and I. Relative to our above-captioned bonds in the amount of P40,000.00 dated May 28, 1956 and September 24, 1956, respectively, please be advised that same is hereby extended for a further period of six (6) months from January 31, 1957. All other terms and conditions of our above-mentioned bonds shall remain the same except the period of expiration herein above mentioned. These bonds also cover the new accommodation given our Principal. Relative to the above numbered bonds, in the amount of P40,000.00 and P60,000.00 dated May 28, 1956 and September 24, 1956, respectively, the account secured thereby having been reduced by virtue of payments made by our principal, which, according to him has but a balance of P75,000.00 we have the honor to inform you that we are agreeable to the extension of further credit to our principal to the extent of the amount of the said bonds, under the same terms and conditions thereof. At first glance, from the statement in Exhibit F, which reads: "This bond also covers the new accommodation given our principal", and in Exhibit I, that "we are agreeable to the extension of further credit to or principal to the extent of the amount of the said bond", it would appear that Luzon was referring to the obligation of Depusoy to pay the loan. But particular attention must be paid to the statement in Exhibit F that "all of the terms and conditions of our above-mentioned bonds shall remain the same except the period of expiration herein below mentioned". What was really agreed by Luzon was the extension of the duration of the surety bond, for under the terms of the bonds they expired six months from their respective dates. Any statement in Exhibit I that may be construed as referring to the debt of Depusoy was made only by

an Asst. Manager who evidently was not familiar with the terms of the surety bond. It must be noted that the surety bond was executed by CS Rodriguez, General Manager. Moreover, it cannot prevail over the testimony of Delfin Santiago, Manager of the Loans & Discounts Department, that what was guaranteed by the surety bond was the Deed of Assignment. It is also contended that if what was intended to be guaranteed by Luzon is the Deed of Assignment, the surety bond guaranteed nothing, because with the execution of the Deed of Assignment, nothing thereafter remained to be done. This is not true, for the terms of the Deed of Assignment, Depusoy authorized the PNB to receive all monies due from the Bureau of Public Works and to endorse for deposit all instruments of credit that might be issued in connection with the payments therein assigned. Under this stipulation, Luzon guaranteed that all the monies due Depusoy under his building contract with the Bureau of Public Works should be paid to the PNB. It is true that all the checks and warrants issued by the GSIS were to be made payable to the PNB. But under the arrangement between the PNB, GSIS, and the Bureau of Public Works, and Depusoy, it was Depusoy who received the warrants or checks either from the Bureau of Public Works or from the GSIS, and Depusoy delivered the same to the PNB. The PNB did not take the trouble of going to the GSIS or the Bureau of Public Works to get the checks. One reason because the PNB did not know when any amount would be due. There is nothing then that could prevent an arrangement thereafter between Depusoy and the GSIS, or the Bureau of Public Works to make the checks payable to Depusoy, and Depusoy from forging the signature of the PNB and appropriating the money. This would be a violation of the Deed of Assignment for which Luzon would be liable. It is not disputed that no payment was made directly to Depusoy after the Deed of Assignment. All amounts due to Depusoy were paid to the PNB for the account of Depusoy. It is true that in accordance with Exhibit M, only P1,063,408.91 were received by the Loans and Discounts Department of the plaintiff bank, and that of the total amount of P1,309,461.89 paid by the GSIS, P246,062.98 were paid for the importation of construction materials. As to the so-called 10% retention fund, there is no evidence that the Bureau of Public Works had retained any amount. In any case what was assigned was "all payments to be received" under the building contract, and the 10% retention was not to be received by Depusoy until certain conditions had been met. In its eight assignment of error, the appellant contends that the lower court in not admitting proof of the amount actually received by the PNB and the letter of the GSIS, Exhibit Q (sic). Aside from the purely technical reason for their rejection, their admission cannot affect the result. Exhibit Q is a letter of the General Manager of the GSIS to plaintiff advising plaintiff of the rescission of the building contract. Exhibits Q, P, P-1 and P-2 are statements of the amounts received by plaintiff's foreign department. There is no evidence that the GSIS had paid any amount to Depusoy in violation of the Deed of Assignment. Not a single cent had been received directly by Depusoy from the GSIS or the Bureau of Public Works. xxx xxx xxx
We agree with the appellant that the trial court erred in not sentencing Estanislao Depusoy to pay attorney's fees equivalent to 10% of the amount due. This is expressly provided for in the promissory notes, and as it does not appear to be unreasonable, the stipulation of the parties should be given effect. 8

