PURITA ALIPIO, petitioner,

vs.
COURT OF APPEALS and ROMEO G. JARING,
represented by his Attorney-In-Fact RAMON G.
JARING, respondents.
Facts:
1
Respondent Romeo Jaring was the lessee of a
14.5 hectare fishpond in Bataan for a period of 5 years
ending on September 12, 1990.
2.
On June 19, 1987, he subleased the fishpond for
the remaining period of his lease to the spouses Placido
and Purita Alipio and the spouses Bienvenido and
Remedios Manuel for an amount of Php 485,600.oo
payable in 2 installments in the amount of Php
300,000.00 and 185,600.00 respectively.
3.
The 2nd installment will fall due on June 30,
1989. The 1st installment was duly paid but the 2nd
installment was only partially fulfilled leaving a balance of
Php 50,600.00.
4.
The sub lessees failed to settle the remaining
balance despite repeated demands. This prompted
private respondent to file a complaint against the Alipio
and Manuel spouses for the collection of the said
amount and prayed in the alternative, the rescission of
the sublease contract in case of failure to pay.
5.
However, prior to the institution of the complaint,
on Dec. 1, 1988, one of the sub lessees, Placido Alipio,
died.
6.
His wife, Purita moved to dismiss the complaint
citing Rule 3 Sec 21 of the 1964 Rules of Court which
states that in an action for recovery of money, debt or
interests and the defendant dies before the CFI renders
the final judgment, the case shall be dismissed and
prosecuted in the manner especially provided in these
rules.
7.
This rule was however amended, so that in Rule
3 Sec 20 of the 1997 Rules of Civil procedure, it states
that there is no longer need to dismiss, that the case will
be allowed to continue until entry of final judgment and
that the claims will then be pursued in the manner
provided by the rules on prosecuting claims against the
estate of a deceased person.
The RTC however, denied petitioners motion while the
Manuel spouses were defaulted for failure to file an
answer. The RTC rendered a decision ordering the
petitioner and the Manuel spouses to pay the unpaid
balance of Php 50,600 plus Php 10,000.00 for attys fees
and cost of suit.
Petitioner Alipio appealed to the CA but her appeal was
also dismissed by the said appellate court citing the
cases (1) Climaco vs. Siy-Uy - that the rule invoked by
petitioner does not apply where there are another
defendants against whom the action is instituted; and (2)
Imperial insurance Ins. vs. David that where a husband
and wife bound themselves jointly and severally, in case
of death, the liability of the surviving spouse is
independent and separate so that she may be sued for
the whole debt.
ISSUE: Whether or not a creditor can sue the surviving
spouse for the collection of a debt which is owed by the
conjugal partnership of gains or whether such claims

must be filed in proceedings for the settlement of the

estate of the decedent
RULING:
1
In this case the petitioner and her late husband
and the Manuel spouses signed the sublease contract
binding themselves to pay the rentals stipulated which
will make the conjugal partnership liable.
2.
However, when petitioners husband died, the
conjugal partnership of gains was automatically
dissolved thus all debts chargeable to it are to be paid in
the intestate of testate proceedings of the deceased
spouse. Which means the proper remedy for the private
respondent is to file a claim against the petitioner in a
proceeding for the settlement of the estate of the
deceased husband.
3.
The Supreme Court also ruled that the CA
decision ordering payment of the balance does not
specify whether it is to be paid jointly or solidarily.
4.
Applying Art 1207 of the Civil Code, the
obligation of petitioner and the Manuel spouses is
presumed to be only JOINT, that is to say the debt is
divided into as many equal shares as there are debtors,
each debt being considered distinct from one another
under Article 1208 of the Civil Code.
5.
The SC therefore grants the petition and orders
the Manuel spouses to pay Php 25,300.00 plus Php
10,000.00 for attys fees.
6.
Also private respondent can claim the unpaid
balance of P25,300.00 to the petitioner on the settlement
of estate of her husband.

Art. 1207 of the Civil Code provides:

The concurrence of two or more creditors or of two or
more debtors in one and the same obligation does not
imply that each one of the former has a right to demand,
or that each one of the latter is bound to render, entire
compliance with the prestations. There is a solidary
liability only when the obligation expressly so estates, or
when the law or the nature of the obligation requires
solidarity.
Indeed, if from the law or the nature or the wording of the
obligation the contrary does not appear, an obligation is
presumed to be only joint, i.e., the debt is divided into as
many equal shares as there are debtors, each debt
being considered distinct from one another.20
Private respondent does not cite any provision of law
which provides that when there are two or more lessees,
or in this case, sublessees, the latter's obligation to pay
the rent is solidary. To be sure, should the lessees or
sublessees refuse to vacate the leased property after the
expiration of the lease period and despite due demands
by the lessor, they can be held jointly and severally liable
to pay for the use of the property. The basis of their
solidary liability is not the contract of lease or sublease
but the fact that they have become joint tortfeasors. 21 In
the case at bar, there is no allegation that the sublessees
refused to vacate the fishpond after the expiration of the
term of the sublease. Indeed, the unpaid balance sought
to be collected by private respondent in his collection suit
became due on June 30, 1989, long before the sublease
expired on September 12, 1990.

Neither does petitioner contend that it is the nature of

lease that when there are more than two lessees or
sublessees their liability is solidary. On the other hand,
the pertinent portion of the contract involved in this case
reads:22
2. That the total lease rental for the sub-leased fishpond
for the entire period of three (3) years and two (2)
months is FOUR HUNDRED EIGHT-FIVE THOUSAND
SIX HUNDRED (P485,600.00) PESOS, including all the
improvements, prawns, milkfishes, crabs and related
species thereon as well all fishing equipment,
paraphernalia and accessories. The said amount shall
be paid to the Sub-Lessor by the Sub-Lessees in the
following manner, to wit:
A. Three hundred thousand (P300,000.00) Pesos upon
signing this contract; and
B. One Hundred Eight-Five Thousand Six-Hundred
(P185,6000.00) Pesos to be paid on June 30, 1989.
Clearly, the liability of the sublessees is merely joint.
Since the obligation of the Manuel and Alipio spouses is
chargeable against their respective conjugal
partnerships, the unpaid balance of P50,600.00 should
be divided into two so that each couple is liable to pay
the amount of P25,300.00.

Then the complaint against petitioner is dismissed

without prejudice to the filing of a claim by private
respondent in the proceedings for the settlement of
estate of Placido Alipio for the collection of the share of
the Alipio spouses in the unpaid balance of the rent in
the amount of P25,300.00.

