Deposit & Guaranty (Outline, Case Digest, FullText Cases)

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DEPOSIT

BPI vs IAC and ZSHORNACK

Gr. No. L-66826, August 19, 1988

TRIPLE-V vs FILIPINO MERCHANTS

Gr. No. 160544, February 21, 2005

CA AGRO-INDUSTRIAL DEVELOPMENT CORP vs CA

Gr. No. 90027, March 3, 1993

ROMAN CATHOLIC BISHOP OF JARO vs DELA PENA

Gr. No. L-6913, November 21, 1913

YHT REALTY CORP vs CA

Gr. No. 126780, February 17, 2005

GUARANTY and SURETYSHIP

TUPAZ IV & TUPAZ vs CA & BPI

Gr. No. 145578, November 18, 2005, 475 SCRA 398

SECURITY BANK & TRUST CO. vs CUENCA

Gr. No. 138544, October 3, 2000, 341 SCRA 781

PALMARES vs CA & MB LENDING CORP

Gr. No. 126490, March 31, 1998, 288 SCRA 422

E. ZOBEL INC. vs CA

Gr. No. 113931, May 6, 1998, 290 SCRA 1

INTERNATIONAL FINANCE CORPORATION vs IMPERIAL

TEXTILE MILLS, INC.

Gr. No. 160324, November 15, 2005, 475 SCRA 149

PHILIPPINE BLOOMING MILLS INC & CHING vs CA

Gr. No. 142381, October 15, 2003, 413 SCRA 455

ESCANO & SILOS vs ORTIGAS JR.

DEPOSIT

BPI vs IAC and ZSHORNACK,

Gr. No. L-66826, August 19, 1988

Facts:

Rizaldy T. Zshornack and his wife maintained in COMTRUST a dollar savings account and a peso current account. An application for a dollar drat was accomplished by Virgillo Garcia branch manager of COMTRUST payable to a certain Leovigilda Dizon. In the PPLICtion, Garcia indicated that the amount was to be charged to the dolar savings account of the Zshornacks. There wasa no indication of the name of the purchaser of the dollar draft. Comtrust issued a check payable to the order of Dizon. When Zshornack noticed the withdrawal from his account, he demanded an explainaiton from the bank. In its answer, Comtrust claimed that the peso value of the withdrawal was given to Atty. Ernesto Zshornack, brother of Rizaldy. When he encashed with COMTRUST a cashiers check for P8450 issued by the manila banking corporation payable to Ernesto.

Arguments:

COMTRUST (BPI): The parties entered into a contract of depositum which banks do not enter into. Thus, Garcia exceeded his powers when he entered into the contract on behalf of the bank, hence, the bank cannot be liable under the contract.

Issue:

Whether or not the contract between petitioner and respondent bank is a deposit.

Held:

Yes. The document which embodies the contract states

that the US$3,000.00 was received by the bank for safekeeping. The subsequent acts of the parties also show that the intent of the parties was really for the bank to safely keep the dollars and to return it to Zshornack at a later time. Thus, Zshornack demanded the return of the money on May 10, 1976, or over five months later.

The above arrangement is that contract defined under Article 1962, New Civil Code, which reads:

Art. 1962. A deposit is constituted from the moment a person receives a thing belonging to another, with the obligation of safely keeping it and of returning the same. If the safekeeping of the thing delivered is not the principal purpose of the contract, there is no deposit but some other contract.

Note: But because the subject of the contract here is a foreign exchange, it is covered by Central Bank Circular No. 20 which requires that, “All receipts of foreign exchange by any resident person, firm, company or corporation shall be sold to authorized agents of the Central Bank by the recipients within one business day following the receipt of such foreign exchange.”

Since the document and the subsequent acts of the parties show that they intended the bank to safekeep the foreign exchange, and return it later to Zshornack, who alleged in his complaint that he is a Philippine resident, the parties did not intend to sell the US

dollars to the Central Bank within one business day from receipt. Otherwise, the contract of depositum would never have been entered into at all.

In other words, the transaction between Zshornack and the bank was void having been executed against the provisions of a mandatory law (CB Circ No. 20). Being in pari delicto, the law cannot afford either of them remedy.

TRIPLE-V FOOD SERVICES INC. vs. FILIPINO MERCHANTS INSURANCE COMPANY

GR. No. 160554, February 21, 2005

Facts:

Mary Jo-Anne De Asis dined at petitioner's Kamayan

Restaurant. De Asis was using a Mitsubishi Galant Super Saloon

Model 1995 issued by her employer Crispa Textile Inc.. On said date, De Asis availed of the valet parking service of petitioner and entrusted her car key to petitioner's valet counter. Afterwards, a certain Madridano, valet attendant, noticed that the car was not in its parking slot and its key no longer in the box where valet attendants usually keep the keys of cars entrusted to them. The car was never recovered. Thereafter, Crispa filed a claim against its insurer, herein respondent Filipino Merchants Insurance Company, Inc. Having indemnified Crispa for the loss of the subject vehicle, FMICI, as subrogee to Crispa's rights, filed with the RTC at Makati City an action for damages against petitioner Triple-V Food Services, Inc. Petitioner claimed that the complaint failed to adduce facts to support the allegations of recklessness and negligence committed in the safekeeping and custody of the subject vehicle. Besides, when De Asis availed the free parking stab which contained a waiver of petitioner’s liability in case of loss, she had thereby waived her rights.

Issue:

Whether or not petitioner Triple-V Food Services, Inc. is liable for the loss.

Held:

Yes. The Supreme Court ruled in the affirmative. In a contract of deposit, a person receives an object belonging to another with the obligation of safely keeping it and returning the same. A deposit may be constituted even without any consideration. It is not necessary that the depositary receives a fee before it becomes obligated to keep the item entrusted for safekeeping and to return it later to the depositor. Petitioner cannot evade liability by arguing that neither a contract of deposit nor that of insurance, guaranty or surety for the loss of the car was constituted when De Asis availed of its free valet parking service.

