July 22, 1916

JOSE M. A. ARROYO, guardian of Tito Jocsing, an imbecile, plaintiff-appellee,

vs.
FLORENTINO HILARIO JUNGSAY, ET AL., defendants-appellants.

Perfecto J. Salas Rodriguez for appellants.

TRENT, J.:

The plaintiff in this case is the guardian of one Tito Jocsing, an imbecile, appointed by the court to
succeed Jungsay, the former guardian, who absconded with the funds of his ward. The defendants
are the absconding guardian and his bondsmen. From a judgment in favor of the plaintiff and against
the defendants for the sum of P6,000, together with interest and costs, the bondsmen appealed.

The principal question presented for our consideration is whether the appellants should be credited
with P4,400, the alleged value of certain property attached as that of the absconding guardian, all of
which is in the exclusive possession of third parties under claim of ownership.

The appellants in contending for the credit, rely upon article 1834 of the Civil Code, which gives to
the surety the benefit of a levy (excusion), even when a judgment is rendered against both the surety
and the principal. But, according t article 1832, before the surety is entitled to this benefit, he must
point out to the creditor property of the principal debtor which can be sold and which is sufficient to
cover the amount of the debt. Upon this point Manresa, in vol. 12, pp. 263-265, says:

As explicitly stated in the article under consideration, it is not sufficient that the surety claim
the benefit of discussion in time, nor that is so doing he designate property of the debtor
wherein to satisfy the debt. It is also necessary that another condition be fulfilled, to wit, that
such property be realizable and that it be situated in Spanish territory. This is not only logical,
but just, because the attachment of property situated a great distance away would be a
lengthy and extremely difficult proceeding and one that, if actually not opposed to, yet does
not very well accord with the purpose of the bond, that is, to insure the fulfillment of the
obligation and at the same time furnish the creditor with the means of obtaining its fulfillment
without hindrance or delays. The same may be said of property that is not readily realizable,
and as the surety is the sole person who benefits by the discussion and the one most
interested in avoiding difficulties in its execution, it is he, therefore, who should designate the
property out of which the recovery is to be made, it being unquestionably convenient for him
that the property he designates unite the conditions indicated in order to facilitate the
payment of the debt, whereby he will be freed from the subsidiary obligation inherent in the
bond.

In Hill & Co. vs. Bourcier and Pond (29 La. Ann., 841), where provisions similar to our Civil Code
were under consideration, the court said:

The surety has the right, under certain circumstances, to demand the discussion of the
property of the principal debtor. Where suit is brought against the surety alone, he may
interpose the plea, and compel the creditor to discuss the principal debtor. The effect of this
is to stay proceedings against the surety until judgment has been obtained against the
principal debtor, and execution against his property has proved insufficient. When the suit is
brought against the surety and the principal debtor the plea of discussion does not require or
authorize any suspension of the proceedings; but the judgment will be so modified as to
require the creditor to proceed by execution against the property of the principal, and to
 exhaust it before resorting to the property of the surety. (Bernard vs. Custis, 4 Martin, 215;
Banks vs. Brander, 13 La., 276.)

In either case, the surety who desires to avail himself of this right must demand it in limine,
`on the institution of proceedings against him.' He must, moreover, point out to the creditor
property of the principal debtor, not incumbered, subject to seizure; and must furnish a
sufficient sum to have the discussion carried into effect. (R. C. C., 3045, 3046, 3047.) A plea
which does not meet these requirements must be disregarded. (Robechot vs. Folse, 11 La.,
136; Banks vs. Brander, 13 La., 276.)

The property pointed out by the sureties is not sufficient to pay the indebtedness; it is not salable; it
is so incumbered that third parties have, as we have indicated, full possession under claim of
ownership without leaving to the absconding guardian a fractional or reversionary interest without
determining first whether the claim of one or more of the occupants is well founded. In all these
respects the sureties have failed to meet the requirements of article 1832 of the Civil Code.

Where a guardian absconds or is beyond the jurisdiction of the court, the proper method, under
article 1834 of the Civil Code and section 577 of the Code of Civil Procedure, in order to ascertain
whether such guardian is liable and to what extent, in order to bind the sureties on his official bond,
is by a proceeding in the nature of a civil action wherein the sureties are made parties and given an
opportunity to be heard. All this was done in the instant case.

The judgment appealed from, being in accordance with the law, the same is hereby affirmed, with
costs against the appellants. So ordered.

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May 15, 1969

LUZON STEEL CORPORATION, represented by TOMAS AQUINO CU, plaintiff-appellant,

vs.
JOSE O. SIA, defendant,
TIMES SURETY & INSURANCE CO. INC., surety-appellee.

German A. Sipin for plaintiff-appellant.

Galicano S. Calapatia for surety-appellee.

REYES, J.B.L., J.:

Direct appeal from two orders, dated 19 May and 5 June 1965, issued by the Court of First Instance
of Manila (Judge Francisco Arca presiding), in its Civil Case No. 54913, entitled Luzon Steel
Corporation, plaintiff vs. Metal Manufacturing of the Philippines, Inc., and Jose O. Sia, defendants,
whereby the court aforesaid quashed a writ of execution issued against the Times Surety &
Insurance Co., Inc., and cancelled the undertaking of said surety company.

The essential and uncontroverted facts of the case may be summarized as follows:

Luzon Steel Corporation has sued Metal Manufacturing of the Philippines and Jose O. Sia, the
former's manager, for breach of contract and damages. It obtained a writ of preliminary attachment
of the properties of the defendants, but the attachment was lifted upon a P25,000.00 counterbond
executed by the defendant Sia, as principal, and the Times Surety & Insurance Co., Inc. (hereinafter
designated as the surety), as solidary guarantor, in the following terms:

WHEREFORE, we JOSE O. SIA, as principal and the TIMES SURETY & INSURANCE CO.,
INC., as Surety, in consideration of the dissolution of attachment, hereby jointly and severally
bind ourselves in the sum of Twenty Five Thousand Pesos (P25,000.00), Philippine
Currency, to answer for the payment to the plaintiff of any judgment it may recover in the
action in accordance with Section 12, Rule 59, of the Rules of Court. (pp. 32, 45, Rec. on
Appeal.)

Issues having been joined, plaintiff and defendant (without intervention of the surety) entered into a
compromise whereby defendant Sia agreed to settle the plaintiff's claim in the following manner:

1. That the defendant shall settle with the Plaintiff the amount of TWENTY FIVE THOUSAND
(P25,000.00) PESOS, in the following manner: FIVE HUNDRED (P500.00) PESOS, monthly
for the first six (6) months to be paid at the end of every month and to commence in January,
1965, and within one month after paying the last installment of P500.00, the balance of
P22,000.00 shall be paid in lump sum, without interest. It is understood that failure of the
Defendant to pay one or any installment will make the whole obligation immediately due and
demandable and that a writ of execution will be issued immediately against Defendants
bond.lawphi1.ñet

The compromise was submitted to the court and the latter approved it, rendered judgment in
conformity therewith, and directed the parties to comply with the same (Record on Appeal, page 22).

Defendant having failed to comply, plaintiff moved for and obtained a writ of execution against
defendant and the joint and several counterbond. The surety, however, moved to quash the writ of
execution against it, averring that it was not a party to the compromise, and that the writ was issued
without giving the surety notice and hearing. The court, overruling the plaintiff's opposition, set aside
the writ of execution, and later cancelled the counterbond, and denied the motion for
reconsideration. Hence this appeal.

Main issues posed are (1) whether the judgment upon the compromise discharged the surety from
its obligation under its attachment counterbond and (2) whether the writ of execution could be issued
against the surety without previous exhaustion of the debtor's properties.

Both questions can be solved by bearing in mind that we are dealing with a counterbond filed
to discharge a levy on attachment. Rule 57, section 12, specifies that an attachment may be
discharged upon the making of a cash deposit or filing a counterbond "in an amount equal to the
value of the property attached as determined by the judge"; that upon the filing of the counterbond
"the property attached ... shall be delivered to the party making the deposit or giving the
counterbond, or the person appearing on his behalf, the deposit or counterbond aforesaid standing
in place of the property so released".

The italicized expressions constitute the key to the entire problem. Whether the judgment be
rendered after trial on the merits or upon compromise, such judgment undoubtedly may be made
effective upon the property released; and since the counterbond merely stands in the place of such
property, there is no reason why the judgment should not be made effective against the counterbond
regardless of the manner how the judgment was obtained.

Squarely on the point, and rebutting the appellee's apprehension that the compromise could be the
result of a collusion between the parties to injure the surety, is our decision in Anzures vs. Alto
Surety & Insurance Co., Inc., et al., 92 Phil. 742, where this Court, through former Chief Justice
Paras, ruled as follows:

Under section 12, Rule 59, of the Rules of Court, the bond filed, as in this case, for the
discharge of an attachment is "to secure the payment to the plaintiff of any judgment he may
recover in the action," and stands "in place of the property so released". It follows that the
order of cancellation issued by the respondent judge is erroneous. Indeed, judgment had
already been rendered by the Court of First Instance of Manila in civil case No. 11748,
sentencing Benjamin Aguilar to pay the sum of P3,500.00 to the petitioner; and it is not
pretended that said judgment is a nullity. There is no point in the contention of the
respondent Surety Company that the compromise was entered into without its knowledge
and consent, thus becoming as to it essentially fraudulent. The Surety is not a party to civil
case No. 11748 and, therefore, need not be served with notice of the petition for judgment.
As against the conjecture of said respondent that the parties may easily connive by means of
a compromise to prejudice it, there is also the likelihood that the same end may be attained
by parties acting in bad faith through a simulated trial. At any rate, it is within the power of the
Surety Company to protect itself against a risk of the kind.

Wherefore, the order of the respondent Judge cancelling the bond in question is set aside.
So ordered with costs against the respondent Alto Surety & Insurance Co., Inc.

The lower court and the appellee herein appear to have relied on doctrines of this Court concerning
the liability of sureties in bonds filed by a plaintiff for the issuance of writs of attachment, without
discriminating between such bonds and those filed by a defendant for the lifting of writs of
attachment already issued and levied. This confusion is hardly excusable considering that this Court
has already called attention to the difference between these kinds of bonds. Thus, in Cajefe vs.
Judge Fernandez, et al., L-15709, 19 October 1960, this Court pointed out that —
 The diverse rule in section 17 of Rule 59 for counterbonds posted to obtain the lifting of a writ
of attachment is due to these bonds being security for the payment of any judgment that the
attaching party may obtain; they are thus mere replacements of the property formerly
attached, and just as the latter may be levied upon after final judgment in the case in order to
realize the amount adjudged, so is the liability of the countersureties ascertainable after the
judgment has become final. This situation does not obtain in the case of injunction
counterbonds, since the sureties in the latter case merely undertake "to pay all damages that
the plaintiff may suffer by reason of the continuance ... of the acts complained of" (Rule 60,
section 6) and not to secure payment of the judgment recovered.1

It was, therefore, error on the part of the court below to have ordered the surety bond cancelled, on
the theory that the parties' compromise discharged the obligation of the surety.

As declared by us in Mercado vs. Macapayag, 69 Phil. 403, 405-406, in passing upon the liability of
counter sureties in replevin who bound themselves to answer solidarily for the obligations of the
defendants to the plaintiffs in a fixed amount of P912.04, to secure payment of the amount that said
plaintiff be adjudged to recover from the defendants,2

the liability of the sureties was fixed and conditioned on the finality of the judgment rendered
regardless of whether the decision was based on the consent of the parties or on the merits.
A judgment entered on a stipulation is nonetheless a judgment of the court because
consented to by the parties.

But the surety in the present case insists (and the court below so ruled) that the execution issued
against it was invalid because the writ issued against its principal, Jose O. Sia, et al., defendants
below, had not been returned unsatisfied; and the surety invoked in its favor Section 17 of Rule 57 of
the Revised Rules of Court (old Rule 59), couched in the following terms:

SEC. 17. When execution returned unsatisfied, recovery had upon bond. — If the execution
be returned unsatisfied in whole or in part, the surety or sureties on any counterbond given
pursuant to the provisions of this rule to secure the payment of the judgment shall become
charged on such counter-bond, and bound to pay to the judgment creditor upon demand, the
amount due under the judgment, which amount may be recovered from such surety or
sureties after notice and summary hearing in the same action.

The surety's contention is untenable. The counterbond contemplated in the rule is evidently an
ordinary guaranty where the sureties assume a subsidiary liability. This is not the case here,
because the surety in the present case bound itself "jointly and severally" (in solidum) with the
defendant; and it is prescribed in Article 2059, paragraph 2, of the Civil Code of the Philippines
that excusion (previous exhaustion of the property of the debtor) shall not take place "if he (the
guarantor) has bound himself solidarily with the debtor". The rule heretofore quoted cannot be
construed as requiring that an execution against the debtor be first returned unsatisfied even if the
bond were a solidary one; for a procedural rule may not amend the substantive law expressed in the
Civil Code, and further would nullify the express stipulation of the parties that the surety's obligation
should be solidary with that of the defendant.

A second reason against the stand of the surety and of the court below is that even if the surety's
undertaking were not solidary with that of the principal debtor, still he may not demand exhaustion of
the property of the latter, unless he can point out sufficient leviable property of the debtor within
Philippine territory. There is no record that the appellee surety has done so. Says Article 2060 of the
Civil Code of the Philippines:
 ART. 2060. In order that the guarantor may make use of the benefit of excussion, he must
set it up against the creditor upon the latter's demand for payment from him, and point out to
the creditor available property of the debtor within Philippine territory, sufficient to cover the
amount of the debt.

A third reason against the thesis of appellee is that, under the rule and its own terms, the counter-
bond is only conditioned upon the rendition of the judgment. Payment under the bond is not made to
depend upon the delivery or availability of the property previously attached, as it was under Section
440 of the old Code of Civil Procedure. Where under the rule and the bond the undertaking is to pay
the judgment, the liability of the surety or sureties attaches upon the rendition of the judgment, and
the issue of an execution and its return nulla bona is not, and should not be, a condition to the right
to resort to the bond. 3

It is true that under Section 17 recovery from the surety or sureties should be "after notice and
summary hearing in the same action". But this requirement has been substantially complied with
from the time the surety was allowed to move for the quashal of the writ of execution and for the
cancellation of their obligation.

WHEREFORE, the orders appealed from are reversed, and the court of origin is ordered to proceed
with the execution against the surety appellee, Times Surety & Insurance Co., Inc. Costs against
said appellee.

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 September 29, 1943

MIRA HERMANOS, INC., plaintiff-appellee,

vs.
MANILA TOBACCONISTS, INC., ET AL., defendants.
PROVIDENT INSURANCE CO., defendant-appellant.

E. V. Filamor for appellant.

Ramirez and Ortigas for appellee.
Ernesto Zaragoza for defendant, Manila Compañia de Seguras.

OZAETA, J.:

This appeal has been certified to this court by the Court of Appeals because it involves only a
question of law arising from the following facts:

By virtue of a written contract (Exhibit A) entered into between Mira Hermanos, Inc., and Manila
Tobacconists, Inc., the former agreed to deliver to the latter merchandise for sale on consignment
under certain specified terms and the latter agreed to pay to the former on or before the 20th day of
each month the invoice value of all the merchandise sold during the preceding month. Mira
Hermanos, Inc., required of the Manila Tobacconists, Inc., a bond of P3,000, which was executed by
the Provident Insurance Co., on September 2, 1939 (Exhibit B), to secure the fulfillment of the
obligation of the Tobacconists under the contract (Exhibit A) up to the sum of P3,000.