Also the creditor under Sec 6 Rule 78 of the Revised

Rules of Court can have the remedy of applying in court
for letters of administration in his capacity as the
principal creditor.
SC ruled that the 2 cases cited by the CA do not apply in
this case because such cases are based on different
sets of facts not similar to the case herein. Private
respondent cannot maintain the present suit against
petitioner. The proper remedy is to file a claim against
the Alipios in a proceeding for the settlement of the
estate of the deceased husband.

PH CREDIT CORPORATION, petitioner,

vs.

COURT OF APPEALS and CARLOS M. FARRALES,

respondents.
FACTS:

1
The petitioner here filed a case against Pacific
Lloyd Corp., Carlos Farrales, Thomas H. Van Sebille and
Federico C. Lim, for a sum of money. After service of
summons, defendants failed to file their answer, hence
they were declared in default.
2.
The RTC rendered judgment in favor of the
petitioner and against defendants ordering them to pay
damages.
3.
The decision became final and executory, and a
Writ of Execution was issued and implemented.
4.
In this case the personal and real properties of
defendant Farrales were levied and sold at public
auction wherein the petitioner was the highest bidder.
5.
Then a motion for the issuance of a writ of
possession was filed and granted. The writ of
possession itself was issued on October 26, 1990.
6.
The petitioner here claims that the Respondent
Judge erred in applying the presumption of a joint
obligation in the face of the conclusion of fact and law
contained in the decision showing that the obligation is
solidary.

ISSUE: WON CA erred when it concluded that the

obligation was merely a joint obligation due to the failure
of the dispositive portion of the trial courts decision to
state that the obligation was joint and solidary?
HELD:
1

The Supreme Court said NO.

2.
The Court here defined the meaning of solidary
obligation. Now a solidary obligation is one in which each
of the debtors is liable for the entire obligation, and each
of the creditors is entitled to demand the satisfaction of
the whole obligation from any or all of the debtors.
3.
On the other hand, a joint obligation now define
as one in which each debtors is liable only for a
proportionate part of the debt, and the creditor is entitled
to demand only a proportionate part of the credit from
each debtor.
4.
The rule now is that solidary obligations cannot
be inferred lightly. It is said that they must be positively
and clearly expressed. A liability is solidary "only when
the obligation expressly so states, when the law so
provides or when the nature of the obligation so
requires."
Under Article 1207 of the Civil Code states that
The concurrence of two or more creditors or of
two or more debtors in one and the same
obligation does not imply that each one of the
former has a right to demand, or that each one
of the latter is bound to render, entire
compliance with the prestations. There is a
solidary liability only when the obligation
expressly so states, or when the law or the
nature of the obligation requires solidarity."

5.
In the case at bar in the dispositive portion of the
Decision of the trial court, the word solidary neither
appears nor can it be inferred therefrom. It merely stated
that the following respondents were liable.
6.
Therefore it would be unjust and unfair if we
allow the private respondent to shoulder the entire
monetary judgments when their legal liabilities are
limited only to their proportionate shares in the entire
obligation.
The personal properties were sold on August 2, 1984 at
P18,900.00 while the real properties were sold on June
21, 1989 for P1,294,726.00.

The body of the trial court's Decision, which clearly

stated as follows: "To support the Promissory Note, a
Continuing Suretyship Agreement was executed by the
defendants,Federico C. Lim, Carlos M. Farrales and
Thomas H. Van Sebille, infavor of the plaintiff
corporation, to the effect that if Pacific Lloyd Corporation
cannot pay the amount loaned by plaintiff to said
corporation, then Federico C. Lim, Carlos M. Farrales
and ThomasH. Van Sebille will hold themselves jointly
and severally together with defendant Pacific Lloyd
Corporation to answer for the payment of said
obligation."

Doctrinally, the basis of execution is the January 31,1984

Decision rendered by the trial court, not the "written
contract of suretyship" executed by the parties. As
correctly observed by the trial judge: What was stated in
the body of the decision of January31, 1984 was only
part of the narration of facts made by the Judge, and the
dispositive portion is to prevail.
In this instance, there was no clear declaration in the
body of the January31, 1984 Decision to warrant a
conclusion that there was an error in the fallo. Nowhere
in the former can we find a definite declaration of the trial
court that, indeed, respondent's liability was solidary

Under the circumstances, the liability is joint, as provided

by the Civil Code, which we quote: "ARTICLE 1208.
If from the law, or the nature or the wording of the
obligations to which the preceding article refers the
contrary does not appear, the credit or debt shall be
presumed to be divided into as many equal shares as
there are creditors or debtors
"We should stress that respondent's obligation is based
on the judgment rendered by the trial court. The
dispositive portion or the fallo is its decisive resolution
and is thus the subject of execution. The other parts of
the decision may be resorted to in order to determine the
ratio decidendi for the disposition. Where there is a
conflict between the dispositive part and the opinion of
the court contained in the text or body of the decision,
the former must prevail over the latter on the theory that
the dispositive portion is the final order, while the opinion
is merely a statement ordering nothing. Hence the
execution must conform with that which is ordained
or decreed in the dispositive portion of the decision.
Petitioner maintains that the Court of Appeals improper
and incorrectly disregarded

As early as 1934 in Oriental Commercial Co. v. Abeto

and Mabanag,this Court has already answered such
argument in this wise: "It is of no consequence that,
under the written contract of surety ship executed by the
parties, the obligation contracted by the sureties
was joint and several in character. The final judgment,
which superseded the action brought for the
enforcement of said contract, declared the obligation to
be merely joint, and the same cannot be executed
otherwise." "
The only exception when the body of a decision prevails
over the fallo is when the inevitable conclusion from the
former is that there was a glaring error in the latter, in
which case the body of the decision will prevail.

EUSEBIO GONZALES, Petitioner,

vs.