CA AGRO-INDUSTRIAL DEVELOPMENT CORP. VS CA

291 SCRA 426, Gr. No 90027, March 3, 1993

Facts:

Petitioner CA Agro-Industrial Development Corp. and the spouses Ramon and Paula Pugao rented a Safety Deposit Box Security Bank and Trust Company. Certificates of title of parcels of land were then stored therein. Thereafter, a certain Mrs. Margarita Ramos offered to buy two lots from petitioner. Mrs. Ramos demanded the execution of a deed of sale which necessarily entailed the production of the certificates of title. In view thereof, Aguirre, accompanied by the Pugaos, then proceeded to the Bank to open the safety deposit box and get the certificates of title. However, when opened in the presence of the Bank's representative, the box yielded no such certificates. By virtue of which, petitioner filed an action against the bank for the loss. The bank, however, contended that they are not liable for the loss because, aside from the waiver signed by the petitioner, what transpired between them is a contract of lease and not deposit.

Issue:

Whether or not the contractual relation between a commercial bank and another party in a contract of rent of a safety deposit box with respect to its contents placed by the latter one of bailor and bailee or one of lessor and lessee.

Held:

The contract for the rent of the safety deposit box is not an ordinary contract of lease as defined in Article 1643 of the Civil Code. However, the Court do not fully subscribe to its view that the same is a contract of deposit that is to be strictly governed by the provisions in the Civil Code on deposit; the contract in the case at bar is a special kind of deposit. It cannot be characterized as an ordinary contract of lease under Article 1643 because the full and absolute possession and control of the safety deposit box was not given to the joint renters — the petitioner and the Pugaos. The guard key of the box remained with the respondent Bank; without this key, neither of the renters could open the box. On the other hand, the respondent Bank could not likewise open the box without the renter's key. In this case, the said key had a duplicate which was made so that both renters could have access to the box.

BISHOP OF JARO vs DELA PENA

26 Phil 144, Gr. No. L-6913, November 21, 1913

Facts:

In 1898, Fr. Agustin Dela Pena deposited in his personal account a sum of money entrusted to him for the construction of a leper hospital. Thereafter, Father De la Peña was arrested by the military authorities as a political prisoner. While under detention, Fr. Dela Pea made an order on said bank in favor of the United States Army officer under whose charge he was then for the sum thus

deposited in said bank. The arrest of Father De la Peña and the confiscation of the funds in the bank were the result of the claim of the military authorities that he was an insurgent and that the funds thus deposited had been collected by him for revolutionary purposes. The money was taken from the bank by the military authorities by virtue of such order and was turned over to the Government.

Issue:

Whether or not Father de la Peña is liable for the loss of the money under his trust.

Held:

No. The Supreme Court ruled in the negative. Father De la Peña's liability is determined by those portions of the Civil Code which relate to obligations. Although the Civil Code states that "a person obliged to give something is also bound to preserve it with the diligence pertaining to a good father of a family". It also provides, following the principle of the Roman law, major casus est, cui humana infirmitas resistere non potest, that "no one shall be liable for events which could not be foreseen, or which having been foreseen were inevitable, with the exception of the cases expressly mentioned in the law or those in which the obligation so declares."

YHT REALTY CORPORATION vs. CA

GR. No. 126780, February 17, 2005

Facts:

Maurice Mcloughlin is an Australian philanthropist, businessman, and a tourist. In his various trips from Australia going to different countries, one of which is the Philippines, he would stay in Tropicana Inn which is owned by YHT Realty Corp. After series of transactions with the inn as depositary of his belongings, he noticed that his money and several jewelries would be either reduced or lost. He then decided to file an action against Tropicana and its inn-keepers. However, the latter argued that they have no liability with regard to the loss by virtue of the undertaking signed by Mcloughlin. Such undertaking is a waiver of the inn’s liability in case of any loss. The RTC and CA both decided that such undertaking is null and void as contrary to the express provisions of the law. Hence, the petition.

Issue:

Whether or not the subject undertaking is null and void

Held:

Yes. The court ruled in the affirmative. Art. 2003 of the Civil Code provides that, the hotel-keeper cannot free himself from

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

GUARANTY and SURETYSHIP

TUPAZ IV & TUPAZ vs CA & BPI

Gr. No. 145578, November 18, 2005, 475 SCRA 398

Facts:

Petitioners Jose Tupaz IV and Petronila Tupaz were Vice-President for Operations and Vice-Vice-President/Treasurer, respectively, of El Oro Engraver Corporation. El Oro Corporation had a contract with the Philippine Army to supply the latter with survival bolos. Petitioners, on behalf of El Oro Corporation, applied with respondent Bank of the Philippine Island for two commercial letters of credit to finance the purchase of the raw materials for the survival bolos. The letters of credit were in favor of El Oro Corporation’s suppliers, Tanchaoco Manufacturing Incorporated and Maresco Rubber and Retreading Corporation. Respondent bank granted petitioners’ application and issued two letters of credit.

Simultaneously, petitioners signed trust receipts in favor of respondent bank. On September 30, 1981, petitioner Jose Tupaz signed, in his personal capacity, a trust receipt corresponding to one letter of credit while on October 9, 1981, both petitioners signed, in their capacities as officers of El Oro Corporation, a trust receipt corresponding to the other. After Tanchaoco Incorporated and Maresco Corporation delivered the raw materials to El Oro Corporation, respondent bank paid the former.