In the month of October, 1940, the volume of the business of the Tobacconists having increased so
that the merchandise received by it on consignment from Mira Hermanos exceeded P3,000 in value,
Mira Hermanos required of the Tobacconist an additional bond of P2,000, and in compliance with
that requirement the defendant Manila Compañia de Seguros, on October 16, 1940, executed a
bond of P2,000 (Exhibit C) with the same terms and conditions (except as to the amount) as the
bond of the Provident Insurance Co.

On June 1, 1941, a final and complete liquidation was made of the transactions between Mira
Hermanos and the Tobacconists, as a result of which there was found a balance due from the latter
to the former of P2,272.79, which indebtedness the Tobacconists recognized but was unable to pay.
Thereupon Mira Hermanos made a demand upon the two surety companies for the payment of said
sum.

The Provident Insurance Co., paid only the sum of P1,363.67, which is 60% of the amount owned by
the Tobacconists to Mira Hermanos, alleging that the remaining 40% should be paid by the other
surety, Manila Compañia de Seguros, in accordance with article 8137 of the Civil Code. The Manila
Compañia de Seguros refused to pay the balance, contending that so long as the liability of the
Tobacconists did not exceed P3,000, it was not bound to pay anything because its bond referred
only to the obligation of the Tobacconists in excess of P3,000 and up to P5,000. Hence Mira
Hermanos, Inc., brought this action against the Manila Tobacconists, Inc., Provident Insurance Co.,
and Manila Compañia de Seguros to recover from them jointly and severally the sum of P909.12
with legal interest thereon from the date of the complaint.

The controversy is mainly between the two surety companies. In its answer the defendant Manila
Compañia de Seguros alleged as a special defense:

4. — Que la fianza otorgada por esta demandada 'Manila Compania de Seguros', el Octubre
de 1940 fue exigida por la demandante solo cuando el importe de las mercancias servidas
 por esta y pedidas por la demandada Manila Tobacconists, Inc., excedio de la suma de
P3,000 garantizada por la otra demandada Provident Insurance Co.; por lo que quedo
entendido entre la demandante y las tres demandadas que la fianza de P2,000 prestada el
Octubre de 1940 por esta demandada, 'Manila Compañia de Seguros', se limitaba y era para
responder solamente del importe de mercancias servidad a la demandada Manila
Tobacconists, Inc., en tanto en cuanto el valor de esas mercancias excediese de P3,000
asegurada por la fianza P3,000 de la Manila Tobacconists, Inc.

To that the defendant Provident Insurance Co. replied:

Que no es verdad el hecho alegado por la demandada 'Manila Compañia de Seguros' en el

parrafo 4 de su contestacion que dice: 'que quedo entendido entre la demandante y las tres
demandadas que la fianza de P2,000 prestada el Octubre de 1940 por esta demandada
"Manila Compañia de Seguros" se limitaba y era para responder solamente del importe de
mercancias servidas a la demandada Manila Tocacconists, Inc., en tanto en cuanto el valor
de esas mercancias excediese de P3,000 asegurada por la fianza de P3,000 de la "Manila
Tobacconists, Inc."

Que la demandada, aqui compareciente, nunca ha tenido conocimiento ni menos prestado

su consentimiento a esa supuesta inteligencia.

Que esta demandada no puede ser privada del beneficio de division a que tiene derecho
como co-fiador, sin que conste expresamente, por escrito, su conformidad y consentimiento
de renunciar a su derecho.

Thus there was an issue of fact between the two surety companies, viz.: whether the understanding
between the plaintiff and the three defendants was, that the bond of P2,000 given by the Manila
Compañia de Seguros was limited to and responded for the obligation of the Tobacconists only
insofar as it might exceed the amount of P3,000 secured by the bond of the Provident Insurance Co.
That issue of fact was decided by the trial court in favor of the contention of the Manila Compañia de
Seguros; and judgment was rendered by it against the Provident Insurance Co. alone for the amount
claimed by the plaintiff.

Appellant's first two assignments of error (the third being a mere consequence of the first two) read
as follows:

1. El juzgado inferior incurrio en error al hacer caso omiso del beneficio de division
reclamado por la demandada Provident Insurance Co. of the Philippines con arreglo a lo
dispuesto en el Art. 1837 del Codigo Civil.

2. El juzgado erro al aplicar, en lugar de lo dispuesto en el Art. 1837 del Codigo Civil, una
teoria suya, declarando que la fianza de P3,000.00 prestada por Provident Insurance Co. of
the Philippines y la fianza de P2,000 de Manila Compañia de Seguros, cada una tiene una
esfera de responsabilidad propia e independiente la una de la otra.

Discussing these two assignments of error jointly, counsel says:

La unica cuestion que se presenta en esta causa es puramente de derecho. Si el saldo

deudor de P2,272.79 que Tobacconists ha dejado de pagar, deben pagarlo en su lugar, los
dos fiadores proporcionalmente a la cuantia en que se obligaron o debe pagarlo sola y
exclusivamente la fiadora Provident Insurance Co., como ordena la sentencia opelada.
Thus it appears that the issue of fact raised by and between the two surety companies before the
trial court and decided by the latter in favor of the appellee Manila Compañia de Seguros is no
longer raised before this Court, appellant Provident Insurance Co. having limited the issue in this
appeal to whether or not it is entitled to the "benefit of division" provided in article 1837 of the Civil
Code, which reads as follows:

Art. 1837. Should there be several sureties of only one debtor for the same debt, the liability
therefor shall be divided among them all. The creditor can claim from each surety only his
proportional part unless liability in solidum has been expressly stipulated.

The right to the benefit of division against the co-sureties for their respective shares ceases
in the same cases and for the same reason as that to an exhaustion of property against the
principal debtor.

With particular reference to the second assignment of error, we find that the statement of the trial
court to the effect that the bond of P3,000 responded for the obligation of the Tobacconists up to the
sum of P3,000 and the bond of P2,000 responded for the obligation of the Tobacconists only insofar
as it might exceed P3,000 and up to P5,000, is not a mere theory but a finding of fact based upon
the undisputed testimony of the witnesses called by the defendant Manila Compañia de Seguros in
support of its special defense hereinbefore quoted. While on its face the bond given by the Manila
Compañia de Seguros contains the same terms and conditions (except as to the amount) as those
of the bond given by the Provident Insurance Co., nevertheless it was pleaded by the Manila
Compañia de Seguros and found proven by the trial court "que la intencion realmente que se habia
perseguido, por lo menos en lo que respecta a la Manila Tobacconists, Inc., y la Manila Compañia
de Seguros, era la de que esta fianza de P2,000 habria de responder solamente por todo aquello
que excediera de los P3,000."

The evidence upon which that finding is based is not only undisputed but perfectly reasonable and
convincing. For, as the trial court observed, there would have been no need for the additional bond
of P2,000 if its purpose were to cover the first P2,000 already covered by the P3,000 bond of the
Provident Insurance Co. Indeed, we might add, if the purpose of the additional bond of P2,000 were
to cover not the excess over and above P3,000 but the first P2,000 of the obligation of the principal
debtor like the bond of P3,000 which covered only the first P3,000 of said obligation, then it would
result that had the obligation of the Tobacconists exceeded P3,000, neither of the two bonds would
have responded for the excess, and that was precisely the event against which Mira Hermanos
wanted to protect itself by demanding the additional bond of P2,000. For instance, suppose that the
obligation of the principal debtor, the Tobacconists, amounted to P5,000; if both bonds were co-
extensive up to P2,000 — as would logically follow if appellant's contention were correct — the result
would be that the first P2,000 of the obligation would have to be divided between and paid equally by
the two surety companies, which should pay P1,000 each, and of the balance of P3,000 the
Provident Insurance Co. would have to pay only P1,000 more because its liability is limited to the
first P3,000, thus leaving the plaintiff in the lurch as to the excess of P2,000. That was manifestly not
the intention of the parties. As a matter of fact, when the Provident gave its bond and fixed the
premiums thereon it assumed an obligation of P3,000 in solidum with the Tobacconists without any
expectation of any benefit of division with any other surety. The additional bond of P2,000 was, more
than a year later, required by the creditor of the principal debtor for the protection of said creditor and
certainly not for the benefit of the original surety, which was not entitled to expect any such benefit.

The foregoing considerations, which fortify the trial court's conclusion as to the real intent and
agreement of the parties with regard to the bond of P2,000 given by the Manila Compañia de
Seguros, destroys at the same time the theory of the appellant regarding the applicability of article
1837 of the Civil Code.
That article refers to several sureties of only one debtor for the same debt. In the instant case, altho
the two bonds on their face appear to guarantee the same debt co-extensively up to P2,000 — that
of the Provident Insurance Co. alone extending beyond that sum up to P3,000 — it was pleaded and
conclusively proven that in reality said bonds, or the two sureties, do not guarantee the same debt
because the Provident Insurance Co. guarantees only the first P3,000 and the Manila Compañia de
Seguros, only the excess over and above said amount up to P5,000. Article 1837 does not apply to
this factual situation.

The judgment of the trial court is affirmed, with the only modification that it shall be entered against
the defendants Manila Tobacconists, Inc., and Provident Insurance Co. jointly and severally.
Appellant shall pay the costs of this instance.

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 [G.R. No. 151060. August 31, 2005]

JN DEVELOPMENT CORPORATION, and SPS. RODRIGO and

LEONOR STA. ANA, petitioners, vs. PHILIPPINE EXPORT AND
FOREIGN LOAN GUARANTEE CORPORATION, respondent.

[G.R. No. 151311. August 31, 2005]

NARCISO V. CRUZ, petitioner, vs. PHILIPPINE EXPORT and FOREIGN

LOAN GUARANTEE CORPORATION, respondent.

DECISION
TINGA, J.:

Before us are consolidated petitions questioning the Decision[1] of the

Court of Appeals (CA) in CA-G.R. CV No. 61318, entitled Philippine Export
and Foreign Loan Guarantee Corporation v. JN Development Corporation, et
al., which reversed the Decision of the Regional Trial Court (RTC) of Makati,
Branch 60.
On 13 December 1979, petitioner JN Development Corporation (JN) and
Traders Royal Bank (TRB) entered into an agreement whereby TRB would
extend to JN an Export Packing Credit Line for Two Million Pesos
(P2,000,000.00). The loan was covered by several securities, including a real
estate mortgage[2] and a letter of guarantee from respondent Philippine Export
and Foreign Loan Guarantee Corporation (PhilGuarantee), now Trade and
Investment Development Corporation of the Philippines, covering seventy
percent (70%) of the credit line.[3] With PhilGuarantee issuing a guarantee in
favor of TRB,[4] JN, petitioner spouses Rodrigo and Leonor Sta. Ana[5] and
petitioner Narciso Cruz[6]executed a Deed of Undertaking[7] (Undertaking) to
assure repayment to PhilGuarantee.
It appears that JN failed to pay the loan to TRB upon its maturity; thus, on
8 October 1980 TRB requested PhilGuarantee to make good its
guarantee.[8] PhilGuarantee informed JN about the call made by TRB, and
inquired about the action of JN to settle the loan.[9] Having received no
response from JN, on 10 March 1981 PhilGuarantee paid TRB Nine Hundred
Thirty Four Thousand Eight Hundred Twenty Four Pesos and Thirty Four
Centavos (P934,824.34).[10] Subsequently, PhilGuarantee made several
demands on JN, but the latter failed to pay. On 30 May 1983, JN, through
Rodrigo Sta. Ana, proposed to settle the obligation by way of development
and sale of the mortgaged property.[11] PhilGuarantee, however, rejected the
proposal.
PhilGuarantee thus filed a Complaint[12] for collection of money and
damages against herein petitioners.
In its Decision dated 20 August 1998, the RTC dismissed
PhilGuarantees Complaint as well as the counterclaim of petitioners. It ruled
that petitioners are not liable to reimburse PhilGuarantee what it had paid to
TRB. Crucial to this holding was the courts finding that TRB was able to
foreclose the real estate mortgage executed by JN, thus extinguishing
petitioners obligation.[13] Moreover, there was no showing that after the said
foreclosure, TRB had demanded from JN any deficiency or the payment of the
difference between the proceeds of the foreclosure sale and the actual
loan.[14] In addition, the RTC held that since PhilGuarantees guarantee was
good for only one year from 17 December 1979, or until 17 December 1980,
and since it was not renewed after the expiry of said period, PhilGuarantee
had no more legal duty to pay TRB on 10 March 1981.[15] The RTC likewise
ruled that Cruz cannot be held liable under the Undertaking since he was not
the one who signed the document, in line with its finding that his signature
found in the records is totally different from the signature on the
Undertaking.[16]
According to the RTC, the failure of TRB to sue JN for the recovery of the
loan precludes PhilGuarantee from seeking recoupment from the spouses
Sta. Ana and Cruz what it paid to TRB. Thus, PhilGuarantees payment to TRB
amounts to a waiver of its right under Art. 2058 of the Civil Code.[17]
Aggrieved by the RTC Decision, PhilGuarantee appealed to the CA. The
appellate court reversed the RTC and ordered petitioners to pay
PhilGuarantee Nine Hundred Thirty Four Thousand Six Hundred Twenty Four
Pesos and Thirty Four Centavos (P934,624.34), plus service charge and
interest.[18]
In reaching its denouement, the CA held that the RTCs finding that the
loan was extinguished by virtue of the foreclosure sale of the mortgaged
property had no factual support,[19] and that such finding is negated by Rodrigo
Sta. Anas testimony that JN did not receive any notice of foreclosure from
PhilGuarantee or from TRB. [20] Moreover, Sta. Ana even offered the same
mortgaged property to PhilGuarantee to settle its obligations with the latter.[21]
 The CA also ruled that JNs obligation had become due and demandable
within the one-year period of effectivity of the guarantee; thus, PhilGuarantees
payment to TRB conformed with its guarantee, although the payment itself
was effected one year after the maturity date of the loan.[22] Contrary to the
trial courts finding, the CA ruled that the contract of guarantee was not
extinguished by the alleged lack of evidence on PhilGuarantees consent to
the extensions granted by TRB to JN.[23] Interpreting Art. 2058 of the Civil
Code,[24] the appellate court explained that while the provision states that the
guarantor cannot be compelled to pay unless the properties of the debtor are
exhausted, the guarantor is not precluded from waiving the benefit of
excussion and paying the obligation altogether.[25]
Finally, the CA found that Narciso Cruz was unable to prove the alleged
forgery of his signature in the Undertaking, the evidence presented not being
sufficient to overcome the presumption of regularity of the Undertaking which
is a notarized document. [26]
Petitioners sought reconsideration of the Decision and prayed for
the admission of documents evidencing the foreclosure of the real estate
mortgage, but the motion for reconsideration was denied by the CA for lack of
merit. The CA ruled that the documentary evidence presented by petitioners
cannot be considered as newly discovered evidence, it being already in
existence while the case was pending before the trial court, the very forum
before which it should have been presented. Besides, a foreclosure sale per
se is not proof of petitioners payment of the loan to PhilGuarantee, the CA
added.[27]
So now before the Court are the separate petitions for review of the
CA Decision. JN and the spouses Sta. Ana, petitioners in G.R. No. 151060,
posit that the CA erred in interpreting Articles 2079, 2058, and 2059 of the
Civil Code in its Decision.[28] Meanwhile, petitioner Narciso Cruz in G.R. No.
151311 claims that the CA erred when it held that petitioners are liable to
PhilGuarantee despite its payment after the expiration of its contract of
guarantee and the lack of PhilGuarantees consent to the extensions granted
by TRB to JN. Moreover, Cruz questions the reversal of the ruling of the trial
court anent his liability as a signatory to the Undertaking.[29]
On the other hand, PhilGuarantee maintains that the date of default, not
the actual date of payment, determines the liability of the guarantor and that
having paid TRB when the loan became due, it should be indemnified by
petitioners.[30]It argues that, contrary to petitioners claim, there could be no
waiver of its right to excussion more explicit than its act of payment to TRB
very directly.[31] Besides, the right to excussion is for the benefit of the
guarantor and is not a defense for the debtor to raise and use to evade
liability.[32] Finally, PhilGuarantee maintains that there is no sufficient evidence
proving the alleged forgery of Cruzs signature on the Undertaking, which is a
notarized document and as such must be accorded the presumption of
regularity.[33]
The Court finds for PhilGuarantee.
Under a contract of guarantee, the guarantor binds himself to the creditor
to fulfill the obligation of the principal debtor in case the latter should fail to do
so.[34] The guarantor who pays for a debtor, in turn, must be indemnified by the
latter.[35] However, the guarantor cannot be compelled to pay the creditor
unless the latter has exhausted all the property of the debtor and resorted to
all the legal remedies against the debtor.[36] This is what is otherwise known as
the benefit of excussion.
It is clear that excussion may only be invoked after legal remedies against
the principal debtor have been expanded. Thus, it was held that the creditor
must first obtain a judgment against the principal debtor before assuming to
run after the alleged guarantor, for obviously the exhaustion of the principals
property cannot even begin to take place before judgment has been
obtained.[37] The law imposes conditions precedent for the invocation of the
defense. Thus, in order that the guarantor may make use of the benefit of
excussion, he must set it up against the creditor upon the latters demand for
payment and point out to the creditor available property of the debtor within
the Philippines sufficient to cover the amount of the debt.[38]
While a guarantor enjoys the benefit of excussion, nothing prevents him
from paying the obligation once demand is made on him. Excussion, after all,
is a right granted to him by law and as such he may opt to make use of it or
waive it. PhilGuarantees waiver of the right of excussion cannot prevent it
from demanding reimbursement from petitioners. The law clearly requires the
debtor to indemnify the guarantor what the latter has paid.[39]
Petitioners claim that PhilGuarantee had no more obligation to pay TRB
because of the alleged expiration of the contract of guarantee is untenable.
The guarantee, dated17 December 1979, states:

In the event of default by JNDC and as a consequence thereof, PHILGUARANTEE is

made to pay its obligation arising under the aforesaid guarantee PHILGUARANTEE
shall pay the BANK the amount of P1.4 million or 70% of the total obligation unpaid

....
This guarantee shall be valid for a period of one (1) year from date hereof but may be
renewed upon payment by JNDC of the guarantee fee at the same rate of 1.5% per
annum.[40]

The guarantee was only up to 17 December 1980. JNs obligation with

TRB fell due on 30 June 1980, and demand on PhilGuarantee was made by
TRB on 08 October 1980. That payment was actually made only on 10 March
1981 does not take it out of the terms of the guarantee. What is controlling is
that default and demand on PhilGuarantee had taken place while the
guarantee was still in force.
There is likewise no merit in petitioners claim that PhilGuarantees failure
to give its express consent to the alleged extensions granted by TRB to JN
had extinguished the guarantee. The requirement that the guarantor should
consent to any extension granted by the creditor to the debtor under Art. 2079
is for the benefit of the guarantor. As such, it is likewise waivable by the
guarantor. Thus, even assuming that extensions were indeed granted by TRB
to JN, PhilGuarantee could have opted to waive the need for consent to such
extensions. Indeed, a guarantor is not precluded from waiving his right to be
notified of or to give his consent to extensions obtained by the debtor. Such
waiver is not contrary to public policy as it is purely personal and does not
affect public interest.[41] In the instant case, PhilGuarantees waiver can be
inferred from its actual payment to TRB after the latters demand, despite JNs
failure to pay the renewal/guarantee fee as indicated in the guarantee.[42]
For the above reasons, there is no basis for petitioners claim that
PhilGuarantee was a mere volunteer payor and had no legal obligation to pay
TRB. The law does not prohibit the payment by a guarantor on his own
volition, heedless of the benefit of excussion. In fact, it recognizes the right of
a guarantor to recover what it has paid, even if payment was made before the
debt becomes due,[43] or if made without notice to the debtor,[44] subject of
course to some conditions.
Petitioners invocation of our ruling in Willex Plastic Industries, Corp. v.
Court of Appeals[45] is misplaced, if not irrelevant. In the said case, the
guarantor claimed that it could not be proceeded against without first
exhausting all of the properties of the debtor. The Court, finding that there was
an express renunciation of the benefit of excussion in the contract of
guarantee, ruled against the guarantor.
The cited case finds no application in the case a quo. PhilGuarantee is not
invoking the benefit of excussion. It cannot be overemphasized that excussion
is a right granted to the guarantor and, therefore, only he may invoke it at his
discretion.
The benefit of excussion, as well as the requirement of consent to
extensions of payment, is a protective device pertaining to and conferred on
the guarantor. These may be invoked by the guarantor against the creditor as
defenses to bar the unwarranted enforcement of the guarantee. However,
PhilGuarantee did not avail of these defenses when it paid its obligation
according to the tenor of the guarantee once demand was made on it. What is
peculiar in the instant case is that petitioners, the principal debtors
themselves, are muddling the issues and raising the same defenses against
the guarantor, which only the guarantor may invoke against the creditor, to
avoid payment of their own obligation to the guarantor. The Court cannot
countenance their self-seeking desire to be exonerated from the duty to
reimburse PhilGuarantee after it had paid TRB on their behalf and to unjustly
enrich themselves at the expense of PhilGuarantee.
Petitioners assert that TRBs alleged foreclosure of the real estate
mortgage over the land executed as security for the loan agreement had
extinguished PhilGuarantees obligation; thus, PhilGuarantees recourse should
be directed against TRB, as per the pari-passu provision[46] in the contract of
guarantee.[47] We disagree.
The foreclosure was made on 27 August 1993, after the case was
submitted for decision in 1992 and before the issuance of the decision of the
court a quo in 1998.[48] Thus, foreclosure was resorted to by TRB against JN
when they both had become aware that PhilGuarantee had already paid TRB
and that there was a pending case filed by PhilGuarantee against petitioners.
This matter was not raised and proved in the trial court, nor in the appeal
before the CA, but raised for the first time in petitioners motion for
reconsideration in the CA. In their appellants Brief, petitioners claimed that
there was no need for the defendant-appellee JNDC to present any evidence
before the lower court to show that indeed foreclosure of the REM took
place.[49] As properly held by the CA,

Firstly, the documents evidencing foreclosure of mortgage cannot be considered as

newly discovered evidence. The said documents were already subsisting and should
have been presented during the trial of the case. The alleged foreclosure sale was
made on August 23, 1993 while the decision was rendered by the trial court on August
20, 1998 about five (5) years thereafter. These documents were likewise not submitted
by the defendants-appellees when they submitted their appellees Brief to this Court.
Thus, these cannot be considered as newly discovered evidence but are more correctly
ascribed as suppressed forgotten evidence Secondly, the alleged foreclosure sale is not
proof of payment of the loan by defendant-appellees to the plaintiffs-appellants.[50]

Besides, the complaint a quo was filed by PhilGuarantee as guarantor for

JN, and its cause of action was premised on its payment of JNs obligation
after the latters default. PhilGuarantee was well within its rights to demand
reimbursement for such payment made, regardless of whether the creditor,
TRB, was subsequently able to obtain payment from JN. If double payment
was indeed made, then it is JN which should go after TRB, and not
PhilGuarantee. Petitioners have no one to blame but themselves, having
allowed the foreclosure of the property for the full value of the loan despite
knowledge of PhilGuarantees payment to TRB. Having been aware of such
payment, they should have opposed the foreclosure, or at the very least, filed
a supplemental pleading with the trial court informing the same of the
foreclosure sale.
Likewise, petitioners cannot invoke the pari-passu clause in the guarantee,
not being parties to the said agreement. The clause is clearly for the benefit of
the guarantor and no other.
The Court notes the letter[51] of Rodrigo Sta. Ana offering, by way of
settlement of JNs obligations to PhilGuarantee, the very same parcel of land
mortgaged as security for the loan agreement. This further weakens the
position of petitioners, since it becomes obvious that they acknowledged the
payment made by PhilGuarantee on their behalf and that they were in fact
willing to negotiate with PhilGuarantee for the settlement of the said obligation
before the filing of the complaint a quo.
Anent the issue of forgery, the CA is correct in reversing the decision of
the trial court. Save for the denial of Narciso Cruz that it was not his signature
in the Undertaking and the perfunctory comparison of the signatures, nothing
in the records would support the claim of forgery. Forgery cannot be
presumed and must be proved by clear, positive and convincing evidence and
the burden of proof lies on the party alleging forgery.[52] Mere denial will not
suffice to overcome the positive value of the Undertaking, which is a notarized
document, has in its favor the presumption of regularity, and carries the
evidentiary weight conferred upon it with respect to its due execution.[53] Even
in cases where the alleged forged signature was compared to samples of
genuine signatures to show its variance therefrom, this Court still found such
evidence insufficient.[54] Mere variance of the signatures cannot be considered
as conclusive proof that the same were forged.[55]
 WHEREFORE, the consolidated petitions are DENIED. The Decision of
the Court of Appeals in CA-G.R. CV No. 61318 is AFFIRMED.
No pronouncement as to costs.
SO ORDERED.

Jjjjjjjjjjjjjmmmmmmmmmmmmmmmmmmmmmmmmmmmmmmmmmmmmmmmmmmmmmmmmm
mmmmmmmmmmmmmmmmmmmmmmmmmmmmmmmmmmmmmmmmmmmmmmmmmmmmm
mmmmmmmmmmmmmmmmmmm

BENJAMIN BITANGA, G.R. No. 173526

Petitioner,
Present:

YNARES-SANTIAGO, J.,
Chairperson,
- versus - AUSTRIA-MARTINEZ,
CHICO-NAZARIO,
NACHURA, and
REYES, JJ.

PYRAMID CONSTRUCTION
ENGINEERING Promulgated:
CORPORATION,
Respondent. August 28, 2008
x- - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - -x

DECISION
CHICO-NAZARIO, J.:

Assailed in this Petition for Review under Rule 45[1] of the Revised Rules of Court
are: (1) the Decision[2] dated 11 April 2006 of the Court of Appeals in CA-G.R.
CV No. 78007 which affirmed with modification the partial Decision[3] dated 29
November 2002 of the Regional Trial Court (RTC), Branch 96, of Quezon City, in
Civil Case No. Q-01-45041, granting the motion for summary judgment filed by
respondent Pyramid Construction and Engineering Corporation and declaring
petitioner Benjamin Bitanga and his wife,
Marilyn Bitanga (Marilyn), solidarily liable to pay P6,000,000.000 to respondent;
and (2) the Resolution[4] dated 5 July 2006 of the appellate court in the same case
denying petitioners Motion for Reconsideration.

The generative facts are:

On 6 September 2001, respondent filed with the RTC a Complaint for specific
performance and damages with application for the issuance of a writ of preliminary
attachment against the petitioner and Marilyn. The Complaint was docketed as
Civil Case No. Q-01-45041.

Respondent alleged in its Complaint that on 26 March 1997, it entered into an

agreement with Macrogen Realty, of which petitioner is the President, to construct
for the latter the Shoppers Gold Building, located at Dr. A. Santos Avenue
corner Palayag Road, Sucat, Paraaque City. Respondent commenced civil,
structural, and architectural works on the construction project by May
1997. However, Macrogen Realty failed to settle respondents progress
billings. Petitioner, through his representatives and agents, assured respondent that
the outstanding account of Macrogen Realty would be paid, and requested
respondent to continue working on the construction project.Relying on the
assurances made by petitioner, who was no less than the President
of Macrogen Realty, respondent continued the construction project.
 In August 1998, respondent suspended work on the construction project
since the conditions that it imposed for the continuation thereof, including payment
of unsettled accounts, had not been complied with by MacrogenRealty. On 1
September 1999, respondent instituted with the Construction Industry Arbitration
Commission (CIAC) a case for arbitration against Macrogen Realty seeking
payment by the latter of its unpaid billings and project costs. Petitioner, through
counsel, then conveyed to respondent his purported willingness to amicably settle
the arbitration case. On 17 April 2000, before the arbitration case could be set for
trial, respondent and MacrogenRealty entered into a Compromise
Agreement,[5] with petitioner acting as signatory for and in behalf
of MacrogenRealty. Under the Compromise Agreement, Macrogen Realty agreed
to pay respondent the total amount of P6,000,000.00 in six equal monthly
installments, with each installment to be delivered on the 15th day of the month,
beginning 15 June 2000. Macrogen Realty also agreed that if it would default in
the payment of two successive monthly installments, immediate execution could
issue against it for the unpaid balance, without need of judgment or decree from
any court or tribunal. Petitioner guaranteed the obligations of Macrogen Realty
under the Compromise Agreement by executing a Contract of Guaranty[6] in favor
of respondent, by virtue of which he irrevocably and unconditionally guaranteed
the full and complete payment of the principal amount of liability
of Macrogen Realty in the sum of P6,000,000.00. Upon joint motion of respondent
and Macrogen Realty, the CIAC approved the Compromise Agreement on 25 April
2000.[7]

However, contrary to petitioners assurances, Macrogen Realty failed and

refused to pay all the monthly installments agreed upon in the Compromise
Agreement. Hence, on 7 September 2000, respondent moved for the issuance of a
writ of execution[8] against Macrogen Realty, which CIAC granted.

On 29 November 2000, the sheriff[9] filed a return stating that he was unable
to locate any property of Macrogen Realty, except its bank deposit of P20,242.33,
with the Planters Bank, Buendia Branch.

Respondent then made, on 3 January 2001, a written demand[10] on petitioner, as

guarantor of Macrogen Realty, to pay the P6,000,000.00, or to point out available
properties of the Macrogen Realty within the Philippinessufficient to cover the
obligation guaranteed. It also made verbal demands on petitioner. Yet, respondents
demands were left unheeded.

Thus, according to respondent, petitioners obligation as guarantor was

already due and demandable. As to Marilyns liability, respondent contended
that Macrogen Realty was owned and controlled by petitioner and Marilyn and/or
by corporations owned and controlled by them. Macrogen Realty is 99% owned by
the Asian Appraisal Holdings, Inc. (AAHI), which in turn is 99% owned by
Marilyn. Since the completion of the construction project would have redounded to
the benefit of both petitioner and Marilyn and/or their corporations; and
considering, moreover, Marilyns enormous interest in AAHI, the corporation
which controls MacrogenRealty, Marilyn cannot be unaware of the obligations
incurred by Macrogen Realty and/or petitioner in the course of the business
operations of the said corporation.

Respondent prayed in its Complaint that the RTC, after hearing, render a
judgment ordering petitioner and Marilyn to comply with their obligation under the
Contract of Guaranty by paying respondent the amount of P6,000,000.000 (less the
bank deposit of Macrogen Realty with Planters Bank in the amount of P20,242.23)
and P400,000.000 for attorneys fees and expenses of litigation. Respondent also
sought the issuance of a writ of preliminary attachment as security for the
satisfaction of any judgment that may be recovered in the case in its favor.

Marilyn filed a Motion to Dismiss,[11] asserting that respondent had no cause of

action against her, since she did not co-sign the Contract of Guaranty with her
husband; nor was she a party to the Compromise Agreement between respondent
and Macrogen Realty. She had no part at all in the execution of the said
contracts. Mere ownership by a single stockholder or by another corporation of all
or nearly all of the capital stock of another corporation is not by itself a sufficient
ground for disregarding the separate personality of the latter
corporation.Respondent misread Section 4, Rule 3 of the Revised Rules of Court.