PHILIPPINE COMMERCIAL AND INTERNATIONAL

BANK, EDNA OCAMPO, and ROBERTO NOCEDA,
Respondents.
FACTS:
1
The petitioner here was a client of the
respondent for 15 years before he filed the instant case.
In October 1992, the respondent granted a credit line to
the petitioner through the execution of a Credit-On-Hand
Loan Agreement (COHLA), in which the accounts of the
petitioner with respondent served as collateral.
Gonzales drew from said credit line through the issuance
of check. At the institution of the instant case, Gonzales
had a Foreign Currency Deposit (FCD) of USD 8,715.72
with PCIB.
2
On October 30, 1995, the petitioner and his wife
obtained a loan for PhP 500,000. Subsequently, on
December 26, 1995 and January 3, 1999, the spouses
Panlilio and the petitioner obtained two additional loans
from the respondent in the amounts of PhP 1,000,000
and PhP 300,000, respectively. These three loans
amounting to PhP 1,800,000 were covered by three
promissory notes.
3
In said the promissory notes specified, among
others, the solidary liability of Gonzales and the spouses
Panlilio for the payment of the loans. However, it was the
spouses Panlilio who received the loan proceeds of PhP
1,800,000.
4
But the spouses Panlilio, from the month of July
1998, defaulted the payment to the respondent bank.
5.
The petitioner here contended that he merely
accommodated the spouses Panlilio but it was Mr.
Panlilio who actually received the proceeds of the P1.8
Million Pesos loan.
6.
The respondent said that as an accommodation
party, Gonzales is solidarily liable with the spouses
Panlilio for the loans.
ISSUE: Whether or not the petitioner is solidarily liable
with the spouses Panlilio on the three promissory notes
relative to the outstanding REM loan.
RULING:
1
The Supreme Court said Yes, the petitioner is
solidarily liable with the spouses Panlilio for the three
promissory notes.
The promissory notes covering the PhP
1,800,000 loan show the following:
(1) Promissory Note BD-090-1766-95, dated
October 30, 1995, for PhP 500,000 was signed
by Gonzales and his wife, Jessica Gonzales;
(2) Promissory Note BD-090-2122-95, dated
December 26, 1995, for PhP 1,000,000 was
signed by Gonzales and the spouses Panlilio;
and
(3) Promissory Note BD-090-011-96, dated
January 3, 1996, for PhP 300,000 was signed by
Gonzales and the spouses Panlilio.
2.
Under Article 1207 of the Civil Code states that
"there is solidary liability only when the obligation

expressly so states, or when the obligation requires

solidarity."
3.
In the case at bar the petitioner is liable for the
loans covered by the promissory notes. First, the
petitioner admitted that he is an accommodation party in
order to facilitate the fast release of the loan. Second, he
signed as borrower or co-borrower for the benefit of the
spouses Panlilio. Third, the solidary liability of the
petitioner is clearly stipulated in the promissory notes
which uniformly begin, "For value received, the
undersigned (the "BORROWER") jointly and severally
promise to pay.
4.
Therefore as accommodation party, the
petitioner is immediately, equally, and absolutely bound
with the spouses Panlilio on the promissory notes which
indubitably stipulated solidary liability for all the
borrowers.
The Supreme Court define an accommodation party as a
person "who has signed the instrument as maker,
drawer, acceptor, or indorser, without receiving value
therefor, and for the purpose of lending his name to
some other person."
The Court further explained An accommodation party is
one who meets all the three requisites, (1) he must be a
party to the instrument, signing as maker, drawer,
acceptor, or indorser;
(2) he must not receive value therefor; and
(3) he must sign for the purpose of lending his name or
credit to some other person.
An accommodation party lends his name to
enable the accommodated party to obtain credit or to
raise money; he receives no part of the consideration for
the instrument but assumes liability to the other party/ies
thereto. The accommodation party is liable on the
instrument to a holder for value even though the holder,
at the time of taking the instrument, knew him or her to
be merely an accommodation party, as if the contract
was not for accommodation.
Although a contract of suretyship is in essence
accessory or collateral to a valid principal obligation, the
suretys liability to the creditor is immediate, primary and
absolute; he is directly and equally bound with the
principal. As an equivalent of a regular party to the
undertaking, a surety becomes liable to the debt and
duty of the principal obligor even without possessing a
direct or personal interest in the obligations nor does he
receive any benefit therefrom.\
In order for Art. 19 to be actionable, the following
elements must be present:
"(1) the existence of a legal right or duty,
(2) which is exercised in bad faith, and
(3) for the sole intent of prejudicing or injuring another."
Second Issue: Improper Dishonor of Check
Having ruled that Gonzales is solidarily liable for the
three promissory notes, We shall now touch upon the
question of whether it was proper for PCIB to dishonor
the check issued by Gonzales against the credit line
under the COHLA.
We answer in the negative.

Gonzales argues otherwise, pointing out that he was not

informed about the default of the spouses Panlilio and
that the September 21, 1998 account statement of the
credit line shows a balance of PhP 270,000 which was
likewise borne out by the December 7, 1998 PCIBs
certification that he has USD 8,715.72 in his FCD
account which is more than sufficient collateral to
guarantee the PhP 250,000 check, dated September 30,
1998, he issued against the credit line.
A careful scrutiny of the records shows that the courts a
quo committed reversible error in not finding negligence
by PCIB in the dishonor of the PhP 250,000 check.
First. There was no proper notice to Gonzales of the
default and delinquency of the PhP 1,800,000 loan. It
must be borne in mind that while solidarily liable with the
spouses Panlilio on the PhP 1,800,000 loan covered by
the three promissory notes, Gonzales is only an
accommodation party and as such only lent his name
and credit to the spouses Panlilio. While not exonerating
his solidary liability, Gonzales has a right to be properly
apprised of the default or delinquency of the loan
precisely because he is a co-signatory of the promissory
notes and of his solidary liability.
We note that it is indeed understandable for Gonzales to
push the spouses Panlilio to pay the outstanding dues of
the PhP 1,800,000 loan, since he was only an
accommodation party and was not personally interested
in the loan. Thus, a meeting was set by Gonzales with
the spouses Panlilio and the PCIB officers, Noceda and
Ocampo, in the spouses Panlilios jewelry shop in SM
Megamall on October 5, 1998. Unfortunately, the
meeting did not push through due to the heavy traffic
Noceda and Ocampo encountered.
Such knowledge of the default by Gonzales was,
however, not enough to properly apprise Gonzales about
the default and the outstanding dues. Verily, it is not
enough to be merely informed to pay over a hundred
thousand without being formally apprised of the exact
aggregate amount and the corresponding dues
pertaining to specific loans and the dates they became
due.
From the foregoing testimonies, between the denial of
Gonzales and the assertion by PCIB that Gonzales was
properly apprised, we find for Gonzales. We find the
testimonies of the former PCIB employees to be selfserving and tenuous at best, for there was no proper
written notice given by the bank. The record is bereft of
any document showing that, indeed, Gonzales was
formally informed by PCIB about the past due periodic
interests.
PCIB is well aware and did not dispute the fact that
Gonzales is an accommodation party. It also acted in
accordance with such fact by releasing the proceeds of
the loan to the spouses Panlilio and likewise only
informed the spouses Panlilio of the interest dues. The
spouses Panlilio, through their account28 with PCIB, were
paying the periodic interest dues and were the ones
periodically informed by the bank of the debiting of the
amounts for the periodic interest payments. Gonzales
never paid any of the periodic interest dues. PCIBs
Noceda admitted as much in his cross-examination:
Thus, PCIB ought to have notified Gonzales about the
status of the default or delinquency of the interest dues