When petitioners did not comply with their undertaking under the trust receipts after respondent bank’s several demands, the latter charged petitioners with estafa under the Trust Receipts Law. The trial court acquitted petitioners of estafa on reasonable doubt however it found petitioners solidarily liable with El Oro Corporation for the balance of El Oro Corporation’s principal debt under the trust receipts. Petitioners appealed to the Court of Appeals contending that their acquittal operates to extinguish their civil liability and so they are not personally liable for El Oro Corporation’s debts. The Court of Appeals affirmed the trial court’s ruling. Hence, this petition.

Issue:

Whether or not petitioners are personally (solidarily) liable with El Oro Corporation.

Held:

No. In the trust receipt dated 9 October 1981, petitioners signed as officers of El Oro Corporation. By so signing that trust receipt, petitioners did not bind themselves personally liable for El Oro Corporation’s obligation.

Hence, for the trust receipt dated 9 October 1981, petitioners are not personally liable for El Oro Corporation’s obligation. For the trust receipt dated 30 September 1981, petitioner Jose Tupaz signed alone in his personal capacity, he did not indicate that he was signing as El Oro Corporation’s Vice-President for Operations. Hence, petitioner Jose Tupaz bound himself personally liable for El Oro Corporation’s debts. Not being a

party to the trust receipt dated 30 September 1981, petitioner Petronila Tupaz is not liable under such trust receipt.

SECURITY BANK & TRUST CO. vs CUENCA

Gr. No. 138544, October 3, 2000, 341 SCRA 781

Petitioner bank cannot hold herein respondent liable for loans obtained in excess of the amount or beyond the period stipulated in the original agreement, absent any clear stipulation showing that the latter waived his right to be notified thereof, or to give consent thereto.

Facts:

Defendant-appellant Sta. Ines Melale (‘Sta. Ines’/SIMC) is a corporation engaged in logging operations. It was a holder of a Timber License Agreement issued by the DENR.

On 10 November 1980, Security Bank and Trust Co. granted appellant Sta. Ines a credit line in the amount of (P8,000,000.00) effective til November 30, 1981 to assist the latter in meeting the additional capitalization requirements of its logging operations.

To secure payment, it executed a chattel mortgage over some of its machineries and equipments. And as an additional security, its President and Chairman of the Board of Directors Rodolfo Cuenca, executed an Indemnity agreement in favor of Security Bank whereby he bound himself jointly and severally with Sta. Ines.

Specific stipulations: The bank reserves the right to amend any of the aforementioned terms and conditions upon written notice to the Borrower. As additional security for the payment of the loan, Rodolfo M. Cuenca executed an Indemnity Agreement dated

17 December 1980 solidary binding himself: ‘Rodolfo M. Cuenca x x

x hereby binds himself x x x jointly and severally with the client (SIMC) in favor of the bank for the payment, upon demand and without the benefit of excussion of whatever amount x x x the client may be indebted to the bank x x x by virtue of aforesaid credit accommodation(s) including the substitutions, renewals, extensions, increases, amendments, conversions and revivals of the aforesaid credit accommodation(s) x x x .’

1985: Cuenca resigned as President and Chairman of the Board of Directors of defendant-appellant Sta. Ines. Subsequently, the shareholdings of Cuenca in Sta. Ines were sold at a public auction to Adolfo Angala. Before and after this, Sta Ines availed of its credit line.

Sta Ines encountered difficulty in making the amortization payments on its loans and requested SBTC for a complete

restructuring of its indebtedness. SBTC accommodated SIMC’s

request and signified its approval in a letter dated 18 February 1988 wherein SBTC and Sta. Ines, without notice to or the prior consent of ] Cuenca, agreed to restructure the past due obligations of defendant-appellant Sta. Ines. To formalize their agreement to

Ines executed a Loan Agreement dated 31 October 1989 ‘

Sta Ines made payments up to (P1,757,000.00) The defaulted in the payment of its restructured loan obligations to SBTC despite demands made upon appellant SIMC and CUENCA,

SBTC filed a complaint for collection of sum of resulting after trial on the merits in a decision by the court a quo, from which Cuenca appealed

CA: Released Cuenca from liability because 1989 Loan Agreement novated the 1980 credit accommodation which extinguished the Indemnity Agreement for which Cuenca was liable solidarily. No notice/consent to restructure. Since with expiration date, liable only up to that date and up to that amount (8M). Amounted to extension.of time with no notice to suret therefore released from liability.

Issue:

(a) Whether or not the 1989 Loan Agreement novated the original credit accommodation and Cuenca’s liability under the Indemnity Agreement YES

(b) Whether or not Cuenca waived his right to be notified of and to give consent to any substitution, renewal, extension, increase, amendment, conversion or revival of the said credit accommodation. NO

Held: Petition of Bank no merit.CA affirmed. RATIO:

A. Original Obligation Extinguished by Novation

An obligation may be extinguished by novation, pursuant to Article 1292 of the Civil Code, Novation of a contract is never presumed. Indeed, the following requisites must be established: (1) there is a previous valid obligation; (2) the parties concerned agree to a new contract; (3) the old contract is extinguished; and (4) there is a valid new contract.16

We reject these contentions. Clearly, the requisites of novation are present in this case. The 1989 Loan Agreement extinguished the obligation18 obtained under the 1980 credit accomodation. This is evident from its explicit provision to "liquidate" the principal and the interest of the earlier indebtedness, as the following shows:

"1.02. Purpose. The First Loan shall be applied to liquidate the principal portion of the Borrower’s present total outstanding Indebtedness to the Lender (the "Indebtedness") while the Second Loan shall be applied to liquidatethe past due interest and penalty portion of the Indebtedness.

Since the 1989 Loan Agreement had extinguished the original credit accommodation, the Indemnity Agreement

1) NOT mere renewal/ Extension

1989 Loan Agreement expressly stipulated that its purpose was to "liquidate," not to renew or extend, the outstanding indebtedness. Moreover, respondent did not sign or consent to the 1989 Loan Agreement, which had allegedly extended the original P8 million credit facility. Hence, his obligation as a surety should be deemed extinguished, "[a]n extension granted to the debtor by the creditor

without the consent of the guarantor extinguishes the guaranty. x x x."