Its motion for reconsideration 9 having been denied by the respondent Court of Appeals in its resolution of 1 February 1971, 10 petitioner filed the instant petition on 3 March 1971 asserting therein that: . . . the Decision and the Resolution of respondent COURT (Annexes A and B) are both not in accord with the evidence, the law, and jurisprudence on the matter. I. THE SURETY BONDS COVER THE PRINCIPAL LOANS, THE SURETY THEREBY BECOMING LIABLE UPON DEFAULT OF THE LATTER. II. EVEN ASSUMING ARGUENDO THAT THE BONDS SECURE ONLY THE DEED OF ASSIGNMENT, STILL THE SURETY IS LIABLE FOR FAILURE OF THE PRINCIPAL TO COMPLY WITH THE TERMS OF SUCH DEED.
III. THE DISPOSITIVE PORTION OF THE DECISION SHOULD BE AMENDED TO THE END THAT PRIVATE RESPONDENT RESPONDENTS BE ADJUDGED LIABLE FOR ATTORNEY'S FEES. 11

In support of its petition, petitioner practically summoned the same arguments which it relied upon before the Court of Appeals. On 3 March 1971 private respondent filed a motion to dismiss the petition 12 on the following grounds: 1. That the petition is without merit; 2. That the question raised therein are too unsubstantial to require consideration; and 3. That the question raised are factual. In the resolution of 8 March 1971 this Court dismissed the petition for being factual and for lack of merit; 13however, upon motion for reconsideration 14 this Court reconsidered the resolution and gave due course to the petition. 15 The petitioner was then required to submit its Brief, 16 which it complied with on 12 July 1971 . 17Private respondent LSCI filed its brief on 10 August 1971. 18 Private respondent Depusoy did not file any. Except for the third assigned error, We find no merit in this petition. The issues raised are factual. The findings of facts of the Court of Appeals can withstand the most incisive scrutiny. They are sufficiently supported by the evidence on record and the conclusions drawn therefrom do not justify a departure from the deeply rooted and well settled doctrine that findings of facts of the Court of Appeals are conclusive on this Court,19 considering that the recognized exceptions thereto 20 do not come to the rescue of petitioner. We are in full accord with the conclusion of the trial court and the Court of Appeals that the bonds executed by private respondent LSCI were to guarantee the faithful performance of Depusoy of his obligation under the Deed of Assignment and not to guarantee the payment of the loans or the debt of Depusoy to petitioner to the extent of P100,000.00. The language of the bonds is clear, explicit and unequivocal. It leaves no room for interpretation. Article 1370 of the Civil Code provides:

If the terms of a contract are clear and leave no doubt upon the intention of the contracting parties, the literal meaning of its stipulations shall control. Besides, even if there had been any doubt on the terms and conditions of the surety agreement, the doubt should be resolved in favor of the surety. As concretely put in Article 2055 of the Civil Code, "A guaranty is not presumed, it must be expressed and cannot extend to more than what is stipulated therein." In the recent case of Umali, et al. vs. Court of Appeals, et al., 21 We reiterated the unrippled rule that the liability of the surety is measured by the terms of the contract, and, while he is liable to the full extent thereof, such liability is strictly limited to that assumed by its terms. 22 In La Insular vs. Machuca Go Tanco, et al., supra., this Court held: It is undoubtedly true that the law looks upon the contract of suretyship with a jealous eye, and the rule is settled that the obligations of the surety cannot be extended by implication beyond its specified limits. Article 1827 of the Civil Code so discloses (Uy Aloc vs. Cho Jan Ling, 27 Phil. Rep., 427); and with this doctrine the common law is accordant. As was said by Justice Story in Miller vs. Stewart (9 Wheat. 680; 6 L. ed., 189): Nothing can be clearer, both upon principles and authority, than the doctrine that the liability of a surety is not to be extended, by implication, beyond the terms of his contract. To the extent and in the manner, and under the circumstances pointed out in his obligation, he is bound, and no farther. As earlier adverted to, there is merit in the third assigned error. The paragraph immediately preceding the decretal portion of the decision of respondent Court of Appeals reads as follows: We agree with the appellant that the trial court erred in not sentencing Estanislao Depusoy to pay attorney's fees equivalent to 10% of the amount due. This is expressly provided for in the promissory notes, and as it does not appear to be unreasonable, the stipulation of the parties should be given effect. The dispositive portion of the questioned decision should then be modified in the sense that the "10% interest" indicated therein should be considered and understood as and for attorney's fees. WHEREFORE, with the above modification, the Decision of the Court of Appeals of 12 December 1970 in CA-G.R.No. 36615-R is AFFIRMED, with costs against petitioner. SO ORDERED. Fernan, C.J., Gutierrez, Jr., Feliciano and Bidin, JJ., concur.