The RTC denied Marilyns Motion to Dismiss for lack of merit, and in its
Order dated 24 January 2002decreed that:
 The Motion To Dismiss Complaint Against Defendant
Marilyn Andal Bitanga filed on November 12, 2001 is denied for lack of
merit considering that Sec. 4, Rule 3, of the Rules of Court (1997)
specifically provides, as follows:

SEC. 4. Spouses as parties. Husband and wife shall sue or

be sued jointly, except as provided by law.

and that this case does not come within the exception.[12]

Petitioner filed with the RTC on 12 November 2001, his Answer[13] to respondents
Complaint averring therein that he never made representations to respondent
that Macrogen Realty would faithfully comply with its obligations under the
Compromise Agreement. He did not offer to guarantee the obligations
of Macrogen Realty to entice respondent to enter into the Compromise Agreement
but that, on the contrary, it was respondent that required Macrogen Realty to offer
some form of security for its obligations before agreeing to the
compromise.Petitioner further alleged that his wife Marilyn was not aware of the
obligations that he assumed under both the Compromise Agreement and the
Contract of Guaranty as he did not inform her about said contracts, nor did he
secure her consent thereto at the time of their execution.

As a special and affirmative defense, petitioner argued that the benefit

of excussion was still available to him as a guarantor since he had set it up prior to
any judgment against him. According to petitioner, respondent failed to exhaust all
legal remedies to collect from Macrogen Realty the amount due under the
Compromise Agreement, considering that Macrogen Realty still had uncollected
credits which were more than enough to pay for the same.Given these premise,
petitioner could not be held liable as guarantor. Consequently, petitioner presented
his counterclaim for damages.

At the pre-trial held on 5 September 2002, the parties submitted the following
issues for the resolution of the RTC:
 (1) whether the defendants were liable under the contract of guarantee
dated April 17, 2000 entered into between Benjamin Bitanga and
the plaintiff;

(2) whether defendant wife Marilyn Bitanga is liable in this action;

(3) whether the defendants are entitled to the benefit of excussion, the
plaintiff on the one hand claiming that it gave due notice to the
guarantor, Benjamin Bitanga, and the defendants contending that
no proper notice was received by Benjamin Bitanga;

(4) if damages are due, which party is liable; and

(5) whether the benefit of excussion can still be invoked by the

defendant guarantor even after the notice has been allegedly sent
by the plaintiff although proper receipt is denied.[14]

On 20 September 2002, prior to the trial proper, respondent filed a Motion for
Summary Judgment.[15]Respondent alleged therein that it was entitled to a
summary judgment on account of petitioners admission during the pre-trial of the
genuineness and due execution of the Contract of Guaranty. The contention of
petitioner and Marilyn that they were entitled to the benefit of excussion was not a
genuine issue. Respondent had already exhausted all legal remedies to collect
from Macrogen Realty, but its efforts proved unsuccessful. Given that the inability
of Macrogen Realty as debtor to pay the amount of its debt was already proven by
the return of the writ of execution to CIAC unsatisfied, the liability of petitioner as
guarantor already arose.[16] In any event, petitioner and Marilyn were deemed to
have forfeited their right to avail themselves of the benefit of excussion because
they failed to comply with Article 2060[17] of the Civil Code when petitioner
ignored respondents demand letter dated 3 January 2001 for payment of the
amount he guaranteed.[18] The duty to collect the supposed receivables
of Macrogen Realty from its creditors could not be imposed on respondent, since
petitioner and Marilyn never informed respondent about such uncollected credits
even after receipt of the demand letter for payment. The allegation of petitioner
and Marilyn that they could not respond to respondents demand letter since they
did not receive the same was unsubstantiated and insufficient to raise a genuine
issue of fact which could defeat respondents Motion for Summary Judgment. The
claim that Marilyn never participated in the transactions that culminated in
petitioners execution of the Contract of Guaranty was nothing more than a sham.

In opposing respondents foregoing Motion for Summary Judgment, petitioner and

Marilyn countered that there were genuinely disputed facts that would require trial
on the merits. They appended thereto an affidavit executed by petitioner, in which
he declared that his spouse Marilyn could not be held personally liable under the
Contract of Guaranty or the Compromise Agreement, nor should her share in the
conjugal partnership be made answerable for the guaranty petitioner assumed,
because his undertaking of the guaranty did not in any way redound to the benefit
of their family. As guarantor, petitioner was entitled to the benefit of excussion,
and he did not waive his right thereto. He never received the respondents demand
letter dated 3 January 2001, as Ms. Dette Ramos, the person who received it, was
not an employee of Macrogen Realty nor was she authorized to receive the letter
on his behalf. As a guarantor, petitioner could resort to the benefit of excussion at
any time before judgment was rendered against him.[19] Petitioner reiterated
that Macrogen Realty had uncollected credits which were more than sufficient to
satisfy the claim of respondent.
On 29 November 2002, the RTC rendered a partial Decision,
the dispositive portion of which provides:

WHEREFORE, summary judgment is rendered ordering defendants

SPOUSES BENJAMIN BITANGA and MARILYN ANDAL
BITANGA to pay the [herein respondent], jointly and severally, the
amount of P6,000,000.00, less P20,242.23 (representing the amount
garnished bank deposit of MACROGEN in the Planters
Bank, BuendiaBranch); and the costs of suit.

Within 10 days from receipt of this partial decision, the [respondent]

shall inform the Court whether it shall still pursue the rest of the claims
against the defendants. Otherwise, such claims shall be considered
waived.[20]

Petitioner and Marilyn filed a Motion for Reconsideration of the afore-quoted

Decision, which the RTC denied in an Order dated 26 January 2003.[21]
In time, petitioner and Marilyn filed an appeal with the Court of Appeals, docketed
as CA-G.R. CV 78007. In its Decision dated 11 April 2006, the appellate court
held:

UPON THE VIEW WE TAKE OF THIS CASE, THUS, the judgment

appealed from must be, as it hereby is, MODIFIED to the effect that
defendant-appellant Marilyn Bitanga is adjudged not liable,
whether solidarily or otherwise, with her husband the defendant-
appellant Benjamin Bitanga, under the compromise agreement or the
contract of guaranty. No costs in this instance.[22]

In holding that Marilyn Bitanga was not liable, the Court of Appeals
cited Ramos v. Court of Appeals,[23]in which it was declared that a contract cannot
be enforced against one who is not a party to it. The Court of Appeals stated
further that the substantial ownership of shares in Macrogen Realty by
Marilyn Bitanga was not enough basis to hold her liable.

The Court of Appeals, in its Resolution dated 5 July 2006, denied petitioners
Motion for Reconsideration[24] of its earlier Decision.

Petitioner is now before us via the present Petition with the following assignment
of errors:

THE COURT OF APPEALS GRAVELY ERRED IN AFFIRMING

THE VALIDITY OF THE PARTIAL SUMMARY JUDGMENT BY
THE REGIONAL TRIAL COURT OF QUEZON CITY, BRANCH 96,
DESPITE THE CLEAR EXISTENCE OF DISPUTED GENUINE AND
MATERIAL FACTS OF THE CASE THAT SHOULD HAVE
REQUIRED A TRIAL ON THE MERITS.

II

THE COURT OF APPEALS GRAVELY ERRED IN NOT

UPHOLDING THE RIGHT OF PETITIONER BENJAMIN M.
BITANGA AS A MERE GUARANTOR TO THE BENEFIT OF
 EXCUSSION UNDER ARTICLES 2058, 2059, 2060, 2061, AND 2062
OF THE CIVIL CODE OF THE PHILIPPINES.[25]

As in the two courts below, it is petitioners position that summary judgment

is improper in Civil Case No. Q-01-45041 because there are genuine issues of fact
which have to be threshed out during trial, to wit:

(A) Whether or not there was proper service of notice to petitioner

considering the said letter of demand was allegedly received by
one Dette Ramos at Macrogen office and not by him at his residence.

(B) Whether or not petitioner is entitled to the benefit of excussion?[26]

We are not persuaded by petitioners arguments.

Rule 35 of the Revised Rules of Civil Procedure provides:

Section 1. Summary judgment for claimant. A party seeking to recover

upon a claim, counterclaim, or cross-claim or to obtain a declaratory relief may, at
any time after the pleading in answer thereto has been served, move with
supporting affidavits, depositions or admissions for a summary judgment in his
favor upon all or any part thereof.

For a summary judgment to be proper, the movant must establish two

requisites: (a) there must be no genuine issue as to any material fact, except for the
amount of damages; and (b) the party presenting the motion for summary judgment
must be entitled to a judgment as a matter of law. Where, on the basis of the
pleadings of a moving party, including documents appended thereto, no genuine
issue as to a material fact exists, the burden to produce a genuine issue shifts to the
opposing party. If the opposing party fails, the moving party is entitled to a
summary judgment.[27]

In a summary judgment, the crucial question is: are the issues raised by the
opposing party not genuine so as to justify a summary judgment?[28]
 First off, we rule that the issue regarding the propriety of the service of a
copy of the demand letter on the petitioner in his office is a sham issue. It is not a
bar to the issuance of a summary judgment in respondents favor.

A genuine issue is an issue of fact which requires the presentation of

evidence as distinguished from an issue which is a sham, fictitious, contrived or
false claim. To forestall summary judgment, it is essential for the non-moving
party to confirm the existence of genuine issues, as to which he has substantial,
plausible and fairly arguable defense, i.e.,[29] issues of fact calling for the
presentation of evidence upon which reasonable findings of fact could return a
verdict for the non-moving party, although a mere scintilla of evidence in support
of the party opposing summary judgment will be insufficient to preclude entry
thereof.

Significantly, petitioner does not deny the receipt of the demand letter from
the respondent. He merely raises a howl on the impropriety of service thereof,
stating that the address to which the said letter was sent was not his residence but
the office of Macrogen Realty, thus it cannot be considered as the correct manner
of conveying a letter of demand upon him in his personal capacity.[30]

Section 6, Rule 13 of the Rules of Court states:

SEC. 6. Personal service. Service of the papers may be made by

delivering personally a copy to the party or his counsel, or by leaving it
in his office with his clerk or with a person having charge thereof. If
no person is found in his office, or his office is not known, or he has no
office, then by leaving the copy, between the hours of eight in the
morning and six in the evening, at the partys or counsels residence, if
known, with a person of sufficient age and discretion then residing
therein.

The affidavit of Mr. Robert O. Pagdilao, messenger of respondents counsel

states in part:
 2. On 4 January 2001, Atty. Jose Vicente B. Salazar, then one of the
Associates of the ACCRA Law Offices, instructed me to deliver
to the office of Mr. Benjamin Bitanga a letter dated 3 January
2001, pertaining to Construction Industry Arbitration Commission
(hereafter, CIAC) Case No. 99-56, entitled Pyramid Construction
Engineering Corporation vs. Macrogen Realty Corporation.

3. As instructed, I immediately proceeded to the office of

Mr. Bitanga located at the
12th Floor, Planters DevelopmentBank Building, 314 Senator
Gil Puyat Avenue, Makati City. I delivered the said letter to
Ms. Dette Ramos, a person of sufficient age and discretion, who
introduced herself as one of the employees of Mr. Bitanga and/or
of the latters companies.[31] (Emphasis supplied.)

We emphasize that when petitioner signed the Contract of Guaranty and

assumed obligation as guarantor, his address in the said contract was the same
address where the demand letter was served.[32] He does not deny that the said
place of service, which is the office of Macrogen, was also the address that he used
when he signed as guarantor in the Contract of Guaranty. Nor does he deny that
this is his office address; instead, he merely insists that the person who received the
letter and signed the receiving copy is not an employee of his company. Petitioner
could have easily substantiated his allegation by a submission of an affidavit of the
personnel manager of his office that no such person is indeed employed by
petitioner in his office, but that evidence was not submitted.[33] All things are
presumed to have been done correctly and with due formality until the contrary is
proved. This juris tantum presumption stands even against the most well-reasoned
allegation pointing to some possible irregularity or anomaly.[34] It is petitioners
burden to overcome the presumption by sufficient evidence, and so far we have not
seen anything in the record to support petitioners charges of anomaly beyond his
bare allegation. Petitioner cannot now be heard to complain that there was an
irregular service of the demand letter, as it does not escape our attention that
petitioner himself indicated 314 Sen. Gil Puyat Avenue, Makati City as his office
address in the Contract of Guaranty.

Moreover, under Section 6, Rule 13 of the Rules of Court, there is

sufficiency of service when the papers, or in this case, when the demand letter is
personally delivered to the party or his counsel, or by leaving it in his office with
his clerk or with a person having charge thereof, such as what was done in this
case.

We have consistently expostulated that in summary judgments, the trial court can
determine a genuine issue on the basis of the pleadings, admissions, documents,
affidavits or counter affidavits submitted by the parties. When the facts as pleaded
appear uncontested or undisputed, then there is no real or genuine issue or question
as to any fact, and summary judgment is called for.[35]

The Court of Appeals was correct in holding that:

Here, the issue of non-receipt of the letter of demand is a sham or pretended issue,
not a genuine and substantial issue.Indeed, against the positive assertion of Mr.
Roberto O. Pagdilao (the private courier) in his affidavit that he delivered the
subject letter to a certain Ms. Dette Ramos who introduced herself as one of the
employees of [herein petitioner] Mr. Benjamin Bitanga and/or of the latters
companies, said [petitioner] merely offered a bare denial. But bare denials,
unsubstantiated by facts, which would be admissible in evidence at a hearing, are
not sufficient to raise a genuine issue of fact sufficient to defeat a motion for
summary judgment.[36]

We further affirm the findings of both the RTC and the Court of Appeals
that, given the settled facts of this case, petitioner cannot avail himself of the
benefit of excussion.

Under a contract of guarantee, the guarantor binds himself to the creditor to fulfill
the obligation of the principal debtor in case the latter should fail to do so. The
guarantor who pays for a debtor, in turn, must be indemnified by the
latter. However, the guarantor cannot be compelled to pay the creditor unless the
latter has exhausted all the property of the debtor and resorted to all the legal
remedies against the debtor. This is what is otherwise known as the benefit
of excussion.[37]

Article 2060 of the Civil Code reads:

 Art. 2060. In order that the guarantor may make use of the benefit
of excussion, he must set it up against the creditor upon the latters
demand for payment from him, and point out to the creditor available
property of the debtor within Philippine territory, sufficient to cover the
amount of the debt.[38]

The afore-quoted provision imposes a condition for the invocation of the

defense of excussion. Article 2060 of the Civil Code clearly requires that in order
for the guarantor to make use of the benefit of excussion, he must set it up against
the creditor upon the latters demand for payment and point out to the creditor
available property of the debtor within the Philippines sufficient to cover the
amount of the debt.[39]

It must be stressed that despite having been served a demand letter at his office,
petitioner still failed to point out to the respondent properties of Macrogen Realty
sufficient to cover its debt as required under Article 2060 of the Civil Code. Such
failure on petitioners part forecloses his right to set up the defense of excussion.
Worthy of note as well is the Sheriffs return stating that the only property
of Macrogen Realty which he found was its deposit of P20,242.23 with the
Planters Bank.

Article 2059(5) of the Civil Code thus finds application and precludes petitioner
from interposing the defense of excussion. We quote:

Art. 2059. This excussion shall not take place:

xxxx

(5) If it may be presumed that an execution on the property of the principal debtor
would not result in the satisfaction of the obligation.