2) Binding Nature of the Credit Approval Memorandum Bank objects to the appellate court’s reliance on that document, contending that it was not a binding agreement because it was not signed by the parties. It adds that it was merely for its internal use. Indeed, it cannot take advantage of that document by agreeing to be bound only by those portions that are favorable to it, while denying those that are disadvantageous.

B. NO Waiver of Consent

In the Indemnity Agreement, while respondent held himself liable for the credit accommodation or any modification thereof, such clause should be understood in the context of the P8 million limit and the November 30, 1981 term. It did not give the bank or Sta. Ines any license to modify the nature and scope of the original credit accommodation, without informing or getting the consent of respondent who was solidarily liable.

A contract of surety "cannot extend to more than what is stipulated. It is strictly construed against the creditor, every doubt being resolved against enlarging the liability of the surety."31 Likewise, the Court has ruled that "it is a well-settled legal principle that if there is any doubt on the terms and conditions of the surety agreement, the doubt should be resolved in favor of the surety x x x. Ambiguous contracts are construed against the party who caused the ambiguity.32In the absence of an unequivocal provision that respondent waived his right to be notified of or to give consent to any alteration of the credit accommodation, we cannot sustain petitioner’s view that there was such a waiver.

It should also be observed that the Credit Approval Memorandum clearly shows that the bank did not have absolute

authority to unilaterally change the terms of the loan accommodation. At most, the alleged basis of respondent’s waiver

is vague and uncertain. It confers no clear authorization on the bank or Sta. Ines to modify or extend the original obligation without the consent of the surety or notice thereto.

1) NOT Continuing Surety

That the Indemnity Agreement is a continuing surety does not authorize the bank to extend the scope of the principal obligation inordinately.

To repeat, in the present case, the Indemnity Agreement was subject to the two limitations of the credit accommodation: (1) that the obligation should not exceed P8 million, and (2) that the accommodation should expire not later than November 30, 1981. Hence, it was a continuing surety only in regard to loans obtained on or before the aforementioned expiry date and not exceeding the total of P8 million.

NO PROVISION: ”each suretyship is a continuing one which shall remain in full force and effect until this bank is notified of its

revocation.

2) Special Nature of the JSS

It is a common banking practice to require the JSS ("joint and solidary signature") of a major stockholder or corporate officer, as an additional security for loans granted to corporations. There are at least two reasons for this. First, in case of default, the creditor’s

under the veil of separate corporate personality, would extend to the personal assets of the surety. Second, such surety would be compelled to ensure that the loan would be used for the purpose agreed upon, and that it would be paid by the corporation.

Following this practice, it was therefore logical and reasonable for the bank to have required the JSS of respondent, who was the chairman and president of Sta. Ines in 1980 when the credit accommodation was granted. There was no reason or logic, however, for the bank or Sta. Ines to assume that he would still agree to act as surety in the 1989 Loan Agreement, because at that time, he was no longer an officer or a stockholder of the debtor-corporation. Verily, he was not in a position then to ensure the payment of the obligation. Neither did he have any reason to bind himself further to a bigger and more onerous obligation.

PALMARES vs CA & MB LENDING CORP

Gr. No. 126490, March 31, 1998, 288 SCRA 422

Facts:

Private respondent M.B. Lending Corporation extended a loan to the spouses Osmeña and Merlyn Azarraga, together with petitioner Estrella Palmares, in the amount of P30,000.00 payable on or before May 12, 1990, with compounded interest at the rate of 6% per annum to be computed every 30 days from the date thereof. 1 On four occasions after the execution of the promissory note and even after the loan matured, petitioner and the Azarraga spouses were able to pay a total of P16,300.00, thereby leaving a balance of P13,700.00. No payments were made after the last payment on September 26, 1991. 2

Consequently, on the basis of petitioner's solidary liability under the promissory note, respondent corporation filed a complaint 3 against petitioner Palmares as the lone party-defendant, to the exclusion of the principal debtors, allegedly by reason of the insolvency of the latter.

Issue:

Whether or not Palmares is liable

Held:

Yes. If a person binds himself solidarily with the principal debtor, the provisions of Section 4, Chapter 3, Title I of this Book shall be observed. In such case the contract is called a suretyship. It is a cardinal rule in the interpretation of contracts that if the terms of a contract are clear and leave no doubt upon the intention of the contracting parties, the literal meaning of its stipulation shall control. In the case at bar, petitioner expressly bound herself to be jointly and severally or solidarily liable with the principal maker of the note. The terms of the contract are clear, explicit and unequivocal that petitioner's liability is that of a surety.

E. ZOBEL INC. vs CA

Gr. No. 113931, May 6, 1998, 290 SCRA 1

Facts:

Private respondent spouses Raul and Elea Claveria, doing business under the name "Agro Brokers," applied for a loan with respondent Consolidated Bank and Trust Corporation (now SOLIDBANK) to finance the purchase of two maritime barges and one tugboat which would be used in their molasses business.

The loan was granted subject to the condition that respondent spouses will execute a chattel mortgage over the three vessels to be acquired and that a continuing guarantee be executed by Ayala International Philippines, Inc., now petitioner E. Zobel, Inc. in favor of SOLIDBANK. Respondent spouses defaulted in the payment of the entire obligation upon maturity.

Hence, SOLIDBANK filed a complaint for sum of money with a prayer for a writ of preliminary attachment against respondent spouses and petitioner. Petitioner moved for dismissal. The trial court denied the motion to dismiss and required petitioner to file an answer. Petitioner assailed the trial court’s order. The appellate court dismissed the petition.