Republic of the Philippines SUPREME COURT Manila SECOND DIVISION

G.R. No. 113931 May 6, 1998 E. ZOBEL, INC., petitioner, vs. THE COURT OF APPEALS, CONSOLIDATED BANK AND TRUST CORPORATION, and SPOUSES RAUL and ELEA R. CLAVERIA, respondents.

MARTINEZ, J.:
This petition for review on certiorari seeks the reversal of the decision 1 of the Court of Appeals dated July 13, 1993 which affirmed the Order of the Regional Trial Court of Manila, Branch 51, denying petitioner's Motion to Dismiss the complaint, as well as the Resolution 2 dated February 15, 1994 denying the motion for reconsideration thereto.

The facts are as follows:

Respondent spouses Raul and Elea Claveria, doing business under the name "Agro Brokers," applied for a loan with respondent Consolidated Bank and Trust Corporation (now SOLIDBANK) in the amount of Two Million Eight Hundred Seventy Five Thousand Pesos (P2,875,000.00) to finance the purchase of two (2) maritime barges and one tugboat 3 which would be used in their molasses business. The loan was granted subject to the condition that respondent spouses execute a chattel mortgage over the three (3) vessels to be acquired and that a continuing guarantee be executed by Ayala International Philippines, Inc., now herein petitioner E. Zobel, Inc., in favor of SOLIDBANK. The respondent spouses agreed to the arrangement. Consequently, a chattel mortgage and a Continuing Guaranty 4 were executed.

Respondent spouses defaulted in the payment of the entire obligation upon maturity. Hence, on January 31, 1991, SOLIDBANK filed a complaint for sum of money with a prayer for a writ of preliminary attachment, against respondents spouses and petitioner. The case was docketed as Civil Case No. 91-55909 in the Regional Trial Court of Manila. Petitioner moved to dismiss the complaint on the ground that its liability as guarantor of the loan was extinguished pursuant to Article 2080 of the Civil Code of the Philippines. It argued that it has lost its right to be subrogated to the first chattel mortgage in view of SOLIDBANK's failure to register the chattel mortgage with the appropriate government agency. SOLIDBANK opposed the motion contending that Article 2080 is not applicable because petitioner is not a guarantor but a surety. On February 18, 1993, the trial court issued an Order, portions of which reads:

After a careful consideration of the matter on hand, the Court finds the ground of the motion to dismiss without merit. The document referred to as "Continuing Guaranty" dated August 21, 1985 (Exh. 7) states as follows: For and in consideration of any existing indebtedness to you of Agro Brokers, a single proprietorship owned by Mr. Raul Claveria for the payment of which the undersigned is now obligated to you as surety and in order to induce you, in your discretion, at any other manner, to, or at the request or for the account of the borrower, . . . The provisions of the document are clear, plain and explicit. Clearly therefore, defendant E. Zobel, Inc. signed as surety. Even though the title of the document is "Continuing Guaranty", the Court's interpretation is not limited to the title alone but to the contents and intention of the parties more specifically if the language is clear and positive. The obligation of the defendant Zobel being that of a surety, Art. 2080 New Civil Code will not apply as it is only for those acting as guarantor. In fact, in the letter of January 31, 1986 of the defendants (spouses and Zobel) to the plaintiff it is requesting that the chattel mortgage on the vessels and tugboat be waived and/or rescinded by the bank inasmuch as the said loan is covered by the Continuing Guaranty by Zobel in favor of the plaintiff thus thwarting the claim of the defendant now that the chattel mortgage is an essential condition of the guaranty. In its letter, it said that because of the Continuing Guaranty in favor of the plaintiff the chattel mortgage is rendered unnecessary and redundant. With regard to the claim that the failure of the plaintiff to register the chattel mortgage with the proper government agency, i.e. with the Office of the Collector of Customs or with the Register of Deeds makes the obligation a guaranty, the same merits a scant consideration and could not be taken by this Court as the basis of the extinguishment of the obligation of the defendant corporation to the plaintiff as surety. The chattel mortgage is an additional security and should not be considered as payment of the debt in case of failure of payment. The same is true with the failure to register, extinction of the liability would not lie.
WHEREFORE, the Motion to Dismiss is hereby denied and defendant E. Zobel, Inc., is ordered to file its answer to the complaint within ten (10) days from receipt of a copy of this Order. 5 Petitioner moved for reconsideration but was denied on April 26, 1993.
6

Thereafter, petitioner questioned said Orders before the respondent Court of Appeals, through a petition forcertiorari, alleging that the trial court committed grave abuse of discretion in denying the motion to dismiss. On July 13, 1993, the Court of Appeals rendered the assailed decision the dispositive portion of which reads: WHEREFORE, finding that respondent Judge has not committed any grave abuse of discretion in issuing the herein assailed orders, We hereby DISMISS the petition. A motion for reconsideration filed by petitioner was denied for lack of merit on February 15, 1994.