As the Court of Appeals correctly ruled:

We find untenable the claim that the [herein petitioner] Benjamin Bitanga cannot
be compelled to pay Pyramid because the Macrogen Realty has allegedly
sufficient assets. Reason: The said [petitioner] had not genuinely controverted the
return made by Sheriff Joseph F. Bisnar, who affirmed that, after exerting diligent
 efforts, he was not able to locate any property belonging to the Macrogen Realty,
except for a bank deposit with the Planters Bank at Buendia, in the amount
of P20,242.23. It is axiomatic that the liability of the guarantor arises when the
insolvency or inability of the debtor to pay the amount of debt is proven by the
return of the writ of execution that had not been unsatisfied.[40]

IN ALL, we fail to point out any impropriety in the rendition of a summary

judgment in favor of the respondent.
WHEREFORE, premises considered, the instant petition is DENIED for
lack of merit. The Decision of the Court of Appeals dated 11 April 2006 and its
Resolution dated 5 July 2006 are AFFIRMED. Costs against petitioner.
G.R. No. L-5470 March 22, 1910

LUIS SAENZ DE VIZMANOS ONG-QUICO, plaintiff-appellant,

vs.
YAP CHUAN, ET AL., defendants-appellants.

Ortigas and Fisher, for plaintiff.

Chicote and Miranda, for defendants.

ARELLANO, C.J.:

Engracio Palanca, while judicial administrator of the estate of Margarita Jose, gave bond, by order of
the court before which the proceedings thereon were had, to guarantee his administration, which
bond was executed by Engracio Palanca himself, Luis S. de Vizmanos Ong-Quico, Alejandra
Palanca, and Juan Fernandez Lim Quin Chuang, jointly and severally, in favor of the Government of
the United States in the Philippine Islands, for the sum of P60,000, Philippine currency.

On the same date the said Engracio Palanca and five others executed in favor of Luis S. de
Vizmanos the following bond: Yap Chuangco, for P20,000; Yap Chutco, for P5,000; Palanca Yap
Poco, for P5,000; Palanca Tanguinlay, for P5,000; and Lim Pongco, for P5,000. All of them signed
the bond except the first named, Yap Chuangco, who did not personally execute the bond; this was
done for him by his attorney, Yap Chengtua.

In the said instrument the following appears:

. . . and, it being possible that the case occur that Mr. Vizmanos shall have to pay the said
bond or a part thereof, as such surety, whose responsibility or solvency in such capacity has
been accepted by the court up to the amount of forty thousand pesos, Philippine currency,
for the purpose of guaranteeing to the same the reimbursement of the sum or sums which by
reason of the said bond he might have to pay, the executors of this instrument have agreed
that Messr. Yap Chuangco, Yap Chutco, Carlos Palanca Tanguinlay, Serafin Palanca Yap
Poco, and Lim Biampung, known as Lim Pongco, shall be the sureties of Don Engracio
Palanca in favor of Mr. Luis S. Vizmanos Ong-Quico, binding themselves jointly as such to
reimburse or to pay to the said Mr. Vizmanos, his heirs and successors in interest, whatever
sums the said Vizmanos may have to pay or shall have paid by reason of the judicial bond
herein mentioned, subscribed by him in favor of Mr. Palanca, up to the amount of forty
thousand pesos, Philippine currency, in the proportion of not exceeding P20,000 by Yap
Chungangco and P5,000 by each one of the other four herein above mentioned.

On March 9, 1908, the court which tried the case concerning the estate ordered Luis Saenz de
Vizmanos Ong-Quico, as surety in solidum of the ex-administrator Engracio Palanca, to pay to the
estate the sum of P41,690.15, Philippine currency, also the interest on the said sum at the rate of 8
per cent per annum, counting from December 27, 1905, with other sums set out in the sentence.
This judgment became final.

On March 31, 1908, Vizmanos Ong-Quico paid to the administrator of the estate eight thousand
pesos (P8,000), Philippine currency, by the conveyance of the property belonging to him, he still
owing P40,975.92, with interest on the said amount at 8 per cent per annum from the 9th day of
March, 1908, the date of the judgment.

On April 2, 1908, he instituted suit against the five sureties above named who, with Engracio
Palanca, executed the bond before mentioned in his favor, praying the Court of First Instance of the
city of Manila to sentence them to pay him: Yap Chuangco, P20,000, and the other four sureties,
Yap Chutco, Carlos Palanca Tanguinaly, Serafin Palanca Yap Poco, and Lim Pongco, each P5,000,
that is, these four together P20,000 more, and jointly the costs of the action.

The court, in its judgment, acquitted Yap Chuingco from the claim of the P20,000, assessing against
the plaintiff the part of the costs pertaining to this defendant, and ordered each one of the four
remaining defendants, Yap Chutco, Carlos Palanca Tanguinlay, Serafin Palanca Yap Poco, and Lim
Biang Pon (alias Lim Pongco), to pay to the plaintiff, Luis Sanez de Vizmanos, the sum of P2,000,
with legal interest at 6 per cent per annum on the said respective sums from March 31, 1908, the
date on which the plaintiff paid to the present administrator of the estate the said sum of P8,000,
until its complete payment. The said four defendants had also to pay jointly, that is, in equal shares,
the costs pertaining to them.

Both parties appealed from this sentence, each one forwarding to this court his respective bill of
exceptions, together with all the evidence taken at the trial, besides the stenographic notes which
were also forwarded by special order of the trial court.

The appeal having been heard before this court, it appears that:

The defendants appealed on account of their having been ordered to pay, each of them, P2,000,
instead of only P1,000, which according to the terms of the contract, each one of them was bound to
pay to the plaintiff. (Only error alleged.)

The plaintiff appealed because the court refused to render judgment against the defendants for the
maximum sum for which each one had bound himself in the contract, which he calls a counterbound
or subbond, that is, each one of the four to pay P5,000. (Only error alleged.)

The share of P20,000 which the plaintiff claimed from Yap Chuangco is not included in the former's
appeal, from the payment of which amount the latter is relieved in the judgment, for he expressly
states in his brief that he conforms to this part of the judgment and that "his appeal solely relates to
the other defendants." (Brief, 4.)

With respect to the other four defendants, the plaintiff and appellant claims that, notwithstanding his
having paid only P8,000 of his bond, the defendants ought to reimburse him at the rate of P5,000
each, that is, all together to the amount of P20,000. As above stated, the lower court only sentenced
them to reimburse their proportional share of the P8,000 paid, to wit, P2,000 each, P8,000 all
together. Thus they would be paying even the proportional share corresponding to Yap Chuangco,
which is P4,000, whereas the plaintiff appellant agrees that the share of the bond concerning Yap
Chuangco should be void by reason of its having been executed by an attorney in fact of the latter
who did not possess sufficient power for this purpose.

Hence the only error alleged by the defendants in their brief, inasmuch as, having deducted the
P4,000 which Yap Chuangco would have to pay, the other four defendants must pay only P4,000,
that is, P1,000 each.

We can not but agree with this claim of the attorneys for the defendants — say those of the
plaintiff — if this court, disregarding the reasons contained in our brief, should declare that
the plaintiff is only entitled to recover the money that he really and actually has expended, to
wit, P8,000, then it appears unquestionable that the defendants and appellants are only
compelled to pay P1,0000 each, as their attorneys state in their brief. (Brief, 2.)
With regard to the sole error alleged by the attorneys for the plaintiff, it must first be considered that
the bond which the four defendants in turn executed in favor of the plaintiff bondsman is not a
subbond; it is not of the same nature as that given by the latter in favor of Engracio Palanca in the
probate proceedings in connection with the will of Margarita Jose. Although one bond is subordinate
to another, not for this reason are they of the same nature. That of Vizmanos for Engracio Palanca in
favor of the estate is judicial and was approved by the probate judge; that of the defendants for
Engracio Palanca in favor of Vizmanos was extrajudicial and the probate judge had nothing to do
with it. The new administrator of the estate had a right of action, and he exercised it against
Vizmanos to enforce the payment of the bond given by the latter, but he has none nor can he
exercise any whatsoever against the four who gave bond for Engracio Palanca in favor of Vizmanos.
The only relation that exists between the one bond and the other is merely that of antecedent and
consequent, in so far as that of Vizmanos in favor of the estate was the cause of debt of that of the
defendants in favor of Vizmanos. The first one was strictly judicial, the second merely contractual
between the parties.

When a surety pays for the party under bond, he has a right of action against such party for the
recovery of the amount paid by him.

A surety who pays for a debtor shall be identified by the latter. (Art. 1838, Civil Code.)

The surety Vizmanos who paid for the debtor Palanca must be identified by Palanca. And it was
evident, when Vizmanos became surety for Palanca, that the latter could not pay him, Palanca
obligated himself by the four defendants, or, better said, the four defendants assumed the obligation
that rested upon Palanca to indemnify Vizmanos for what the latter might pay for Palanca. This is in
fact the obligation that is nor exercised. The action of the surety against the party under bond or the
debtor to require the obligation of indemnity, has no other name nor other nature in law than that of
subrogation; it is an unquestionable doctrine. The action of subrogation is regulated in article 1839 of
the Civil Code:

By virtue of such payment the surety is subrogated in all the rights which the creditor had
against the debtor.

But be it well understood — says a commentator — that this subrogation can not be
interpreted in such absolute terms as to include more than the surety has paid, for, though it
is true that he puts himself in the place of the creditor and should have the same rights as
the latter in consequence of the subrogation, it is no less certain that there would be an
unjust enrichment to the prejudice of the debtor, if the surety who pays for him were
permitted to claim more than what he paid. Moreover, the benefit of subrogation is the
means of utilizing the right of reimbursement, and he could not collect as such the excess
from the rights and actions of the creditor over and above the advance made by him. (12
Manresa, Civil Code, 304.)

The contract law says no more than this:

Being that the case may occur — say those obligated — that the said Vizmanos may have to
pay the said bond or a part thereof . . . for the purpose of guaranteeing
the resimbursement of the sum or sums which by reason of the bond he may have to pay,
the executors have agreed and stipulated that . . . they shall be the sureties of Don Engracio
Palanca in favor of Sr. Luis S. Vizmanos, binding themselves as such conjointly
to reimburse or to pay . . whatever amounts the latter might have to pay or shall have paid by
reason of the judicial bond aforementioned. . . .
Being as it is an action of subrogation, it is not exercisable except in the case of payment. The surety
is subrogated by the payment, says the law, in all the rights that the creditor had against the debtor.
Being as it is an action of indemnity it is not conceived how, rationally, the damage not yet caused
can be anticipated. When the purse of the surety has suffered no detriment, to sue the debtor in
order that he provide funds for the surety in expectancy of the action of the creditor, is not to ask an
indemnity, but to demand a guaranty to recover the loss when it may occur, and this guaranty is that
already obtained by the surety Vizmanos from Engracio Palanca on the latter's placing beforehand
four parties in his stead in order that they may the proper time ensure him of the restitution, the
reimbursement of what he shall have paid. To ask an indemnity of twenty, when the loss to be
indemnified is but eight, can in no wise be authorized either by law or by reason.

The Civil Code specifies five cases as exceptions wherein the surety, even before paying, may
proceed against the principal debtor, but "in all these cases the action of the surety tends to obtain
his release from the security or a guaranty to defend him against any proceedings of the creditor and
from the danger of insolvency of the debtor." (Art. 1843, Civil Code.) The security or bond given by
the four defendants in favor of the plaintiff Vizmanos had no other purpose than, in case he should
make payment to the estate of Margarita Jose, to defend himself against the proceedings of the
administrator of the estate and from the danger of insolvency of the debtor Palanca.

Although, in principle, by virtue of the contract in question, the four defendants are obligated to the
plaintiff in the sum of P20,000, that is, at the rate of P5,000 each, the action ad cautelam is,
precisely, covered by such a contract, and the action of subrogation, the only one exercisable, is
only available in the quality of a restitution or reimbursement of the payment effected. In the present
case the plaintiff, by virtue of the contract ad cautelam, is entitled to an action against the four
defendants for recovery from each of them up to the maximum amount of P5,000, but he can not by
such action, as surety for the principal debtor, collect more than the sum which he himself was
actually compelled to pay.

In virtue of the foregoing, the judgment appealed from is reversed in so far as it sentences each one
of the four defendants, Yap Chutco, Carlos Palanca Tanguinlay, Serafin Palanca Yap Poco, and Lim
Biang Pong (alias Lim Pongco), to pay to the plaintiff, Luis Saenz de Vizmanos, the sum of P2,000.
The amount to be paid is hereby fixed at P1,000, to the payment of which, in favor of the aforesaid
plaintiff, each of the four defendants mentioned were sentenced, "with legal interest at the rate of 6
per cent per annum on the said respective sums, from March 31, 1908, the date on which the
plaintiff paid to the present administrator of the said estate the said sum of P8,000, until its complete
payment. The said four defendants shall pay the costs in equal shares." the costs of this instance
shall be assessed against the plaintiff and appellant Vizmanos. So ordered.
TUASON, TUASON, INC., plaintiff-appellee,
vs.
ANTONIO MACHUCA, defendant-appellant.

Marcaida, Capili & Ocampo for appellant.

Antonio M. Opisso for appellee.

AVANCEÑA, J.:

By giving a bond in the sum of P9,663 executed by "Manila Compañia de Seguros," the Universal
Trading Company was allowed by the Insular Collector of Custom to withdraw from the customhouse
sundry goods imported by it and consigned through the bank of the Philippine Islands.
Subsequently, the Bank of the Philippine Islands claimed the value of the goods, and the Insular
Collector of Customs obligated the "Manila Compañia de Seguros" to pay the sum of P9,663, the
amount of the bond. Before paying this amount to the Insular Collector of Customs, the "Manila
Compañia de Seguros" obtained from the Universal Trading Company and Tuason, Tuason & Co., a
solidary note for the sum of P9,663 executed by said companies in its favor. Before signing said
note, Tuason, Tuason & Co., in turn, caused the Universal Trading Company and its president
Antonio Machuca, personally, to sign a document (Exhibit B), wherein they bound themselves
solidarily to pay, reimburse, and refund to the company all such sums or amounts of money as it, or
its representative, may pay or become bound to pay, upon its obligation with "Manila Compañia de
Seguros," whether or not it shall have actually paid such sum or sums or any part thereof. The
Universal Trading Company having been declared insolvent, "Manila Compañia de Seguros" brought
an action in the lower court against Tuason, Tuason & Co. to recover the value of the note for
P9,663 and obtained final judgment therein, which was affirmed by this court on appeal, for the total
sum of P12,197.27, which includes the value of the note with interest thereon. 1 Subsequently, all the
rights of Tuason, Tuason & Co. were transferred to the plaintiff Tuason, Tuason, Inc.

Later on Tuason, Tuason, Inc., brought this action to recover of Antonio Machuca the sum of
P12,197.27 which it was sentenced to pay in the case filed against it by "Manila Compañia de
Seguros," plus P3,000 attorney's fees, and P155.92 court's costs and sheriff's fees, that is, a total of
P15,353.19, together with P1,180.46 as interest upon the sum of P15,353.19 at the rate of 10 per
cent per annum from October 8, 1922, to July 8, 1923, and interest on the sum of P16,535.65 at the
rate of 10 per cent from July 8, 1923, until this sum was paid, and, in addition the sum of P1,653.65
for attorney's fees in this case. For its cause of action, the plaintiff alleges that it had paid "Manila
Compañia de Seguros" the sum of P12,197.27, the amount of the judgment against it. The
dispositive part of the judgment appealed from is as follows: itc-a1f

Judgment is rendered against the defendant Antonio Machuca, and he is hereby ordered to
pay the plaintiff company the sum of fifteen thousand three hundred fifty-three pesos and
nineteen centavos (15,353.19), with compound interest thereon at the rate of ten per cent
(10%) per annum, to be computed quarterly, that is, one thousand one hundred eighty pesos
and forty-six centavos (1,180.46), which is ten per cent interest on the amount of fifteen
thousand three hundred fifty-three pesos and nineteen centavos (P15,353.19) from October
8, 1922, to July 8, 1923, and ten per cent on the sum of sixteen thousand five hundred thirty-
three pesos and sixty-five centavos (P16,533.65) from July 8, 1923, until full payment, to be
computed quarterly, besides the sum of one thousand six hundred fifty-three pesos and
sixty-five centavos (P1,653.65), which is ten per cent (10%) on the amount due and the
 interest thereon, which said defendant promised to pay as penalty and attorney's fees in the
event of a suit being necessary to recover the debt, and the costs. So ordered.