Issue:

Whether or not petitioner E. Zobel Inc., under the continuing guaranty obligated itself to SOLIDBANK as a guarantor or a surety.

Held:

Yes. Petitioner under the continuing guaranty obligated itself to SOLIDBANK as a surety. A surety is distinguished from a guaranty in that a guarantor is the insurer of the solvency of the debtor and thus binds himself to pay if the principal is unable to pay, it is the guarantor's own separate undertaking, in which the principal does not join while a surety is the insurer of the debt, and he obligates himself to pay if the principal does not pay and is usually bound with his principal by the same instrument, executed at the same time, and on the same consideration. The contract clearly discloses that petitioner assumed liability to SOLIDBANK, as a regular party to the undertaking and obligated itself as an original promissor. It bound itself jointly and severally to the obligation with the respondent spouses. The use of the term "guarantee" does not ipso facto mean that the contract is one of guaranty. Authorities recognize that the word "guarantee" is frequently employed in business transactions to describe not the security of the debt but an intention to be bound by a primary or independent obligation. The trial court has observed that the interpretation of a contract is not limited to the title alone but to the contents and intention of the parties.

INTERNATIONAL FINANCE CORPORATION vs IMPERIAL TEXTILE MILLS, INC.

Gr. No. 160324, November 15, 2005, 475 SCRA 149

Facts:

Petitioner International Finance Corporation (IFC) and respondent Philippine Polyamide Industrial Corporation (PPIC) entered into a loan agreement wherein IFC extended to PPIC a loan payable in 16 semi-annual installments with interest at the rate of 10% per annum on the principal amount of the loan advanced and outstanding from time to time.

A guarantee agreement was executed with Imperial Textile Mills, Inc. (ITM), Grand Textile Manufacturing Corporation (Grandtex) and IFC as parties. ITM and Grandtex agreed to guarantee PPIC’s obligations under the loan agreement. There was a reschedule of payments as requested by PPIC. Despite the rescheduling of the installment payments, however, PPIC defaulted. Hence, IFC served a written notice of default to PPIC demanding the latter to pay the outstanding principal loan and all its accrued interests. Despite such notice, PPIC failed to pay the loan and its interests. IFC, together with DBP, applied for the extrajudicial foreclosure of mortgages on the real estate, buildings, machinery, equipment plant and all improvements owned by PPIC. IFC and DBP were the only bidders during the auction sale. PPIC failed to pay the remaining balance, thus, IFC demanded ITM and Grandtex, as guarantors of PPIC, to pay the outstanding balance.

However, despite the demand made by IFC, the outstanding balance remained unpaid. Consequently, IFC filed a complaint against PPIC and ITM for the payment of the outstanding balance plus interests and attorney’s fees. The trial court held PPIC liable for the payment of the outstanding loan plus interests and attorney’s fees. However, the trial court relieved ITM of its obligation as guarantor.

On appeal of the case, the Court of Appeals reversed the decision of the trial court. The CA, however, held that ITM’s liability as a guarantor would arise only if and when PPIC could not pay.

Since PPIC’s inability to comply with its obligation was not sufficiently established, ITM could not immediately be made to assume the liability. Hence, this petition.

Issue:

Whether or not ITM is a surety, and thus solidarily liable with PPIC for the payment of the loan.

Held:

Yes. ITM is a surety, and thus solidarily liable with PPIC for the payment of the loan. As Article 2047 provides, a suretyship is created when a guarantor binds itself solidarily with the principal obligor. While referring to ITM as a guarantor, the agreement specifically stated that the corporation was “jointly and severally” liable. It further stated that ITM was a primary obligor, not a mere surety. ITM thereby brought itself to the level of PPIC and could not be deemed merely secondarily liable. Those words emphasize the nature of their liability, which the law characterizes as a suretyship. Therefore, ITM bound itself to be solidarily liable with PPIC for the latter’s obligations under the loan agreement with IFC.

PHILIPPINE BLOOMING MILLS INC & CHING vs CA

Gr. No. 142381, October 15, 2003, 413 SCRA 455

Facts:

Petitioner Philippine Blooming Mills, Inc. (PBM) obtained a loan from Traders Royal Bank (TRB). Ching, the Senior Vice-President of PBM, signed Deed of Suretyship in his personal capacity and not as mere guarantors but as primary obligors. PBM and Ching filed a petition for suspension of payments with the SEC, and eventually placed under rehabilitation receivership. Consequently, TRB dismissed complaint as to PBM. Ching then alleged that the Deed of Suretyship executed in 1977 could not answer for obligations not yet in existence at the time of its execution. It could not answer for debts contracted by petitioner PBM in 1980 and 1981. No accessory contract of suretyship could arise without an existing principal contract of loan.

Issue:

Whether or not Ching is liable for credit obligations contracted by Philippine Blooming Mills Inc. against Traders Royal Bank before and after the execution of the Deed of Suretyship.

Held:

Yes. Ching is liable for credit obligations contracted by Philippine Blooming Mills Inc. against Traders Royal Bank before and after the execution of the Deed of Suretyship. This is evident from the tenor of the deed itself, referring to amounts to PBM may now be indebted or may hereafter become indebted to Traders Royal Bank. The law expressly allows a suretyship for future debts. Article 2053 provides that a guaranty may also be given as security for future debts, the amount of which is not yet known, there can be no claim against the guarantor until the debt is liquidated.

ESCANO & SILOS vs ORTIGAS JR.

Gr. No. 151953, June 29, 2007, 526 SCRA 26

Facts:

Private Development Corporation of the Philippines (PDCP) entered into a loan agreement with Falcon Minerals, Inc. whereby PDCP agreed to make available and lend to Falcon a sum certain. Respondent Rafael Ortigas, Jr., et al., stockholder officers of Falcon, executed an Assumption of Solidary Liability whereby they agreed to assume in their individual capacity, solidary liability with Falcon for the due and punctual payment of the loan contracted by Falcon with PDCP.