Petitioner now comes to us via this petition arguing that the respondent Court of Appeals erred in its finding: (1) that Article 2080 of the New Civil Code which provides: "The guarantors, even though they be solidary, are released from their obligation whenever by some act of the creditor they cannot be subrogated to the rights, mortgages, and preferences of the latter," is not applicable to petitioner; (2) that petitioner's obligation to respondent SOLIDBANK under the continuing guaranty is that of a surety; and (3) that the failure of respondent SOLIDBANK to register the chattel mortgage did not extinguish petitioner's liability to respondent SOLIDBANK. We shall first resolve the issue of whether or not petitioner under the "Continuing Guaranty" obligated itself to SOLIDBANK as a guarantor or a surety.
A contract of surety is an accessory promise by which a person binds himself for another already bound, and agrees with the creditor to satisfy the obligation if the debtor does not. 7 A contract of guaranty, on the other hand, is a collateral undertaking to pay the debt of another in case the latter does not pay the debt. 8 Strictly speaking, guaranty and surety are nearly related, and many of the principles are common to both. However, under our civil law, they may be distinguished thus: A surety is usually bound with his principal by the same instrument, executed at the same time, and on the same consideration. He is an original promissor and debtor from the beginning, and is held, ordinarily, to know every default of his principal. Usually, he will not be discharged, either by the mere indulgence of the creditor to the principal, or by want of notice of the default of the principal, no matter how much he may be injured thereby. On the other hand, the contract of guaranty is the guarantor's own separate undertaking, in which the principal does not join. It is usually entered into before or after that of the principal, and is often supported on a separate consideration from that supporting the contract of the principal. The original contract of his principal is not his contract, and he is not bound to take notice of its non-performance. He is often discharged by the mere indulgence of the creditor to the principal, and is usually not liable unless notified of the default of the principal. 9 Simply put, a surety is distinguished from a guaranty in that a guarantor is the insurer of the solvency of the debtor and thus binds himself to pay if the principal is unable to pay while a surety is the insurer of the debt, and he obligates himself to pay if the principal does not pay. 10

Based on the aforementioned definitions, it appears that the contract executed by petitioner in favor of SOLIDBANK, albeit denominated as a "Continuing Guaranty," is a contract of surety. The terms of the contract categorically obligates petitioner as "surety" to induce SOLIDBANK to extend credit to respondent spouses. This can be seen in the following stipulations. For and in consideration of any existing indebtedness to you of AGRO BROKERS, a single proprietorship owned by MR. RAUL P. CLAVERIA, of legal age, married and with business address . . . (hereinafter called the Borrower), for the payment of which the undersigned is now obligated to you as surety and in order to induce you, in your discretion, at any time or from time to time hereafter, to make loans or advances or to extend credit in any other manner to, or at the request or for the account of the Borrower, either with or without purchase or discount, or to make any loans or advances evidenced or secured by any notes, bills receivable, drafts, acceptances, checks or other instruments or evidences of indebtedness . . . upon which the Borrower is or may become liable as maker, endorser, acceptor, or otherwise, the undersigned agrees to guarantee, and does hereby guarantee, the punctual payment, at maturity or upon demand, to you of any and all such instruments, loans, advances, credits and/or other obligations herein before referred to, and also any and all other indebtedness of every kind which is now or may hereafter become due or owing to you by the Borrower, together with any and all expenses which may be incurred by you in collecting all or any such instruments or other indebtedness or