It appears from the evidence that what the plaintiff alleged to be a payment made to "Manila
Compañia de Seguros", for the satisfaction of the judgment rendered in favor of the latter is the
execution by Albina Tuason of a document Exhibit D in favor of "Manila Compañia de Seguros." In
this document Albina Tuason declares that she assumes and makes hers the obligation to pay the
amount of said judgment to "Manila Compañia de Seguros" within one year and mortgages a
property described in the document as security for this obligation. This obligation of Albina Tuason
was accepted by the "Manila Compañia de Seguros," in the following terms: "I accept the foregoing
security executed by Miss Albina Tuason in favor of `Manila Compañia de Seguros.'" It, thus,
appears that the plaintiff has not in fact paid the amount of the judgment to "Manila Compañia de
Seguros." The action brought by the plaintiff is that which surety, who pays the debt of the debtor, is
entitled to bring to recover the amount thus paid (art. 1823, Civil Code). It is evidence that such a
payment not having been made the alleged cause of action does not exist.

The plaintiff company argues that, at all events, it is entitled to bring this action under article 1843 of
the Civil Code, which provides that the surety may, even before making payment, bring action
against the principal debtor. This contention of the plaintiff is untenable. The present action,
according to the terms of the complaint, is clearly based on the fact of payment. It is true that, under
article 1843, an action lies against the principal debtor even before the surety pays the debt, but it
clearly appears in the complaint that this is not the action brought by the plaintiff. Moreover this
article 1843 provided several cumulative remedies in favor of the surety, at his election, and the
surety who brings an action under this article must choose the remedy and apply for it specifically. At
any rate this article does not provide for the reimbursement of any amount, as is sought by the
plaintiff.
lawphi 1.net

But although the plaintiff has not as yet paid "Manila Compañia de Seguros" the amount of the
judgment against it, and even considering that this action cannot be held to come under article 1843
of the Civil Code, yet the plaintiff is entitled to the relief sought in view of the facts established by the
evidence. The plaintiff became bound, by virtue of a final judgment, to pay the value of the note
executed by it in favor of "Manila Compañia de Seguros." According to the document executed
solidarily by the defendant and the Universal Trading Company, the defendant bound himself to pay
the plaintiff as soon as the latter may have become bound and liable, whether or not it shall have
actually paid. It is indisputable that the plaintiff became bound and liable by a final judgment to pay
the value of the note to "Manila Compañia de Seguros."

The defendant also contends that the document executed by Albina Tuason in favor of "Manila
Compañia de Seguros" assuming and making hers the obligation of Tuason, Tuason & Co., was a
novation of the contract by substitution of the debtor, and relieved Tuason, Tuason & Co. from all
obligation in favor of "Manila Compañia de Seguros." As to this, it is enough to say that if this was
what Albina Tuason contemplated in signing the document, evidently it was not what "Manila
Compañia de Seguros" accepted. As above stated, "Manila Compañia de Seguros" accepted this
document only as additional security for its credit and not as a novation of the contract.

Our conclusion is that the plaintiff has the right to recover of the defendant the sum of P9,663, the
value of the note executed by the plaintiff in favor of "Manila Compañia de Seguros" which the
plaintiff is under obligation to pay by virtue of final judgment. We do not believe, however, that the
defendant must pay the plaintiff the expenses incurred by it in the litigation between it and "Manila
Compañia de Seguros." That litigation was originated by the plaintiff having failed to fulfill its
obligation with "Manila Compañia de Seguros," and it cannot charge the defendant with expenses
which it was compelled to make by reason of its own fault. It is entitled, however, to the expenses
incurred by it in this action brought against the defendant, which are fixed at P1,653.65 as attorney's
fees.

The judgment appealed from is modified, and the defendant is sentenced to pay the plaintiff the sum
of P9,663, with interest thereon at the rate of 10 per cent per annum from July 19, 1923, when the
complaint was filed until full payment thereof, plus the sum of P1,653.65 for attorney's fees, without
special pronouncement as to costs. So ordered.
G.R. No. L-5208 December 1, 1909

KUENZLE AND STREIFF, plaintiff-appellant,

vs.
JOSE TAN SUNCO ET AL., defendants-appellees.

Hartigan and Rohde, and Roman Lacson, for appellant.

Antonio Constantino, for appellees.

MORELAND, J.:

This is an action to set aside four judgments rendered by a justice of the peace of the city of Manila
upon the ground that they were procured by collision and fraud, to the injury and damage of the
plaintiff.

The court below, after hearing the evidence offered upon the trial, found against the plaintiff and
rendered a judgment in favor of the defendant dismissing the plaintiff's complaint, with costs.

The plaintiff did not make a motion for a new trial in the court below and this court can not, therefore,
look into the evidence but must confine itself to the facts stated in the opinion of the court below for
the purpose of ascertaining whether or not the judgment of that court can be sustained.

It appears from the opinion of the court below that Tan Sunco was a surety for Chung Chu Sing for
the payment by the latter of the purchase price of certain merchandise purchased by said Chung
Chu Sing of Ed. and A. Keller and Co., that the time within which said merchandise was to be paid
for under the terms of its purchase had expired long before said four judgments were obtained, and
that the debt remained unpaid; that the total debt was composed of four invoices of varying amounts
— P395.50, P450, P565, and P320.20; that an action had been commenced against the said debtor,
Chung Chu Sing, by the present plaintiff for the recovery of the indebtedness due it; that shortly
before judgment was secured in that action the said Tan Sunco began four separate action against
the said debtor upon the said invoices in the court of the justice of the peace of the city of Manila;
that soon thereafter the said sunco and the said debtor appeared before the said court, and the said
debtor then and there confessed judgment in favor of said Tan Sunco in each one of said actions,
Tan Sunco thereby obtaining against the said debtor four separate judgments; that immediately
upon the recovery of said judgments the plaintiff in those actions, Sunco caused to be levied
thereunder executions upon all of the property of said debtor, which property was not more than
sufficient to pay to the judgments under which the levies were made; that thereupon the action at bar
was begun and the sales under said executions were enjoined pending the determination thereof.
These are the admitted facts. lawphi1.net

The plaintiff in this action contends that said four judgments ought to be set wholly aside on account
of their having been obtained, as he claims, by collusion and fraud, because the debtor did not owe
anything to Sunco at the time the four judgments were secured, basing that contention on the fact,
which is admitted, that Sunco and not yet paid the sums for which he had become surety and in
connection with which he obtained the judgments.

We think that the article 1843 of the Civil Code is applicable to this case. In their purposes articles
lawphi1.net

1838 and 1843 are quite distinct, although in perfect harmony, the latter making more clearly
effective the purpose of the former. Article 1838 provides for the enforcement of the right of the
surety against the debtor after he has paid the debt. Article 1843 provides for his protection before
he has paid but after he has become liable to do so. The one gives a right of action after payment,
the other a protective remedy before payment. (Supreme court of Spain, March 22, 1901.) The one
is a substantive right, the other of the nature of a preliminary remedy. The one gives a right of action
which, without the provisions of the of the other, might be worthless. The remedy given in article
1843 purposes to obtain for the surety "relief from the burden of his suretyship or a guaranty to
defend him against any proceedings of the creditor and from the danger of insolvency of the debtor."
(Last paragraph of art. 1843.) article 1838, speaking under this article become available, he is past
the point where a preliminary protective remedy is of any value to him. lawphi1.net

It being evident that the purpose of article 1843 is to give to the surety a remedy in anticipation of the
payment of the debt, which debt, being due, he could be called upon to pay at any time, it remains
only to say, in this connection, that the only procedure known under our present practice to enforce
that right is by action. (Manresa, Civil Code, vol. 12, p. 320.) The defendant Sunco availed himself of
that right against the debtor. The methods employed by him to realize his end were unusual but not
of themselves fraudulent. We agree with the trial court that the evidence adduced is entirely
insufficient to establish such fraud and collusion as would justify a decision setting aside the
judgment assailed. (Arts. 1291, 1297, Civil Code; Pena vs. Mitchell, 9 Phil. Rep., 587; Jones vs.
Brittan, 13 Fed. Cas., No. 7455; Oberly vs. Oberly, 190 Pa. st., 341; Caldwell vs. Finfield, 24 n. J. L.,
150.) The facts stated in the opinion of the court below abundantly justify the conclusion.

But while the surety has the right to obtain as he did the judgments against the principal debtor, he
ought not to be allowed to realize the said judgments to the point of actual collection of the same
until he has satisfied or caused to be satisfied the obligation the payment of which he assures.
Otherwise, a great opportunity for collusion and improper practices between the surety and his
principal would be offered which might result to the injury and prejudice of the creditor who holds the
claim against them.

The judgement of the court below is, therefore, affirmed, with costs against the appellant. But the
said Sunco shall not execute said judgments against the property of the judgment debtor until he has
paid the debt for which he stands surety. So ordered.
G.R. No. L-47369

JOSEPH COCHINGYAN, JR. and JOSE K. VILLANUEVA, petitioners,

vs.
R & B SURETY AND INSURANCE COMPANY, INC., respondent.

FELICIANO, J.:

This case was certified to us by the Court of Appeals in its resolution dated 11 November 1977 as
one involving only questions of law and, therefore, falling within the exclusive appellate jurisdiction of
this Court under Section 17, Republic Act 296, as amended.

In November 1963, Pacific Agricultural Suppliers, Inc. (PAGRICO) applied for and was granted an
increase in its line of credit from P400,000.00 to P800,000.00 (the "Principal Obligation"), with the
Philippine National Bank (PNB). To secure PNB's approval, PAGRICO had to give a good and
sufficient bond in the amount of P400,000.00, representing the increment in its line of credit, to
secure its faithful compliance with the terms and conditions under which its line of credit was
increased. In compliance with this requirement, PAGRICO submitted Surety Bond No. 4765, issued
by the respondent R & B Surety and Insurance Co., Inc. (R & B Surety") in the specified amount in
favor of the PNB. Under the terms of the Surety Bond, PAGRICO and R & B Surety bound
themselves jointly and severally to comply with the "terms and conditions of the advance line [of
credit] established by the [PNB]." PNB had the right under the Surety Bond to proceed directly
against R & B Surety "without the necessity of first exhausting the assets" of the principal obligor,
PAGRICO. The Surety Bond also provided that R & B Surety's liability was not to be limited to the
principal sum of P400,000.00, but would also include "accrued interest" on the said amount "plus all
expenses, charges or other legal costs incident to collection of the obligation [of R & B Surety]"
under the Surety Bond.

In consideration of R & B Surety's issuance of the Surety Bond, two Identical indemnity agreements
were entered into with R & B Surety: (a) one agreement dated 23 December 1963 was executed by
the Catholic Church Mart (CCM) and by petitioner Joseph Cochingyan, Jr, the latter signed not only
as President of CCM but also in his personal and individual capacity; and (b) another agreement
dated 24 December 1963 was executed by PAGRICO, Pacific Copra Export Inc. (PACOCO), Jose
K. Villanueva and Liu Tua Ben Mr. Villanueva signed both as Manager of PAGRICO and in his
personal and individual capacity; Mr. Liu signed both as President of PACOCO and in his individual
and personal capacity.

Under both indemnity agreements, the indemnitors bound themselves jointly and severally to R & B
Surety to pay an annual premium of P5,103.05 and "for the faithful compliance of the terms and
conditions set forth in said SURETY BOND for a period beginning ... until the same is CANCELLED
and/or DISCHARGED." The Indemnity Agreements further provided:

(b) INDEMNITY: — TO indemnify the SURETY COMPANY for any damage, prejudice, loss,
costs, payments, advances and expenses of whatever kind and nature, including [of]
attorney's fees, which the CORPORATION may, at any time, become liable for, sustain or
incur as consequence of having executed the above mentioned Bond, its renewals,
extensions or substitutions and said attorney's fees [shall] not be less than twenty [20%] per
cent of the total amount claimed by the CORPORATION in each action, the same to be due,
 demandable and payable, irrespective of whether the case is settled judicially or
extrajudicially and whether the amount has been actually paid or not;

(c) MATURITY OF OUR OBLIGATIONS AS CONTRACTED HEREWITH: — The said

indemnities will be paid to the CORPORATION as soon as demand is received from the
Creditor or upon receipt of Court order or as soon as it becomes liable to make payment of
any sum under the terms of the above-mentioned Bond, its renewals, extensions,
modifications or substitutions, whether the said sum or sums or part thereof, have been
actually paid or not.

We authorize the SURETY COMPANY, to accept in any case and at its entire discretion,
from any of us, payments on account of the pending obligations, and to grant extension to
any of us, to liquidate said obligations, without necessity of previous knowledge of [or]
consent from the other obligors.

xxx xxx xxx

(e) INCONTESTABILITY OF PAYMENTS MADE BY THE COMPANY. — Any payment or

disbursement made by the SURETY COMPANY on account of the above-mentioned Bonds,
its renewals, extensions or substitutions, either in the belief that the SURETY COMPANY
was obligate[d] to make such payment or in the belief that said payment was necessary in
order to avoid greater losses or obligations for which the SURETY COMPANY might be
liable by virtue of the terms of the above-mentioned Bond, its renewals, extensions or
substitutions, shall be final and will not be disputed by the undersigned, who jointly and
severally bind themselves to indemnify the SURETY COMPANY of any and all such
payments as stated in the preceding clauses.

xxx xxx xxx

When PAGRICO failed to comply with its Principal Obligation to the PNB, the PNB demanded
payment from R & B Surety of the sum of P400,000.00, the full amount of the Principal Obligation. R
& B Surety made a series of payments to PNB by virtue of that demand totalling P70,000.00
evidenced by detailed vouchers and receipts.

R & B Surety in turn sent formal demand letters to petitioners Joseph Cochingyan, Jr. and Jose K.
Villanueva for reimbursement of the payments made by it to the PNB and for a discharge of its
liability to the PNB under the Surety Bond. When petitioners failed to heed its demands, R & B
Surety brought suit against Joseph Cochingyan, Jr., Jose K. Villanueva and Liu Tua Ben in the Court
of First Instance of Manila, praying principally that judgment be rendered:

b. Ordering defendants to pay jointly and severally, unto the plaintiff, the sum of P20,412.20
representing the unpaid premiums for Surety Bond No. 4765 from 1965 up to 1968, and the
additional amount of P5,103.05 yearly until the Surety Bond No. 4765 is discharged, with
interest thereon at the rate of 12% per annum; [and]

c. Ordering the defendants to pay jointly and severally, unto the plaintiff the sum of
P400,000.00 representing the total amount of the Surety Bond No. 4765 with interest thereon
at the rate of 12% per annum on the amount of P70,000.00 which had been paid to the Phil.
National Bank already, the interest to begin from the month of September, 1966;

xxx xxx xxx

Petitioner Joseph Cochingyan, Jr. in his answer maintained that the Indemnity Agreement he
executed in favor of R & B Surety: (i) did not express the true intent of the parties thereto in that he
had been asked by R & B Surety to execute the Indemnity Agreement merely in order to make it
appear that R & B Surety had complied with the requirements of the PNB that credit lines be
secured; (ii) was executed so that R & B Surety could show that it was complying with the
regulations of the Insurance Commission concerning bonding companies; (iii) that R & B Surety had
assured him that the execution of the agreement was a mere formality and that he was to be
considered a stranger to the transaction between the PNB and R & B Surety; and (iv) that R & B
Surety was estopped from enforcing the Indemnity Agreement as against him.