Two separate guaranties were executed to guarantee the payment of the same loan by other stockholders and officers of Falcon, acting in their personal and individual capacities. One Guaranty was executed by petitioner Salvador Escaño, while the other by petitioners Mario M. Silos, Ricardo C. Silverio, et al. Two years later, an agreement developed to cede control of Falcon to Escaño, Silos and Joseph M. Matti. Thus, contracts were executed whereby Ortigas, George A. Scholey, Inductivo and the heirs of then already deceased George T. Scholey assigned their shares of stock in Falcon to Escaño, Silos and Matti. Part of the consideration that induced the sale of stock was a desire by Ortigas, et al., to relieve themselves of all liability arising from their previous joint and several undertakings with Falcon, including those related to the loan with PDCP.

Thus, an Undertaking was executed by the concerned parties with Escaño, Silos and Matti identified in the document as “sureties,” on one hand, and Ortigas, Inductivo and the Scholeys as “obligors,” on the other. However, Falcon subsequently defaulted in its payments.

After PDCP foreclosed on the chattel mortgage, there remained a subsisting deficiency of P5,000,000, which Falcon did not satisfy despite demand. In order to recover the indebtedness, PDCP filed a complaint for sum of money against Falcon, Ortigas, Escaño, Silos, Silverio and Inductivo. Ortigas filed together with his answer a cross-claim against his co-defendants Falcon, Escaño and Silos, and also manifested his intent to file a third-party complaint against the Scholeys and Matti.

The cross-claim lodged against Escaño and Silos was predicated on the 1982 Undertaking, wherein they agreed to assume the liabilities of Ortigas with respect to the PDCP loan. Escaño, Ortigas and Silos each sought to seek a settlement with PDCP. The first to come to terms with PDCP was Escaño, who entered into a compromise agreement. In exchange, PDCP waived or assigned in favor of Escaño 1/3 of its entire claim in the complaint against all of the other defendants in the case.

Then Ortigas entered into his own compromise agreement with PDCP, allegedly without the knowledge of Escaño, Matti and Silos. Thereby, Ortigas agreed to pay PDCP P1.3M as full satisfaction of the PDCP’s claim against Ortigas. Silos and PDCP entered into a Partial Compromise Agreement whereby he agreed to pay P500k in exchange for PDCP’s waiver of its claims against him.

In the meantime, after having settled with PDCP, Ortigas pursued his claims against Escaño, Silos and Matti, on the basis of the 1982 Undertaking. He initiated a third-party complaint against

Matti and Silos, while he maintained his cross-claim against Escaño. RTC issued the Summary Judgment, ordering Escaño, Silos and Matti to pay Ortigas, jointly and severally, the amount of P1.3M, as well as P20K in attorney’s fees. The trial court ratiocinated that none of the third-party defendants disputed the 1982 Undertaking.

Issue:

Whether or not petitioners are solidarily liable to respondent Ortigas.

Held:

No. Petitioners are not solidarily liable to respondent Ortigas. In case there is a concurrence of two or more creditors or of two or more debtors in one and the same obligation, Article 1207 of the Civil Code states that among them, there is a solidary liability only when the obligation expressly so states, or when the law or the nature of the obligation requires solidarity.”

Article 1210 supplies further that the indivisibility of an obligation does not necessarily give rise to solidarity. Nor does solidarity of itself imply indivisibility. Thus, the presumption is that the obligation is only joint. It thus becomes incumbent upon the party alleging that the obligation is indeed solidary in character to prove such fact with a preponderance of evidence.

The Undertaking does not contain any express stipulation that the petitioners agreed “to bind themselves jointly and severally” in their obligations to the Ortigas group, or any such terms to that effect. Hence, such obligation established in the Undertaking is presumed only to be joint. Ortigas, as the party alleging that the obligation is in fact solidary, bears the burden to overcome the presumption of jointness of obligations. He has failed to discharge such burden.

The term “surety” has a specific meaning under our Civil Code. As provided in Article 2047 in a surety agreement the surety undertakes to be bound solidarily with the principal debtor.

Thus, a surety agreement is an ancillary contract as it presupposes the existence of a principal contract. It appears that Ortigas’ argument rests solely on the solidary nature of the obligation of the surety under Article2047.

In tandem with the nomenclature “sureties” accorded to petitioners and Matti in the Undertaking, however, this argument can only be viable if the obligations established in the Undertaking do partake of the nature of a suretyship as defined under Article 2047 in the first place. That clearly is not the case here, notwithstanding the use of the nomenclature “sureties” in the Undertaking.

G.R. No. 145578 November 18, 2005

JOSE C. TUPAZ IV and PETRONILA C. TUPAZ, Petitioners,

vs.

THE COURT OF APPEALS and BANK OF THE PHILIPPINE ISLANDS, Respondents.

DECISION

CARPIO, J.: The Case

This is a petition for review1 of the Decision2 of the Court of Appeals dated 7 September 2000 and its Resolution dated 18 October 2000. The 7 September 2000 Decision affirmed the ruling of the Regional Trial Court, Makati, Branch 144 in a case for estafa under Section 13, Presidential Decree No. 115. The Court of Appeals’ Resolution of 18 October 2000 denied petitioners’ motion for reconsideration.

The Facts

Petitioners Jose C. Tupaz IV and Petronila C. Tupaz ("petitioners") were Vice-President for Operations and Vice-President/Treasurer, respectively, of El Oro Engraver Corporation ("El Oro Corporation"). El Oro Corporation had a contract with the Philippine Army to supply the latter with "survival bolos."