obligations hereinbefore referred to, and or in enforcing any rights hereunder, and also to make or cause any and all such payments to be made strictly in accordance with the terms and provisions of any agreement (g), express or implied, which has (have) been or may hereafter be made or entered into by the Borrower in reference thereto, regardless of any law, regulation or decree, now or hereafter in effect which might in any manner affect any of the terms or provisions of any such agreements(s) or your right with respect thereto as against the Borrower, or cause or permit to be invoked any alteration in the time, amount or manner of payment by the Borrower of any such instruments, obligations or indebtedness; . . . (Emphasis Ours) One need not look too deeply at the contract to determine the nature of the undertaking and the intention of the parties. The contract clearly disclose that petitioner assumed liability to SOLIDBANK, as a regular party to the undertaking and obligated itself as an original promissor. It bound itself jointly and severally to the obligation with the respondent spouses. In fact, SOLIDBANK need not resort to all other legal remedies or exhaust respondent spouses' properties before it can hold petitioner liable for the obligation. This can be gleaned from a reading of the stipulations in the contract, to wit: . . . If default be made in the payment of any of the instruments, indebtedness or other obligation hereby guaranteed by the undersigned, or if the Borrower, or the undersigned should die, dissolve, fail in business, or become insolvent, . . ., or if any funds or other property of the Borrower, or of the undersigned which may be or come into your possession or control or that of any third party acting in your behalf as aforesaid should be attached of distrained, or should be or become subject to any mandatory order of court or other legal process, then, or any time after the happening of any such event any or all of the instruments of indebtedness or other obligations hereby guaranteed shall, at your option become (for the purpose of this guaranty) due and payable by the undersigned forthwith without demand of notice, and full power and authority are hereby given you, in your discretion, to sell, assign and deliver all or any part of the property upon which you may then have a lien hereunder at any broker's board, or at public or private sale at your option, either for cash or for credit or for future delivery without assumption by you of credit risk, and without either the demand, advertisement or notice of any kind, all of which are hereby expressly waived. At any sale hereunder, you may, at your option, purchase the whole or any part of the property so sold, free from any right of redemption on the part of the undersigned, all such rights being also hereby waived and released. In case of any sale and other disposition of any of the property aforesaid, after deducting all costs and expenses of every kind for care, safekeeping, collection, sale, delivery or otherwise, you may apply the residue of the proceeds of the sale and other disposition thereof, to the payment or reduction, either in whole or in part, of any one or more of the obligations or liabilities hereunder of the undersigned whether or not except for disagreement such liabilities or obligations would then be due, making proper allowance or interest on the obligations and liabilities not otherwise then due, and returning the overplus, if any, to the undersigned; all without prejudice to your rights as against the undersigned with respect to any and all amounts which may be or remain unpaid on any of the obligations or liabilities aforesaid at any time (s). xxx xxx xxx Should the Borrower at this or at any future time furnish, or should be heretofore have furnished, another surety or sureties to guarantee the payment of his obligations to you, the undersigned hereby expressly waives all benefits to which the

undersigned might be entitled under the provisions of Article 1837 of the Civil Code (beneficio division), the liability of the undersigned under any and all circumstances being joint and several; (Emphasis Ours)
The use of the term "guarantee" does not ipso facto mean that the contract is one of guaranty. Authorities recognize that the word "guarantee" is frequently employed in business transactions to describe not the security of the debt but an intention to be bound by a primary or independent obligation. 11 As aptly observed by the trial court, the interpretation of a contract is not limited to the title alone but to the contents and intention of the parties. Having thus established that petitioner is a surety, Article 2080 of the Civil Code, relied upon by petitioner, finds no application to the case at bar. In Bicol Savings and Loan Association vs. Guinhawa, 12 we have ruled that Article 2080 of the New Civil Code does not apply where the liability is as a surety, not as a guarantor.

But even assuming that Article 2080 is applicable, SOLIDBANK's failure to register the chattel mortgage did not release petitioner from the obligation. In the Continuing Guaranty executed in favor of SOLIDBANK, petitioner bound itself to the contract irrespective of the existence of any collateral. It even released SOLIDBANK from any fault or negligence that may impair the contract. The pertinent portions of the contract so provides: . . . the undersigned (petitioner) who hereby agrees to be and remain bound upon this guaranty, irrespective of the existence, value or condition of any collateral, and notwithstanding any such change, exchange, settlement, compromise, surrender, release, sale, application, renewal or extension, and notwithstanding also that all obligations of the Borrower to you outstanding and unpaid at any time(s) may exceed the aggregate principal sum herein above prescribed. This is a Continuing Guaranty and shall remain in full force and effect until written notice shall have been received by you that it has been revoked by the undersigned, but any such notice shall not be released the undersigned from any liability as to any instruments, loans, advances or other obligations hereby guaranteed, which may be held by you, or in which you may have any interest, at the time of the receipt of such notice. No act or omission of any kind on your part in the premises shall in any event affect or impair this guaranty, nor shall same be affected by any change which may arise by reason of the death of the undersigned, of any partner (s) of the undersigned, or of the Borrower, or of the accession to any such partnership of any one or more new partners. (Emphasis supplied) In fine, we find the petition to be without merit as no reversible error was committed by respondent Court of Appeals in rendering the assailed decision. WHEREFORE, the decision of the respondent Court of Appeals is hereby AFFIRMED. Costs against the petitioner. SO ORDERED. Regalado, Melo and Puno, JJ., concur. Mendoza, J., took no part.