that were not paid starting July 1998. And such

notification must be formal or in written form considering
that the outstanding periodic interests became due at
various dates, i.e., on July 8, 17, and 28, 1998, and the
various amounts have to be certain so that Gonzales is
not only properly apprised but is given the opportunity to
pay them being solidarily liable for the loans covered by
the promissory notes.
It is the bank which computes these periodic interests
and such dues must be put into writing and formally
served to Gonzales if he were asked to pay them, more
so when the payments by the spouses Panlilio were
charged through the account of the spouses Panlilio
where the interest dues were simply debited. Such
arrangement did not cover Gonzales bank account with
PCIB, since he is only an accommodation party who has
no personal interest in the PhP 1,800,000 loan. Without
a clear and determinate demand through a formal written
notice for the exact periodic interest dues for the loans,
Gonzales cannot be expected to pay for them.
In business, more so for banks, the amounts demanded
from the debtor or borrower have to be definite, clear,
and without ambiguity. It is not sufficient simply to be
informed that one must pay over a hundred thousand
aggregate outstanding interest dues without clear and
certain figures. Thus, We find PCIB negligent in not
properly informing Gonzales, who is an accommodation
party, about the default and the exact outstanding
periodic interest dues. Without being properly apprised,
Gonzales was not given the opportunity to properly act
on them.
To reiterate, a written notice on the default and
deficiency of the PhP 1,800,000 loan covered by the
three promissory notes was required to apprise
Gonzales, an accommodation party. PCIB is obliged to
formally inform and apprise Gonzales of the defaults and
the outstanding obligations, more so when PCIB was
invoking the solidary liability of Gonzales. This PCIB
failed to do.
Second. PCIB was grossly negligent in not giving prior
notice to Gonzales about its course of action to suspend,
terminate, or revoke the credit line, thereby violating the
clear stipulation in the COHLA.
The COHLA, in its effectivity clause, clearly provides:
4. EFFECTIVITY The COH shall be effective for a
period of one (1) year commencing from the receipt by
the CLIENT of the COH checkbook issued by the BANK,
subject to automatic renewals for same periods unless
terminated by the BANK upon prior notice served on
CLIENT.31 (Emphasis ours.)
It is undisputed that the bank unilaterally revoked,
suspended, and terminated the COHLA without giving
Gonzales prior notice as required by the above
stipulation in the COHLA. Noceda testified on crossexamination on the Offering Ticket32 recommending the
termination of the credit line, thus:
The foregoing testimonies of PCIB officers clearly show
that not only did PCIB fail to give prior notice to
Gonzales about the Offering Ticket for the process of
termination, suspension, or revocation of the credit line
under the COHLA, but PCIB likewise failed to inform

Gonzales of the fact that his credit line has been

terminated. Thus, we find PCIB grossly negligent in the
termination, revocation, or suspension of the credit line
under the COHLA. While PCIB invokes its right on the
so-called "cross default provisions," it may not with
impunity ignore the rights of Gonzales under the
COHLA.
Indeed, the business of banking is impressed with public
interest and great reliance is made on the banks sworn
profession of diligence and meticulousness in giving
irreproachable service. Like a common carrier whose
business is imbued with public interest, a bank should
exercise extraordinary diligence to negate its liability to
the depositors.35 In this instance, PCIB is sorely remiss
in the diligence required in treating with its client,
Gonzales. It may not wantonly exercise its rights without
respecting and honoring the rights of its clients.
Art. 19 of the New Civil Code clearly provides that
"[e]very person must, in the exercise of his rights and in
the performance of his duties, act with justice, give
everyone his due, and observe honesty and good faith."
This is the basis of the principle of abuse of right which,
in turn, is based upon the maxim suum jus summa injuria
(the abuse of right is the greatest possible wrong).36
In order for Art. 19 to be actionable, the following
elements must be present: "(1) the existence of a legal
right or duty, (2) which is exercised in bad faith, and (3)
for the sole intent of prejudicing or injuring another." 37 We
find that such elements are present in the instant case.
The effectivity clause of the COHLA is crystal clear that
termination of the COH should be done only upon prior
notice served on the CLIENT. This is the legal duty of
PCIBto inform Gonzales of the termination. However,
as shown by the above testimonies, PCIB failed to give
prior notice to Gonzales.
Malice or bad faith is at the core of Art. 19. Malice or bad
faith "implies a conscious and intentional design to do a
wrongful act for a dishonest purpose or moral obliquity." 38
In the instant case, PCIB was able to send a letter
advising Gonzales of the unpaid interest on the loans 39
but failed to mention anything about the termination of
the COHLA. More significantly, no letter was ever sent to
him about the termination of the COHLA. The failure to
give prior notice on the part of PCIB is already prima
facie evidence of bad faith.40 Therefore, it is abundantly
clear that this case falls squarely within the purview of
the principle of abuse of rights as embodied in Art. 19.
Third. There is no dispute on the right of PCIB to
suspend, terminate, or revoke the COHLA under the
"cross default provisions" of both the promissory notes
and the COHLA. However, these cross default provisions
do not confer absolute unilateral right to PCIB, as they
are qualified by the other stipulations in the contracts or
specific circumstances, like in the instant case of an
accommodation party.
The promissory notes uniformly provide:
The lender is hereby authorized, at its option and
without notice, to set off or apply to the payment of
this Note any and all moneys which may be in its
hands on deposit or otherwise belonging to the
Borrower. The Borrower irrevocably appoint/s the
Lender, effective upon the nonpayment of this Note on
demand/at maturity or upon the happening of any of the