To finance the purchase of the raw materials for the survival bolos, petitioners, on behalf of El Oro Corporation, applied with respondent Bank of the Philippine Islands ("respondent bank") for two commercial letters of credit. The letters of credit were in favor of El Oro Corporation’s suppliers, Tanchaoco Manufacturing Incorporated3("Tanchaoco Incorporated") and Maresco Rubber and Retreading Corporation4 ("Maresco Corporation"). Respondent bank granted petitioners’ application and issued Letter of Credit No. 2-00896-3 for P564,871.05 to Tanchaoco Incorporated and Letter of Credit No. 2-00914-5 for P294,000 to Maresco Corporation.

Simultaneous with the issuance of the letters of credit, petitioners signed trust receipts in favor of respondent bank. On 30 September 1981, petitioner Jose C. Tupaz IV ("petitioner Jose Tupaz") signed, in his personal capacity, a trust receipt corresponding to Letter of Credit No. 2-00896-3 (for P564,871.05). Petitioner Jose Tupaz bound himself to sell the goods covered by the letter of credit and to remit the proceeds to respondent bank, if sold, or to return the goods, if not sold, on or before 29 December 1981.

On 9 October 1981, petitioners signed, in their capacities as officers of El Oro Corporation, a trust receipt corresponding to Letter of Credit No. 2-00914-5 (for P294,000). Petitioners bound themselves to sell the goods covered by that letter of credit and to remit the proceeds to respondent bank, if sold, or to return the goods, if not sold, on or before 8 December 1981.

After Tanchaoco Incorporated and Maresco Corporation delivered the raw materials to El Oro Corporation, respondent bank paid the former P564,871.05 and P294,000, respectively.

Petitioners did not comply with their undertaking under the trust receipts. Respondent bank made several demands for payments but

El Oro Corporation made partial payments only. On 27 June 1983 and 28 June 1983, respondent bank’s counsel5 and its representative6 respectively sent final demand letters to El Oro Corporation. El Oro Corporation replied that it could not fully pay its debt because the Armed Forces of the Philippines had delayed paying for the survival bolos.

Respondent bank charged petitioners with estafa under Section 13, Presidential Decree No. 115 ("Section 13")7or Trust Receipts Law ("PD 115"). After preliminary investigation, the then Makati Fiscal’s Office found probable cause to indict petitioners. The Makati Fiscal’s Office filed the corresponding Informations (docketed as Criminal Case Nos. 8848 and 8849) with the Regional Trial Court, Makati, on 17 January 1984 and the cases were raffled to Branch 144 ("trial court") on 20 January 1984. Petitioners pleaded not guilty to the charges and trial ensued. During the trial, respondent bank presented evidence on the civil aspect of the cases.

The Ruling of the Trial Court

On 16 July 1992, the trial court rendered judgment acquitting petitioners of estafa on reasonable doubt. However, the trial court found petitioners solidarily liable with El Oro Corporation for the balance of El Oro Corporation’s principal debt under the trust receipts. The dispositive portion of the trial court’s Decision provides:

WHEREFORE, judgment is hereby rendered ACQUITTING both accused Jose C. Tupaz, IV and Petronila Tupaz based upon reasonable doubt.

However, El Oro Engraver Corporation, Jose C. Tupaz, IV and Petronila Tupaz, are hereby ordered, jointly and solidarily, to pay the Bank of the Philippine Islands the outstanding principal obligation of P624,129.19 (as of January 23, 1992) with the stipulated interest at the rate of 18% per annum; plus 10% of the total amount due as attorney’s fees; P5,000.00 as expenses of litigation; and costs of the suit.8

In holding petitioners civilly liable with El Oro Corporation, the trial court held:

[S]ince the civil action for the recovery of the civil liability is deemed impliedly instituted with the criminal action, as in fact the prosecution thereof was actively handled by the private prosecutor, the Court believes that the El Oro Engraver Corporation and both accused Jose C. Tupaz and Petronila Tupaz, jointly and solidarily should be held civilly liable to the Bank of the Philippine Islands. The mere fact that they were unable to collect in full from the AFP and/or the Department of National Defense the proceeds of the sale of the delivered survival bolos manufactured from the raw materials covered by the trust receipt agreements is no valid defense to the civil claim of the said complainant and surely could not wipe out their civil obligation. After all, they are free to institute an action to collect the same.9

Petitioners appealed to the Court of Appeals. Petitioners contended that: (1) their acquittal "operates to extinguish [their] civil liability" and (2) at any rate, they are not personally liable for El Oro Corporation’s debts.

the trial court’s ruling. The appellate court held:

It is clear from [Section 13, PD 115] that civil liability arising from the violation of the trust receipt agreement is distinct from the criminal liability imposed therein. In the case of Vintola vs. Insular Bank of

Asia and America, our Supreme Court held that acquittal in the

estafa case (P.D. 115) is no bar to the institution of a civil action for collection. This is because in such cases, the civil liability of the accused does not arise ex delicto but rather basedex contractu and as such is distinct and independent from any criminal proceedings and may proceed regardless of the result of the latter. Thus, an independent civil action to enforce the civil liability may be filed against the corporation aside from the criminal action against the responsible officers or employees.

xxx

[W]e hereby hold that the acquittal of the accused-appellants from the criminal charge of estafa did not operate to extinguish their civil liability under the letter of credit-trust receipt arrangement with plaintiff-appellee, with which they dealt both in their personal capacity and as officers of El Oro Engraver Corporation, the letter of credit applicant and principal debtor.

Appellants argued that they cannot be held solidarily liable with their corporation, El Oro Engraver Corporation, alleging that they executed the subject documents including the trust receipt agreements only in their capacity as such corporate officers. They said that these instruments are mere pro-forma and that they executed these instruments on the strength of a board resolution of said corporation authorizing them to apply for the opening of a letter of credit in favor of their suppliers as well as to execute the other documents necessary to accomplish the same.