Petitioner Jose K. Villanueva claimed in his answer that. (i) he had executed the Indemnity
Agreement in favor of R & B Surety only "for accommodation purposes" and that it did not express
their true intention; (ii) that the Principal Obligation of PAGRICO to the PNB secured by the Surety
Bond had already been assumed by CCM by virtue of a Trust Agreement entered into with the PNB,
where CCM represented by Joseph Cochingyan, Jr. undertook to pay the Principal Obligation of
PAGRICO to the PNB; (iii) that his obligation under the Indemnity Agreement was thereby
extinguished by novation arising from the change of debtor under the Principal Obligation; and (iv)
that the filing of the complaint was premature, considering that R & B Surety filed the case against
him as indemnitor although the PNB had not yet proceeded against R & B Surety to enforce the
latter's liability under the Surety Bond.

Petitioner Cochingyan, however, did not present any evidence at all to support his asserted
defenses. Petitioner Villanueva did not submit any evidence either on his "accommodation" defense.
The trial court was therefore constrained to decide the case on the basis alone of the terms of the
Trust Agreement and other documents submitted in evidence.

In due time, the Court of First Instance of Manila, Branch 24 1 rendered a decision in favor of R & B
Surety, the dispositive portion of which reads as follows;

Premises considered, judgment is hereby rendered: (a) ordering the defendants Joseph
Cochingyan, Jr. and Jose K. Villanueva to pay, jointly and severally, unto the plaintiff the sum
of 400,000,00, representing the total amount of their liability on Surety Bond No. 4765, and
interest at the rate of 6% per annum on the following amounts:

On P14,000.00 from September 27, 1966;

On P4,000.00 from November 28, 1966;

On P4,000.00 from December 14, 1966;

On P4,000.00 from January 19, 1967;

On P8,000.00 from February 13, 1967;

On P4,000.00 from March 6, 1967;

On P8,000.00 from June 24, 1967;

On P8,000. 00 from September 14, 1967;

On P8,000.00 from November 28, 1967; and

 On P8,000. 00 from February 26, 1968

until full payment; (b) ordering said defendants to pay, jointly and severally, unto the plaintiff
the sum of P20,412.00 as the unpaid premiums for Surety Bond No. 4765, with legal interest
thereon from the filing of plaintiff's complaint on August 1, 1968 until fully paid, and the
further sum of P4,000.00 as and for attorney's fees and expenses of litigation which this
Court deems just and equitable.

There being no showing the summons was duly served upon the defendant Liu Tua Ben who
has filed no answer in this case, plaintiff's complaint is hereby dismissed as against
defendant Liu Tua Ben without prejudice.

Costs against the defendants Joseph Cochingyan, Jr. and Jose K. Villanueva.

Not satisfied with the decision of the trial court, the petitioners took this appeal to the Court of
Appeals which, as already noted, certified the case to us as one raising only questions of law.

The issues we must confront in this appeal are:

1. whether or not the Trust Agreement had extinguished, by novation, the obligation of R & B Surety
to the PNB under the Surety Bond which, in turn, extinguished the obligations of the petitioners
under the Indemnity Agreements;

2. whether the Trust Agreement extended the term of the Surety Bond so as to release petitioners
from their obligation as indemnitors thereof as they did not give their consent to the execution of the
Trust Agreement; and

3. whether or not the filing of this complaint was premature since the PNB had not yet filed a suit
against R & B Surety for the forfeiture of its Surety Bond.

We address these issues seriatim.

1. The Trust Agreement referred to by both petitioners in their separate briefs, was executed on 28
December 1965 (two years after the Surety Bond and the Indemnity Agreements were executed)
between: (1) Jose and Susana Cochingyan, Sr., doing business under the name and style of the
Catholic Church Mart, represented by Joseph Cochingyan, Jr., as Trustor[s]; (2) Tomas Besa, a
PNB official, as Trustee; and (3) the PNB as beneficiary. The Trust Agreement provided, in pertinent
part, as follows:

WHEREAS, the TRUSTOR has guaranteed a bond in the amount of P400,000.00 issued by
the R & B Surety and Insurance Co. (R & B) at the instance of Pacific Agricultural Suppliers,
Inc. (PAGRICO) on December 21, 1963, in favor of the BENEFICIARY in connection with the
application of PAGRICO for an advance line of P400,000.00 to P800,000.00;

WHEREAS, the TRUSTOR has also guaranteed a bond issued by the Consolacion
Insurance & Surety Co., Inc. (CONSOLACION) in the amount of P900,000.00 in favor of the
BENEFICIARY to secure certain credit facilities extended by the BENEFICIARY to the
Pacific Copra Export Co., Inc. (PACOCO);

WHEREAS, the PAGRICO and the PACOCO have defaulted in the payment of their
respective obligations in favor of the BENEFICIARY guaranteed by the bonds issued by the
 R & B and the CONSOLACION, respectively, and by reason of said default, the
BENEFICIARY has demanded compliance by the R & B and the CONSOLACION of their
respective obligations under the aforesaid bonds;

WHEREAS, the TRUSTOR is, therefore, bound to comply with his obligation under the
indemnity agreements aforementioned executed by him in favor of R & B and the
CONSOLACION, respectively and in order to forestall impending suits by the BENEFICIARY
against said companies, he is willing as he hereby agrees to pay the obligations of said
companies in favor of the BENEFICIARY in the total amount of P1,300,000 without interest
from the net profits arising from the procurement of reparations consumer goods made thru
the allocation of WARVETS; . . .

l. TRUSTOR hereby constitutes and appoints Atty. TOMAS BESA as TRUSTEE for the
purpose of paying to the BENEFICIARY Philippine National Bank in the manner stated
hereunder, the obligations of the R & B under the R & B Bond No. G-4765 for P400,000.00
dated December 23, 1963, and of the CONSOLACION under The Consolacion Bond No. G-
5938 of June 3, 1964 for P900,000.00 or the total amount of P1,300,000.00 without interest
from the net profits arising from the procurement of reparations consumer goods under the
Memorandum of Settlement and Deeds of Assignment of February 2, 1959 through the
allocation of WARVETS;

xxx xxx xxx

6. THE BENEFICIARY agrees to hold in abeyance any action to enforce its claims against R
& B and CONSOLACION, subject of the bond mentioned above. In the meantime that this
TRUST AGREEMENT is being implemented, the BENEFICIARY hereby agrees to forthwith
reinstate the R & B and the CONSOLACION as among the companies duly accredited to do
business with the BENEFICIARY and its branches, unless said companies have been
blacklisted for reasons other than those relating to the obligations subject of the herein
TRUST AGREEMENT;

xxx xxx xxx

9. This agreement shall not in any manner release the R & B and CONSOLACION from their
respective liabilities under the bonds mentioned above. (emphasis supplied)

There is no question that the Surety Bond has not been cancelled or fully discharged 2 by payment of
the Principal Obligation. Unless, therefore, the Surety Bond has been extinguished by another
means, it must still subsist. And so must the supporting Indemnity Agreements. 3

We are unable to sustain petitioners' claim that the Surety Bond and their respective obligations
under the Indemnity Agreements were extinguished by novation brought about by the subsequent
execution of the Trust Agreement.

Novation is the extinguishment of an obligation by the substitution or change of the obligation by a

subsequent one which terminates it, either by changing its object or principal conditions, or by
substituting a new debtor in place of the old one, or by subrogating a third person to the rights of the
creditor. 4 Novation through a change of the object or principal conditions of an existing obligation is
referred to as objective (or real) novation. Novation by the change of either the person of the debtor
or of the creditor is described as subjective (or personal) novation. Novation may also be both
objective and subjective (mixed) at the same time. In both objective and subjective novation, a dual
purpose is achieved-an obligation is extinguished and a new one is created in lieu thereof.5
If objective novation is to take place, it is imperative that the new obligation expressly declare that
the old obligation is thereby extinguished, or that the new obligation be on every point incompatible
with the old one. 6 Novation is never presumed: it must be established either by the discharge of the
old debt by the express terms of the new agreement, or by the acts of the parties whose intention to
dissolve the old obligation as a consideration of the emergence of the new one must be clearly
discernible. 7

Again, if subjective novation by a change in the person of the debtor is to occur, it is not enough that
the juridical relation between the parties to the original contract is extended to a third person. It is
essential that the old debtor be released from the obligation, and the third person or new debtor take
his place in the new relation. If the old debtor is not released, no novation occurs and the third
person who has assumed the obligation of the debtor becomes merely a co-debtor or surety or a co-
surety. 8

Applying the above principles to the instant case, it is at once evident that the Trust Agreement does
not expressly terminate the obligation of R & B Surety under the Surety Bond. On the contrary, the
Trust Agreement expressly provides for the continuing subsistence of that obligation by stipulating
that "[the Trust Agreement] shall not in any manner release" R & B Surety from its obligation under
the Surety Bond.

Neither can the petitioners anchor their defense on implied novation. Absent an unequivocal
declaration of extinguishment of a pre-existing obligation, a showing of complete incompatibility
between the old and the new obligation (and nothing else) would sustain a finding of novation by
implication. 9 But where, as in this case, the parties to the new obligation expressly recognize the
continuing existence and validity of the old one, where, in other words, the parties expressly negated
the lapsing of the old obligation, there can be no novation. The issue of implied novation is not
reached at all.

What the trust agreement did was, at most, merely to bring in another person or persons-the
Trustor[s]-to assume the same obligation that R & B Surety was bound to perform under the Surety
Bond. It is not unusual in business for a stranger to a contract to assume obligations thereunder; a
contract of suretyship or guarantee is the classical example. The precise legal effect is the increase
of the number of persons liable to the obligee, and not the extinguishment of the liability of the first
debtor. 10 Thus, in Magdalena Estates vs. Rodriguez, 11 we held that:

[t]he mere fact that the creditor receives a guaranty or accepts payments from a third person
who has agreed to assume the obligation, when there is no agreement that the first debtor
shall be released from responsibility, does not constitute a novation, and the creditor can still
enforce the obligation against the original debtor.

In the present case, we note that the Trustor under the Trust Agreement, the CCM, was already
previously bound to R & B Surety under its Indemnity Agreement. Under the Trust Agreement, the
Trustor also became directly liable to the PNB. So far as the PNB was concerned, the effect of the
Trust Agreement was that where there had been only two, there would now be three obligors directly
and solidarily bound in favor of the PNB: PAGRICO, R & B Surety and the Trustor. And the PNB
could proceed against any of the three, in any order or sequence. Clearly, PNB never intended to
release, and never did release, R & B Surety. Thus, R & B Surety, which was not a party to the Trust
Agreement, could not have intended to release any of its own indemnitors simply because one of
those indemnitors, the Trustor under the Trust Agreement, became also directly liable to the PNB.

2. We turn to the contention of petitioner Jose K. Villanueva that his obligation as indemnitor under
the 24 December 1963 Indemnity Agreement with R & B Surety was extinguished when the PNB
agreed in the Trust Agreement "to hold in abeyance any action to enforce its claims against R & B
Surety .

The Indemnity Agreement speaks of the several indemnitors "apply[ing] jointly and severally (in
solidum) to the R & B Surety] — to become SURETY upon a SURETY BOND demanded by and in
favor of [PNB] in the sum of [P400,000.00] for the faithful compliance of the terms and conditions set
forth in said SURETY BOND — ." This part of the Agreement suggests that the indemnitors
(including the petitioners) would become co-sureties on the Security Bond in favor of PNB. The
record, however, is bereft of any indication that the petitioners-indemnitors ever in fact became co-
sureties of R & B Surety vis-a-vis the PNB. The petitioners, so far as the record goes, remained
simply indemnitors bound to R & B Surety but not to PNB, such that PNB could not have directly
demanded payment of the Principal Obligation from the petitioners. Thus, we do not see how Article
2079 of the Civil Code-which provides in part that "[a]n extension granted to the debtor by the
creditor without the consent of the guarantor extinguishes the guaranty" could apply in the instant
case.

The petitioner-indemnitors are, as, it were, second-tier parties so far as the PNB was concerned and
any extension of time granted by PNB to any of the first-tier obligators (PAGRICO, R &B Surety and
the trustors[s]) could not prejudice the second-tier parties.

There is no other reason why petitioner Villanueva's contention must fail. PNB's undertaking under
the Trust Agreement "to hold in abeyance any action to enforce its claims" against R & B Surety did
not extend the maturity of R & B Surety's obligation under the Surety Bond. The Principal Obligation
had in fact already matured, along with that of R &B Surety, by the time the Trust Agreement was
entered into. Petitioner's Obligation had in fact already matured, for those obligations were to amture
"as soon as [R & B Surety] became liable to make payment of any sum under the terms of the
[Surety Bond] — whether the said sum or sums or part thereof have been actually paid or not." Thus,
the situation was that precisely envisaged in Article 2079:

[t]he mere failure on the part of the creditor to demand payment after the debt has become
due does not of itself constitute any extension of the referred to herein.(emphasis supplied)

The theory behind Article 2079 is that an extension of time given to the principal debtor by the
creditor without the surety of his right to pay the creditor and to be immediately subrogated to the
creditor's remedies against the principal debtor upon the original maturity date. The surety is said to
be entitled to protect himself against the principal debtor upon the orginal maturity date. The surety
is said to be entitled to protect himself against the contingency of the principal debtor or the
indemnitors becoming insolvent during the extended period. The underlying rationale is not present
in the instant case. As this Court has held,

merely delay or negligence in proceeding against the principal will not discharge a
surety unless there is between the creditor and the principal debtor a valid and binding
agreement therefor, one which tends to prejudice [the surety] or to deprive it of the power of
obtaining indemnity by presenting a legal objection for the time, to the prosecution of an
action on the original security.12

In the instant case, there was nothing to prevent the petitioners from tendering payment, if they were
so minded, to PNB of the matured obligation on behalf of R & B Surety and thereupon becoming
subrogated to such remedies as R & B Surety may have against PAGRICO.

3. The last issue can be disposed of quicjly, Clauses (b) and (c) of the Indemnity Agreements
(quoted above) allow R & B Surety to recover from petitioners even before R & B Surety shall have
paid the PNB. We have previously held similar indemnity clauses to be enforceable and not violative
of any public policy. 13

The petitioners lose sight of the fact that the Indemnity Agreements are contracts of indemnification
not only against actual loss but against liability as well. 14 While in a contract of indemnity against loss
as indemnitor will not be liable until the person to be indemnified makes payment or sustains loss, in
a contract of indemnity against liability, as in this case, the indemnitor's liability arises as soon as the
liability of the person to be indemnified has arisen without regard to whether or not he has suffered
actual loss. 15 Accordingly, R & B Surety was entitled to proceed against petitioners not only for the
partial payments already made but for the full amount owed by PAGRICO to the PNB.

Summarizing, we hold that :

(1) The Surety Bond was not novated by the Trust Agreement. Both agreements can co-exist. The
Trust Agreement merely furnished to PNB another party obligor to the Principal Obligation in addition
to PAGRICO and R & B Surety.

(2) The undertaking of the PNB to 'hold in abeyance any action to enforce its claim" against R & B
Surety did not amount to an "extension granted to the debtor" without petitioner's consent so as to
release petitioner's from their undertaking as indemnitors of R & B Surety under the INdemnity
Agreements; and

(3) Petitioner's are indemnitors of R & B Surety against both payments to and liability for payments
to the PNB. The present suit is therefore not premature despite the fact that the PNB has not
instituted any action against R & B Surety for the collection of its matured obligation under the Surety
Bond.

WHEREFORE, the petitioner's appeal is DENIED for the lack of merit and the decision of the trial
court is AFFIRMED in toto. Costs against the petitioners.