events of default, but without any obligation on the

Lenders part should it choose not to perform this
mandate, as the attorney-in-fact of the Borrower, to sell
and dispose of any property of the Borrower, which may
be in the Lenders possession by public or private sale,
and to apply the proceeds thereof to the payment of this
Note; the Borrower, however, shall remain liable for any
deficiency.41 (Emphasis ours.)
The above provisos are indeed qualified with the specific
circumstance of an accommodation party who, as such,
has not been servicing the payment of the dues of the
loans, and must first be properly apprised in writing of
the outstanding dues in order to answer for his solidary
obligation.
The same is true for the COHLA, which in its default
clause provides:
16. DEFAULT The CLIENT shall be considered in
default under the COH if any of the following events shall
occur:
1. x x x
2. Violation of the terms and conditions of this
Agreement or any contract of the CLIENT with
the BANK or any bank, persons, corporations or
entities for the payment of borrowed money, or
any other event of default in such contracts.42
The above pertinent default clause must be read in
conjunction with the effectivity clause (No. 4 of the
COHLA, quoted above), which expressly provides for the
right of client to prior notice. The rationale is simple: in
cases where the bank has the right to terminate, revoke,
or suspend the credit line, the client must be notified of
such intent in order for the latter to act accordingly
whether to correct any ground giving rise to the right of
the bank to terminate the credit line and to dishonor any
check issued or to act in accord with such termination,
i.e., not to issue any check drawn from the credit line or
to replace any checks that had been issued. This, the
bankwith gross negligencefailed to accord
Gonzales, a valued client for more than 15 years.
Fourth. We find the testimony43 of Ocampo incredible on
the point that the principal borrower of the PhP
1,800,000 loan covered by the three promissory notes is
Gonzales for which the bank officers had special
instructions to grant and that it was through the
instructions of Gonzales that the payment of the periodic
interest dues were debited from the account of the
spouses Panlilio.
For one, while the first promissory note dated October
30, 1995 indeed shows Gonzales as the principal
borrower, the other promissory notes dated December
26, 1995 and January 3, 1996 evidently show that it was
Jose Panlilio who was the principal borrower with
Gonzales as co-borrower. For another, Ocampo cannot
feign ignorance on the arrangement of the payments by
the spouses Panlilio through the debiting of their bank
account. It is incredulous that the payment arrangement
is merely at the behest of Gonzales and at a mere verbal
directive to do so. The fact that the spouses Panlilio not
only received the proceeds of the loan but were servicing
the periodic interest dues reinforces the fact that
Gonzales was only an accommodation party.

Thus, due to PCIBs negligence in not giving Gonzales

an accommodation partyproper notice relative to the
delinquencies in the PhP 1,800,000 loan covered by the
three promissory notes, the unjust termination,
revocation, or suspension of the credit line under the
COHLA from PCIBs gross negligence in not honoring its
obligation to give prior notice to Gonzales about such
termination and in not informing Gonzales of the fact of
such termination, treating Gonzales account as closed
and dishonoring his PhP 250,000 check, was certainly a
reckless act by PCIB. This resulted in the actual injury of
PhP 250,000 to Gonzales whose FCD account was
frozen and had to look elsewhere for money to pay
Unson.
With banks, the degree of diligence required is more
than that of a good father of the family considering that
the business of banking is imbued with public interest
due to the nature of their function. The law imposes on
banks a high degree of obligation to treat the accounts of
its depositors with meticulous care, always having in
mind the fiduciary nature of banking.44 Had Gonzales
been properly notified of the delinquencies of the PhP
1,800,000 loan and the process of terminating his credit
line under the COHLA, he could have acted accordingly
and the dishonor of the check would have been avoided.

x x x Its award is thus not for the purpose of

indemnification for a loss but for the recognition and
vindication of a right. Indeed, nominal damages are
damages in name only and not in fact. When granted by
the courts, they are not treated as an equivalent of a
wrong inflicted but simply a recognition of the existence
of a technical injury. A violation of the plaintiffs right,
even if only technical, is sufficient to support an award of
nominal damages. Conversely, so long as there is a
showing of a violation of the right of the plaintiff, an
award of nominal damages is proper.50 (Emphasis Ours.)
In the present case, Gonzales had the right to be
informed of the accrued interest and most especially, for
the suspension of his COHLA. For failure to do so, the
bank is liable to pay nominal damages. The amount of
such damages is addressed to the sound discretion of
the court, taking into account the relevant
circumstances.51 In this case, the Court finds that the
grant of PhP 50,000 as nominal damages is proper.

The banking system has become an indispensable

institution in the modern world and plays a vital role in
the economic life of every civilized societybanks have
attained a ubiquitous presence among the people, who
have come to regard them with respect and even
gratitude and most of all, confidence, and it is for this
reason, banks should guard against injury attributable to
negligence or bad faith on its part.45

Moreover, as We held in MERALCO v. CA,52 failure to

give prior notice when required, such as in the instant
case, constitutes a breach of contract and is a clear
violation of Art. 21 of the Code. In cases such as this,
Art. 2219 of the Code provides that moral damages may
be recovered in acts referred to in its Art. 21. Further, Art.
2220 of the Code provides that "[w]illful injury to property
may be a legal ground for awarding moral damages if
the court should find that, under the circumstances, such
damages are justly due. The same rule applies to
breaches of contract where the defendant acted
fraudulently or in bad faith." Similarly, "every person who,
contrary to law, willfully or negligently causes damage to
another, shall indemnify the latter for the same." 53
Evidently, Gonzales is entitled to recover moral
damages.

In the instant case, Gonzales suffered from the

negligence and bad faith of PCIB. From the testimonies
of Gonzales witnesses, particularly those of Dominador
Santos46 and Freddy Gomez,47 the embarrassment and
humiliation Gonzales has to endure not only before his
former close friend Unson but more from the members
and families of his friends and associates in the PCA,
which he continues to experience considering the
confrontation he had with Unson and the consequent
loss of standing and credibility among them from the fact
of the apparent bouncing check he issued. Credit is very
important to businessmen and its loss or impairment
needs to be recognized and compensated.48

Even in the absence of malice or bad faith, a depositor

still has the right to recover reasonable moral damages,
if the depositor suffered mental anguish, serious anxiety,
embarrassment, and humiliation.54 Although incapable of
pecuniary estimation, moral damages are certainly
recoverable if they are the proximate result of the
defendants wrongful act or omission. The factual
antecedents bolstered by undisputed testimonies
likewise show the mental anguish and anxiety Gonzales
had to endure with the threat of Unson to file a suit.
Gonzales had to pay Unson PhP 250,000, while his FCD
account in PCIB was frozen, prompting Gonzales to
demand from PCIB and to file the instant suit.

The termination of the COHLA by PCIB without prior

notice and the subsequent dishonor of the check issued
by Gonzales constitute acts of contra bonus mores. Art.
21 of the Civil Code refers to such acts when it says,
"Any person who willfully causes loss or injury to another
in a manner that is contrary to morals, good customs or
public policy shall compensate the latter for damage."

The award of moral damages is aimed at a restoration

within the limits of the possible, of the spiritual status
quo anteit must always reasonably approximate the
extent of injury and be proportional to the wrong
committed.55 Thus, an award of PhP 50,000 is
reasonable moral damages for the unjust dishonor of the
PhP 250,000 which was the proximate cause of the
consequent humiliation, embarrassment, anxiety, and
mental anguish suffered by Gonzales from his loss of
credibility among his friends, colleagues and peers.

Third Issue: Award of Damages

Accordingly, this Court finds that such acts warrant the

payment of indemnity in the form of nominal
damages.1avvphi1 Nominal damages "are recoverable
where a legal right is technically violated and must be
vindicated against an invasion that has produced no
actual present loss of any kind x x x."49 We further
explained the nature of nominal damages in Almeda v.
Cario:

Furthermore, the initial carelessness of the banks omission in

not properly informing Gonzales of the outstanding interest
duesaggravated by its gross neglect in omitting to give prior
notice as stipulated under the COHLA and in not giving actual
notice of the termination of the credit linejustifies the grant of
exemplary damages of PhP 10,000. Such an award is imposed
by way of example or correction for the public good.

Finally, an award for attorneys fees is likewise called for from

PCIBs negligence which compelled Gonzales to litigate to
protect his interest. In accordance with Art. 2208(1) of the
Code, attorneys fees may be recovered when exemplary
damages are awarded. We find that the amount of PhP 50,000
as attorneys fees is reasonable.
WHEREFORE, this petition is PARTLY GRANTED.
Accordingly, the CA Decision dated October 22, 2007 in CAG.R. CV No. 74466 is hereby REVERSED and SET ASIDE.
The Philippine Commercial and International Bank (now Banco
De Oro) is ORDERED to pay Eusebio Gonzales PhP 50,000
as nominal damages, PhP 50,000 as moral damages, PhP
10,000 as exemplary damages, and PhP 50,000 as attorneys
fees.
No pronouncement as to costs.
SO ORDERED.

ESTRELLA PALMARES, petitioner,

vs.
COURT OF APPEALS and M.B. LENDING
CORPORATION, respondents.

5.
The Court disagree and held that Under Article
1216 of the Civil Code, the creditor may proceed against
any one of the solidary debtors or some or all of them
simultaneously. The rule, therefore, is that if the
obligation is joint and several, the creditor has the right
to proceed even against the surety alone.
A surety is an insurer of the debt, whereas a guarantor is
an insurer of the solvency of the debtor. 17 A suretyship is
an undertaking that the debt shall be paid; a guaranty, an
undertaking that the debtor shall pay. 18 Stated differently,
a surety promises to pay the principal's debt if the
principal will not pay, while a guarantor agrees that the
creditor, after proceeding against the principal, may
proceed against the guarantor if the principal is unable to
pay. 19 A surety binds himself to perform if the principal
does not, without regard to his ability to do so. A
guarantor, on the other hand, does not contract that the
principal will pay, but simply that he is able to do so. 20 In
other words, a surety undertakes directly for the payment
and is so responsible at once if the principal debtor
makes default, while a guarantor contracts to pay if, by
the use of due diligence, the debt cannot be made out of
the principal debtor. 21
40

FACTS:
1
Private respondent M.B. Lending Corporation
extended a loan to the spouses Osmea and Merlyn
Azarraga, together with petitioner Estrella Palmares, in
the amount of P30, 000.00 payable on or before May 12,
1990, with compounded interest at the rate of 6% per
annum to be computed every 30days from the date
thereof.
2.
On four occasions after the execution of the
promissory note and even after the loan matured,
petitioner and the Azarraga spouses were able to pay a
total of P16, 300.00, thereby leaving a balance of P13,
700.00. No payments were made after the last payment
on September 26, 1991.
3.
Consequently, on the basis of petitioner's
solidary liability under the promissory note, Respondent
Corporation filed a complaint against petitioner Palmares
as the lone party-defendant, to the exclusion of the
principal debtors, allegedly by reason of the insolvency
of the latter.
Issue: Whether or not the petitioner is liable.
Held:
1
The Supreme Court said Yes, the petitioner is
liable.
2.
If a person binds himself solidarily with the
principal debtor, the provisions of Section 4, Chapter3,
Title I of this Book shall be observed. In such case the
contract is called a surety ship.
3.
In the case at bar, petitioner expressly bound
herself to be jointly and severally or solidarily liable with
the principal maker of the note. The terms of the contract
are clear, explicit and unequivocal that petitioner's
liability is that of a surety
4.
In this case the petitioner is trying to imply that
the creditor, the herein respondent corporation, should
have proceeded first against the principal before suing
on her obligation as surety.

Since, generally, it is not necessary for the creditor to

proceed against a principal in order to hold the surety
liable, where, by the terms of the contract, the obligation
of the surety is the same that of the principal, then soon
as the principal is in default, the surety is likewise in
default, and may be sued immediately and before any
proceedings are had against the principal. 41 Perforce, in
accordance with the rule that, in the absence of statute
or agreement otherwise, a surety is primarily liable, and
with the rule that his proper remedy is to pay the debt
and pursue the principal for reimbursement, the surety
cannot at law, unless permitted by statute and in the
absence of any agreement limiting the application of the
security, require the creditor or obligee, before
proceeding against the surety, to resort to and exhaust
his remedies against the principal, particularly where
both principal and surety are equally bound. 42
We agree with respondent corporation that its mere
failure to immediately sue petitioner on her obligation
does not release her from liability. Where a creditor
refrains from proceeding against the principal, the surety
is not exonerated. In other words, mere want of diligence
or forbearance does not affect the creditor's rights vis-avis the surety, unless the surety requires him by
appropriate notice to sue on the obligation. Such
gratuitous indulgence of the principal does not discharge
the surety whether given at the principal's request or
without it, and whether it is yielded by the creditor
through sympathy or from an inclination to favor the
principal, or is only the result of passiveness. The
neglect of the creditor to sue the principal at the time the
debt falls due does not discharge the surety, even if such
delay continues until the principal becomes insolvent. 43
And, in the absence of proof of resultant injury, a surety
is not discharged by the creditor's mere statement that
the creditor will not look to the surety, 44 or that he need
not trouble himself. 45 The consequences of the delay,
such as the subsequent insolvency of the principal, 46 or
the fact that the remedies against the principal may be
lost by lapse of time, are immaterial. 47

8.
They further claimed that the respondent always
knew that the two lots were co-owned by Constante and
Corazon with their other siblings Jose and Carmela
whom Constante merely represented.
ISSUE: Whether the complaint merits dismissal for
failure to implead other co-owners as indispensable
parties
RULING:
1

The Supreme Court said No,

2.
The Court held that the rule on mandatory
joinder of indispensable parties is not applicable to the
instant case.
3.
An indispensable party is defined as one whose
interest will be affected by the court's action in the
litigation, and without whom no final determination of the
case can be had.