SO ORDERED.
G.R. No. L-43862 January 13, 1989

MERCANTILE INSURANCE CO., INC., plaintiff-appellee,

vs.
FELIPE YSMAEL, JR., & CO., INC., defendants-appellants.

Beltran, Evangelista & Cuasay for plaintiff-appellee.

Abraham F. Sarmiento Law Office for defendants-appellants.

BIDIN, J.:

This is an appeal from the decision** dated October 30, 1971 of the Court of First Instance of Manila
(now Regional Trial Court) in Civil Case No. 82168 entitled "Mercantile Insurance Co., Inc. (herein
referred to as the plaintiff-appellee) vs. Felipe Ysmael, Jr. &. Co., Inc., et al (hereinafter referred to
as the defendant-appellant) ordering defendants-appellants Felipe Ysmael, Jr. & Co., Inc. and Felipe
Ysmael, Jr., to pay jointly and severally to the plaintiff the sum of P100,000.00 plus 15% thereof as
attorney's fees, and costs. On appeal to the Court of Appeals, this case which involves only a
question of law, was certified to this Court.

The factual milieu of this case as found by the trial court is as follows:

Felipe Ysmael, Jr. & Co., Inc., represented by Felipe Ysmael filed an application for
an overdraft line of Pl,000,000.00 and credit line of Pl,000,000.00 with the Philippine
National Bank. The latter was willing to grant credit accommodation of P2,000,000.00
applied for provided that the applicant shall have filed a bond in the sum of
P140,000.00 to guarantee the payment of the said amount. Accordingly, on March 6,
1967, Felipe Ysmael, Jr. & Co., Inc., represented by Felipe Ysmael filed surety bond
No. G(16) 007 of Mercantile Insurance Co., Inc. in the sum of P100,000.00 (Exh. A).
On December 4, 1967, Felipe Ysmael Jr. & Co., Inc. as principal and the Mercantile
Insurance Co., Inc. executed another surety bond MERICO Bond No. G (16) 0030 in
the sum of P40,000.00. It is the condition in both bonds that if the principal Felipe
Ysmael, Jr. & Co., Inc. shall perform and fulfill its undertakings with the Philippine
National Bank, then these surety bonds shall be null and void (Exh. B).

As security and in consideration of the execution of the surety bonds, exhibits A and
B, Felipe Ysmael, Jr. & Co., Inc. and Magdalena Estate, lnc. represented by Felipe
Ysmael, Jr. as president and in his personal capacity executed with the plaintiff
Mercantile Insurance Co., Inc. an indemnity agreement (Exh. D) wherein the
defendants Felipe Ysmael, Jr. & Co., Inc. and Felipe Ysmael, Jr. bound themselves
jointly and severally to indemnify the plaintiff, hold save it harmless from and against
any and all payments, damages, costs, losses, penalties, charges and expenses
which said company as surety (relative to MERICO Bond No. 0007) shall incur or
become liable to pay plus an additional amount as attorney's fees equal to 20% of
the amount due to the company, Paragraph 3 of the indemnity agreement expressly
provides:

3) ACCRUAL OF ACTION: — Notwithstanding the provisions of the next preceding

paragraph, where the obligation involves a liquidated amount for the payment of
which the company has become legally liable under the terms of the obligation and
 its suretyship undertaking or by the demand of the obligee or otherwise and the latter
has merely allowed the COMPANY a term or extension for payment of the latter's
demand the full amount necessary to discharge the COMPANY's aforesaid liability
irrespective of whether or not payment has actually been made by the COMPANY,
the COMPANY for the protection of its interest may forthwith proceed against the
undersigned or either of them by court action or otherwise to enforce payment even
prior to making payment to the obligee which may hereafter be done by the
COMPANY.

On September 6, 1967, Gabriel Daza, Jr., Edgardo L. Tordesillas and Augusta

Torres in their official capacities and the defendants executed another indemnity
agreement (Exh. E) with the plaintiff in consideration of the surety bond (referring to
MERICO Bond No. G (16) 0030. In the indemnity agreement (Exh. E) the same
provisions of paragraph 3 found in exhibit D is provided for.

By agreement dated September 5, 1967 (Exh. C), the amount of the Bond was
reduced by P40,000.00 so that the total liability of the plaintiff to the Philippine
National Bank in view of the aforesaid reduction is P100,000.00 (Exh. C), P60,000.00
on Surety Bond No. 0007 plus P40,000.00 on Surety Bond No. 0030.

In view of the failure of the defendants to pay the overdraft and credit line with the
Philippine National Bank demanded from the Mercantile Insurance Co., Inc.
settlement of its obligation under surety bonds No. (G-16)-0007 for P 60,000.00
which expired on March 6, 1970 and No. G (-16)- 0030 for P 40,000.00 which
expired since September 4, 1968 (Exh. P) otherwise drastic measures for collection
to protect the interest of the bank would be taken. Attached to the demand letter is a
statement of account.

By letter of December 17, 1970, the Legal Department of plaintiff company wrote a
letter of demand to the defendants (Exhs. G and H) inviting their attention to the letter
of demand of the Philippine National Bank sent to the plaintiff and demanding from
the defendants the settlement of said account. These letters were received as shown
by the registry return receipts (Exhs. G-2 and H-2). Since the defendants failed to
settle their obligation with the Philippine National Bank, on February 10, 1971,
plaintiff brought the present action.

Instead of filing their answer, the defendants (appellants herein) filed a motion to DISMISS, which
motion was subsequently denied. Thereafter, the defendants filed their answer and the case was set
for pre-trial. On the date scheduled for pre-trial, the defendants and their counsel failed to appear,
thus on motion of the plaintiff, they were declared in default and plaintiff was allowed to present its
evidence ex-parte. Upon motion for reconsideration filed by the defendants, the case was ordered
re-opened and the case was scheduled for reception of defendant's evidence. Thereafter, the parties
were required to submit their respective memoranda and the case was submitted for decision. On
October 30, 1971, the trial court rendered its decision, the dispositive part of which reads:

WHEREFORE, in view of the foregoing considerations, judgment is rendered for the

plaintiff and the defendants are ordered to pay jointly and severally the plaintiff the
sum of P100,000.00 plus the further sum of 15% thereof in the concept of reasonable
attorney's fees and the costs.
 Plaintiff upon payment of this judgment, shall deliver the sum of P100,000.00 to the
Philippine National Bank in partial satisfaction of the obligation of the defendants to
said Bank.

SO ORDERED. (Record on Appeal, p. 96)

Said decision was appealed to the Court of Appeals on questions of facts and law. Acting on the
appeal and finding that the only question raised therein involves a question of law, the Court of
Appeals by resolution *** dated April 29, 1976, certified the same to this Court, for proper disposition
(Rollo, pp. 62-63).

This Court, thru its First Division by Resolution dated May 31, 1978, resolved to have the case
docketed and declared the same submitted for decision (Rollo, p. 65).

The defendants-appellants raised the following assignments of errors in the Court of Appeals:

THE LOWER COURT ERRED IN NOT DISMISSING THE CASE FOR LACK OF
CAUSE OF ACTION, THE COMPLAINT BEING PREMATURE BECAUSE THE
PLAINTIFF HAS PAID NOTHING ON THE SURETY BONDS AND HAS SUFFERED
NO ACTUAL DAMAGE.

II

THE LOWER COURT ERRED IN NOT DECLARING THAT PARAGRAPH 3 OF THE

INDEMNITY AGREEMENTS IS VOID.

III

CONSEQUENTLY, THE TRIAL COURT ERRED IN ORDERING THE

DEFENDANTS-APPELLANT'S TO PAY JOINTLY AND SEVERALLY TO THE
PLAINTIFF THE SUM OF P100,000.00 PLUS THE FURTHER SUM OF 15%
THEREOF IN THE CONCEPT OF REASONABLE ATTORNEY'S FEES AND THE
COSTS. (Brief for Defendants-Appellants, CA, pp. 1-2).

The crux of the controversy is whether or not the surety can be allowed indemnification from the
defendants-appellants, upon the latter's default even before the former has paid to the creditor.

There is no dispute that the overdraft line of P1,000,000.00 and the credit line of Pl,000,000.00
applied for by the defendant was granted by the Philippine National Bank on the strength of the two
surety bonds denominated as MERICO Bond No. G(16) 0007 for one hundred thousand pesos (Exh.
A) and MERICO Bond No. G(16) 0030 for forty thousand pesos (Exh. B), later reduced as above
stated on September 5, 1967 (Exh. C) by P40,000.00 or a total amount of P100,000.00. As security
and in consideration of the execution of the surety bonds, the defendants executed with the plaintiff
identical indemnity agreements (Exhs. D and E) which provide, among others that payment of
indemnity or compensation may be claimed irrespective of whether or not plaintiff company has
actually paid the same.

Defendants-appellants maintain that the complaint is premature and that paragraph 3 of the
indemnity agreements is void for being contrary to law, public policy and good morals. They argued
that to allow plaintiff surety (appellee herein) to receive indemnity or compensation for something it
has not paid in its capacity as surety would constitute unjust enrichment at the expense of another.
(Brief for Defendants-Appellants, CA, p.6).

To bolster their contention, defendants-appellants argue that it is an indispensable requisite for an

action to prosper, that the party bringing the action must have a cause of action against the other
party; and that for a cause of action to be ripe for litigation, there must be both wrongful violation and
damages; all of which are not present in the case at bar because plaintiff-appellee has not suffered
any injury whatsoever, notwithstanding the demand sent to it by the Philippine National Bank, nor
has plaintiff-appellee made a single actual payment to said bank. Hence, to allow plaintiff-appellee to
recover from them something which it has not paid in its capacity as surety would violate the
fundamental principle which states NEMOCUM ALTERIUS DETRIMENTO LOCOPLETARI
POTEST (No person should unjustly enrich himself at the expense of another). [Defendants-
Appellants' Brief, pp. 7-8; 49].

The question as to whether or not under the Indemnity Agreement of the parties, the Surety can
demand indemnification from the principal, upon the latter's default, even before the former has paid
to the creditor, has long been settled by this Court in the affirmative.

It has been held that:

The stipulation in the indemnity agreement allowing the surety to recover even before
it paid the creditor is enforceable. In accordance therewith, the surety may demand
from the indemnitors even before paying the creditors. (Cosmopolitan Ins. Co., Inc. v.
Reyes, 15 SCRA 528 [1965] citing; Security Bank v. Globe Assurance, 58 Off. Gaz.
3709 [April 30, 1962]; Alto Surety and Ins. Co., v. Aguilar, et al., G.R. No. L-5625,
March 16, 1954).

Hence, appellants contention that the action of the appellee (surety company) is premature or that
the complaint fails to state a cause of action because the surety has not paid anything to the bank,
cannot be sustained (Cosmopolitan Ins. Co., Inc. v. Reyes, supra). In fact, such contention is belied
not only by the allegations in the complaint but also by the agreement entered into between the
appellants and the appellee in favor of the bank.

The records show that the cause of action is distinctly set forth in the complaint, the pertinent portion
of which states:

6. That defendants, by virtue of the two Surety Bonds (Annexes "A" and "B") were
extended by the Philippine National Bank, a credit accommodation in the sum of
TWO MILLION (P2,000,000.00) PESOS;

7. That the Philippine National Bank is demanding and collecting from the plaintiff the
sum of ONE HUNDRED THOUSAND (P100,000.00) PESOS which is the
defendants' account with the said bank that is secured and covered by the above-
mentioned bonds (Annexes "A" and "B");

8. That under the terms of the Indemnity Agreements (Annexes "D" and "E") more
particularly paragraph 3, plaintiff may forthwith proceed against the defendants to
impose payment, even prior to making payment to the Philippine National Bank;
 9. That notwithstanding series of demands made by plaintiff, the defendants failed
and refused to pay the Philippine National Bank the sum of ONE HUNDRED
THOUSAND (P l00,000.00) PESOS;

10. That on account of defendants' default, plaintiff becomes liable to the Philippine
National Bank in the sum of ONE HUNDRED THOUSAND (P100,000.00) PESOS;'
(Record on Appeal, p. 2.)

Correspondingly, it is readily apparent that said cause of action was derived from the terms of the
Indemnity Agreement, paragraph 3 thereof, as above quoted. By virtue of the provisions of the
Indemnity Agreement, defendants-appellants have undertaken to hold plaintiff-appellee free and
harmless from any suit, damage or liability which may be incurred by reason of non-performance by
the defendants-appellants of their obligation with the Philippine National Bank. The Indemnity
Agreement is principally entered into as security of plaintiff-appellee in case of default of defendants-
appellants; and the liability of the parties under the surety bonds is joint and several, so that the
obligee PNB may proceed against either of them for the satisfaction of the obligation. (Brief for
Plaintiff-Appellee, p. 7).

II

Defendants-appellants have, by virtue of the Indemnity Agreement, given the plaintiff-appellee the
prerogative of filing an action even prior to the latter's making any payment to the Philippine National
Bank.

Contracts are respected as the law between the contracting parties (Henson v. IAC, 148 SCRA 11
[1987], citing Castro v. CA, 99 SCRA 722 [1980] and Escano v. CA, 100 SCRA 197 [1980]) It is
settled that the parties may establish such stipulations, clauses, terms and conditions as they may
want to include, and as long as such agreements are not contrary to law, morals, good customs,
public policy or public order, they shall have the force of law between them (Herrera v. Petrophil
Corp., 146 SCRA [1986].

Contracts should be interpreted according to their literal meaning and should not be interpreted
beyond their obvious intentment (Ibid.). It is a basic and fundamental rule in the interpretation of
contracts that if the terms thereof are clear and leave no doubt as to the intention of the contracting
parties, the literal meaning of the stipulation shall control.

In the case at bar, there is no dispute as to meaning of the terms of the Indemnity Agreement. The
only bone of contention is whether or not such terms are null and void as defendants-appellants
would have this Court declare.

A careful analysis of the contract in question will show that the provisions therein do not contravene
any law or public policy much less do they militate against the public good. In fact, as shown above,
they are fully sanctioned by well-established jurisprudence. Having voluntarily entered into such
contract, the appellants cannot now be heard to complain. Their indemnity agreement have the force
and effect of law.

Elucidating further on the obligations of the parties in agreements of this nature, this Court ruled:

...The indemnity agreement was not executed for the benefit of the creditors; it was
rather for the benefit of the surety and if the latter thought it necessary in its own
interest to impose this stipulation, and the indemnitors voluntarily agreed to the
 same, the court should respect the agreement of the parties and require them to
abide by their contract. (Security Bank v. Globe Assurance, 107 Phil. 733 [1960].

III

Finally, the trial court did not err in ordering defendants-appellants to pay jointly and severally the
plaintiff the sum of P100,000.00 plus 15% as attorney's fees.

It must be stressed that in the case at bar, the principal debtors, defendants-appellants herein, are
simultaneously the same persons who executed the Indemnity Agreement. Thus, the position
occupied by them is that of a principal debtor and indemnitor at the same time, and their liability
being joint and several with the plaintiff-appellee's, the Philippine National Bank may proceed
against either for fulfillment of the obligation as covered by the surety bonds. There is, therefore, no
principle of guaranty involved and, therefore, the provision of Article 2071 of the Civil Code does not
apply. Otherwise stated, there is no more need for the plaintiff-appellee to exhaust all the properties
of the principal debtor before it may proceed against defendants-appellants.

As to the attorney's fees, it has been squarely ruled by this Court that the award of fifteen (15) per
cent for cases of this nature is not unreasonable (Cosmopolitan Insurance Co., Inc. v. Reyes, supra).

WHEREFORE, the decision appealed from is hereby AFFIRMED.

SO ORDERED.