CONSTANTE AMOR DE CASTRO and CORAZON

AMOR DE CASTRO, petitioners,
vs.
COURT OF APPEALS and FRANCISCO ARTIGO,
respondents.
CARPIO, J.:
FACTS:
1
The private respondent here Francisco Artigo
sued petitioners Constante A. De Castro and Corazon A.
De Castro to collect the unpaid balance of his broker's
commission from the De Castros.
2.
The petitioner were co-owners of the (4) lots
located at EDSA Quezon City. The respondent was
authorized by the petitioners to act as real estate broker
in the sale of these properties for the amount of
P23,000,000.00, five percent (5%) of which will be given
to the agent as commission.
3.
It was the respondent who first found Times
Transit Corporation, as prospective buyer which desired
to buy two (2) lots only, specifically lots 14 and 15.
Eventually, sometime in May of 1985, the sale of lots
was consummated.
4.
However the respondent received only from the
petitioners the amount of P48, 893.76 as commission.
5.
The respondent claimed that he felt short
changed because according to him, his total commission
should be P352,500.00 which is five percent (5%) of the
agreed price of P7,050,000.00 paid by Times Transit
Corporation to appellants for the two (2) lots.
6.
Hence, he sued to collect the balance of
P303,606.24 after having received P48,893.76 in
advance.
7.
On the other hand the petitioner argued that the
respondents complaint is dismissible for failure to
implead as indispensable parties the other co-owners of
the two lots.

4.
In the case at bar Constante de Castro signed
the note as owner and as representative of the other coowners. Under this note, a contract of agency was
clearly constituted between Constante and Artigo.
5.
Also the De Castros admit that the other coowners are solidarily liable under the contract of agency.
6.
Now when the law expressly provides for
solidarity of the obligation, as in the liability of coprincipals in a contract of agency, each obligor may be
compelled to pay the entire obligation. The agent may
recover the whole compensation from any one of the coprincipals, as in this case.
7.
Indeed, Article 1216 of the Civil Code provides
that a creditor may sue any of the solidary debtors.
Art. 1216. The creditor may proceed against any
one of the solidary debtors or some or all of
them simultaneously. The demand made against
one of them shall not be an obstacle to those
which may subsequently be directed against the
others, so long as the debt has not been fully
collected.
8.
Thus, in this case the Court ruled that solidarity
does not make a solidary obligor an indispensable party
in a suit filed by the creditor for the reason that the
creditor may proceed against anyone of the solidary
debtors or all of them simultaneously.
There is no dispute that Constante appointed Artigo in a
handwritten note dated January 24, 1984 to sell the
properties of the De Castros for P23 million at a 5
percent commission. The authority was on a first come,
first serve basis. The authority reads in full:

"24 Jan. 84

To Whom It May Concern:

This is to state that Mr. Francisco Artigo is
authorized as our real estate broker in
connection with the sale of our property located

at Edsa Corner New York & Denver, Cubao,

Quezon City.
Asking price P 23,000,000.00 with 5%
commission as agent's fee.

C.C. de Castro
owner & representing
co-owners

This authority is on a first-come

First serve basis CAC"
Constante signed the note as owner and as
representative of the other co-owners. Under this note, a
contract of agency was clearly constituted between
Constante and Artigo. Whether Constante appointed
Artigo as agent, in Constante's individual or
representative capacity, or both, the De Castros cannot
seek the dismissal of the case for failure to implead the
other co-owners as indispensable parties. The De
Castros admit that the other co-owners are solidarily
liable under the contract of agency,10 citing Article 1915
of the Civil Code, which reads:
Art. 1915. If two or more persons have
appointed an agent for a common transaction or
undertaking, they shall be solidarily liable to the
agent for all the consequences of the agency.
The solidary liability of the four co-owners, however,
militates against the De Castros' theory that the other coowners should be impleaded as indispensable parties. A
noted commentator explained Article 1915 thus
"The rule in this article applies even when the
appointments were made by the principals in
separate acts, provided that they are for the
same transaction. The solidarity arises from the
common interest of the principals, and not from
the act of constituting the agency. By virtue of
this solidarity, the agent can recover from any
principal the whole compensation and indemnity
owing to him by the others. The parties,
however, may, by express agreement, negate
this solidary responsibility. The solidarity does
not disappear by the mere partition effected by
the principals after the accomplishment of the
agency.
If the undertaking is one in which several are
interested, but only some create the agency,
only the latter are solidarily liable, without
prejudice to the effects of negotiorum gestio with
respect to the others. And if the power granted
includes various transactions some of which are
common and others are not, only those
interested in each transaction shall be liable for
it."11
When the law expressly provides for solidarity of the
obligation, as in the liability of co-principals in a contract
of agency, each obligor may be compelled to pay the
entire obligation.12 The agent may recover the whole
compensation from any one of the co-principals, as in
this case.

Indeed, Article 1216 of the Civil Code provides that a

creditor may sue any of the solidary debtors. This article
reads:
Art. 1216. The creditor may proceed against any
one of the solidary debtors or some or all of
them simultaneously. The demand made against
one of them shall not be an obstacle to those
which may subsequently be directed against the
others, so long as the debt has not been fully
collected.
Thus, the Court has ruled in Operators Incorporated vs.
American Biscuit Co., Inc.13 that
"x x x solidarity does not make a solidary obligor
an indispensable party in a suit filed by the
creditor. Article 1216 of the Civil Code says that
the creditor `may proceed against anyone of the
solidary debtors or some or all of them
simultaneously'." (Emphasis supplied)

3. Ordering as joint and solidary liability by the

respondents DNL Security Agency and GSIS the
amount of P48,385.87 representing salary
differential[;] the amount of P55,564.92 as 13th
month pay; all in the aggregate sum of THREE
HUNDRED TWENTY-TWO THOUSAND SEVEN
HUNDRED FORTY-SEVEN & 19/100
(P322,747.19) to be paid by both or either of the
said respondent within ten (10) days from receipt
of this decision and to be deposited with the
cashier of this office for proper disposition.
5.
The LA further granted respondents claim of
salary differential, as they were paid wages below the
minimum wage, as well as 13th month pay. For these
monetary awards, petitioner was made solidarily liable
with DNL Security, as the indirect employer of
respondents.
ISSUE: Whether or not the petitioner GSIS is jointly and
severally liable with DNL Security Agency for payment of
the unsubstantiated amounts of Salary Differentials and
the 13th Month Pay to the private respondent security
guards.
RULING:
1
GOVERNMENT SERVICE INSURANCE SYSTEM,
Petitioner,
vs.
NATIONAL LABOR RELATIONS COMMISSION
(NLRC), DIONISIO BANLASAN, ALFREDO T.
TAFALLA, TELESFORO D. RUBIA, ROGELIO A.
ALVAREZ, DOMINADOR A. ESCOBAL, and
ROSAURO PANIS, Respondents.
FACTS:
1
The respondents here were employed as
security guards by DNL Security Agency. On May 1,
1978 the petitioner GSIS entered a contract to DNL
Security Agency.
2.
In February 1993, DNL Security informed
respondents that its service contract with petitioner was
terminated. This notwithstanding, DNL Security
instructed respondents to continue reporting for work to
petitioner. Respondents worked as instructed until April
20, 1993, but without receiving their wages; after which,
they were terminated from employment.
3.
On June 15, 1995, respondents filed with the
(NLRC), a complaint against DNL Security and petitioner
for illegal dismissal, separation pay, salary differential,
13th month pay, and payment of unpaid salary.

The Supreme Court said Yes.

2.
The fact that there is no actual and direct
employer-employee relationship between petitioner and
respondents does not absolve the former from liability for
the latters monetary claims. When petitioner contracted
DNL Securitys services, petitioner became an indirect
employer of respondents.
3.
After DNL Security failed to pay respondents the
correct wages and other monetary benefits, petitioner, as
principal, became jointly and severally liable.
In the event that the contractor or subcontractor
fails to pay the wages of his employees in
accordance with this Code, the employer shall
be jointly and severally liable with his contractor
or subcontractor to such employees to the extent
of the work performed under the contract, in the
same manner and extent that he is liable to
employees directly employed by him.
4.
In the case at bar petitioners liability covers the
payment of respondents salary differential and 13th
month pay during the time they worked for petitioner. In
addition, petitioner is solidarily liable with DNL Security
for respondents unpaid wages from February 1993 until
April 20, 1993.

1. Finding no illegal dismissal of complainants;

While it is true that respondents continued

working for petitioner after the expiration of their
contract, based on the instruction of DNL
Security, petitioner did not object to such
assignment and allowed respondents to render
service.

2. Ordering respondent DNL Security Agency

only to pay complainants the amount of
P176,130.00 representing separation pay; the
amount of P42,666.40 representing wages of
complainants from February 1993 to April 20,
1993;

Thus, petitioner impliedly approved the

extension of respondents services. Petitioner
cannot be allowed to deny its obligation to
respondents after it had benefited from their
services. So long as the work, task, job, or
project has been performed for petitioners

4.
On September 30, 1997, the Labor Arbiter (LA)
rendered a decision against DNL Security and petitioner,

benefit or on its behalf, the liability accrues for

such services.
Petitioners liability, however, cannot extend to
the payment of separation pay. An order to pay
separation pay is invested with a punitive
character, such that an indirect employer should
not be made liable without a finding that it had
conspired in the illegal dismissal of the
employees.23
5.
In this case the Court ruled that the solidary
liability of petitioner does not preclude the application of
Article 1217 of the Civil Code on the right of
reimbursement of the petitioner from DNL Security
Agency as its co-debtor.
Art. 1217. Payment made by one of the solidary
debtors extinguishes the obligation. If two or
more solidary debtors offer to pay, the creditor
may choose which offer to accept.
He who made the payment may claim from his
co-debtors only the share which corresponds to
each, with the interest for the payment already
made. If the payment is made before the debt is
due, no interest for the intervening period may
be demanded.
When one of the solidary debtors cannot,
because of his insolvency, reimburse his share
to the debtor paying the obligation, such share
shall be borne by all his co-debtors, in proportion
to the debt of each.
Lastly, we do not agree with petitioner that the
enforcement of the decision is impossible because its
charter unequivocally exempts it from execution. As held
in Government Service Insurance System v. Regional
Trial Court of Pasig City, Branch 71,25 citing Rubia v.
GSIS: 26
The processual exemption of the GSIS funds and
properties under Section 39 of the GSIS Charter, in our
view, should be read consistently with its avowed
principal purpose: to maintain actuarial solvency of the
GSIS in the protection of assets which are to be used to
finance the retirement, disability and life insurance
benefits of its members. Clearly, the exemption should
be limited to the purposes and objects covered. Any
interpretation that would give it an expansive
construction to exempt all GSIS assets from legal
processes absolutely would be unwarranted.
Furthermore, the declared policy of the State in Section
39 of the GSIS Charter granting GSIS an exemption
from tax, lien, attachment, levy, execution, and other
legal processes should be read together with the grant of
power to the GSIS to invest its "excess funds" under
Section 36 of the same Act. Under Section 36, the GSIS
is granted the ancillary power to invest in business and
other ventures for the benefit of the employees, by using
its excess funds for investment purposes. In the exercise
of such function and power, the GSIS is allowed to

assume a character similar to a private corporation.

Thus, it may sue and be sued, as also, explicitly granted
by its charter x x x.27
To be sure, petitioners charter should not be used to
evade its liabilities to its employees, even to its indirect
employees, as mandated by the Labor Code.
WHEREFORE, premises considered, the Court of
Appeals Decision and Resolution dated September 7,
2006 and September 27, 2007, respectively, in CA-G.R.
SP No. 50450, are AFFIRMED with MODIFICATION.
Petitioner Government Service Insurance System is
declared solidarily liable with DNL Security to PAY
respondents their wage differentials, thirteenth month
pay, and unpaid wages from February 1993 to April 20,
1993, but is EXONERATED from the payment of
respondents separation pay.
SO ORDERED.

pursuant to Article 107 of the Labor Code, which reads:

ART. 107. Indirect employer. The provisions of the
immediately preceding Article shall likewise apply to any
person, partnership, association or corporation which,
not being an employer, contracts with an independent
contractor for the performance of any work, task, job or
project.
After DNL Security failed to pay respondents the correct
wages and other monetary benefits, petitioner, as
principal, became jointly and severally liable, as provided
in Articles 106 and 109 of the Labor Code, which state:
ART. 106. Contractor or subcontractor. Whenever an
employer enters into a contract with another person for
the performance of the formers work, the employees of
the contractor and of the latters subcontractor, if any,
shall be paid in accordance with the provisions of this
Code.
In the event that the contractor or subcontractor fails to
pay the wages of his employees in accordance with this
Code, the employer shall be jointly and severally liable
with his contractor or subcontractor to such employees
to the extent of the work performed under the contract, in
the same manner and extent that he is liable to
employees directly employed by him. x x x.
xxxx
ART. 109. Solidary liability. The provisions of existing
laws to the contrary notwithstanding, every employer or
indirect employer shall be held responsible with his
contractor or subcontractor for any violation of any
provision of this Code. For purposes of determining the
extent of their civil liability under this Chapter, they shall
be considered as direct employers.