Such contention, however, is contradicted by the evidence on record. The trust receipt agreement indicated in clear and unmistakable terms that the accused signed the same as surety for the corporation and that they bound themselves directly and immediately liable in the event of default with respect to the obligation under the letters of credit which were made part of the said agreement, without need of demand. Even in the application for the letter of credit, it is likewise clear that the undertaking of the accused is that of a surety as indicated [in] the following words: "In consideration of your establishing the commercial letter of credit herein applied for substantially in accordance with the foregoing, the undersigned Applicant and Surety hereby agree, jointly and severally, to each and all stipulations, provisions and conditions on the reverse side hereof."

xxx

Having contractually agreed to hold themselves solidarily liable with El Oro Engraver Corporation under the subject trust receipt agreements with appellee Bank of the Philippine Islands, herein accused-appellants may not, therefore, invoke the separate legal personality of the said corporation to evade their civil liability under the letter of credit-trust receipt arrangement with said appellee, notwithstanding their acquittal in the criminal cases filed against them. The trial court thus did not err in holding the appellants solidarily liable with El Oro Engraver Corporation for the outstanding principal obligation of P624,129.19 (as of January 23, 1992) with the

stipulated interest at the rate of 18% per annum, plus 10% of the total amount due as attorney’s fees, P5,000.00 as expenses of litigation and costs of suit.10

Hence, this petition. Petitioners contend that:

1. A JUDGMENT OF ACQUITTAL OPERATE[S] TO EXTINGUISH THE CIVIL LIABILITY OF PETITIONERS[;]

2. GRANTING WITHOUT ADMITTING THAT THE QUESTIONED OBLIGATION WAS INCURRED BY THE CORPORATION, THE SAME IS NOT YET DUE AND PAYABLE;

3. GRANTING THAT THE QUESTIONED OBLIGATION WAS ALREADY DUE AND PAYABLE, xxx PETITIONERS ARE NOT PERSONALLY LIABLE TO xxx RESPONDENT BANK, SINCE THEY SIGNED THE LETTER[S] OF CREDIT AS ‘SURETY’ AS OFFICERS OF EL ORO, AND THEREFORE, AN EXCLUSIVE LIABILITY OF EL ORO; [AND]

4. IN THE ALTERNATIVE, THE QUESTIONED TRANSACTIONS ARE SIMULATED AND VOID.11

The Issues

The petition raises these issues:

(1) Whether petitioners bound themselves personally liable for El Oro Corporation’s debts under the trust receipts;

(2) If so —

(a) whether petitioners’ liability is solidary with El Oro Corporation; and

(b) whether petitioners’ acquittal of estafa under Section 13, PD 115 extinguished their civil liability.

The Ruling of the Court

The petition is partly meritorious. We affirm the Court of Appeals’ ruling with the modification that petitioner Jose Tupaz is liable as guarantor of El Oro Corporation’s debt under the trust receipt dated 30 September 1981.

On Petitioners’ Undertaking Under

the Trust Receipts

A corporation, being a juridical entity, may act only through its directors, officers, and employees. Debts incurred by these individuals, acting as such corporate agents, are not theirs but the direct liability of the corporation they represent.12 As an exception, directors or officers are personally liable for the corporation’s debts only if they so contractually agree or stipulate.13

Here, the dorsal side of the trust receipts contains the following stipulation:

the terms of this Trust Receipt the goods described herein, I/We, jointly and severally, agree and promise to pay to you, on demand, whatever sum or sums of money which you may call upon me/us to pay to you, arising out of, pertaining to, and/or in any way connected with, this Trust Receipt, in the event of default and/or non-fulfillment in any respect of this undertaking on the part of the said ………. I/we further agree that my/our liability in this guarantee shall be DIRECT AND IMMEDIATE, without any need whatsoever on your part to take any steps or exhaust any legal remedies that you may have against the said ………. before making demand upon me/us.14(Capitalization in the original)

In the trust receipt dated 9 October 1981, petitioners signed below this clause as officers of El Oro Corporation. Thus, under petitioner Petronila Tupaz’s signature are the words "Vice-Pres–Treasurer" and under petitioner Jose Tupaz’s signature are the words "Vice-Pres– Operations." By so signing that trust receipt, petitioners did not bind themselves personally liable for El Oro Corporation’s obligation. In Ong v. Court of Appeals,15 a corporate representative signed a solidary guarantee clause in two trust receipts in his capacity as corporate representative. There, the Court held that the corporate representative did not undertake to guarantee personally the payment of the corporation’s debts, thus:

[P]etitioner did not sign in his personal capacity the solidary guarantee clause found on the dorsal portion of the trust receipts. Petitioner placed his signature after the typewritten words "ARMCO INDUSTRIAL CORPORATION" found at the end of the solidary guarantee clause. Evidently, petitioner did not undertake to guaranty personally the payment of the principal and interest of ARMAGRI’s debt under the two trust receipts.

Hence, for the trust receipt dated 9 October 1981, we sustain petitioners’ claim that they are not personally liable for El Oro Corporation’s obligation.

For the trust receipt dated 30 September 1981, the dorsal portion of which petitioner Jose Tupaz signed alone, we find that he did so in his personal capacity. Petitioner Jose Tupaz did not indicate that he was signing as El Oro Corporation’s Vice-President for Operations. Hence, petitioner Jose Tupaz bound himself personally liable for El Oro Corporation’s debts. Not being a party to the trust receipt dated 30 September 1981, petitioner Petronila Tupaz is not liable under such trust receipt.

The Nature of Petitioner Jose Tupaz’s Liability Under the Trust Receipt Dated 30 September 1981

As stated, the dorsal side of the trust receipt dated 30 September 1981 provides:

To the Bank of the Philippine Islands

In consideration of your releasing to ……… under the terms of this Trust Receipt the goods described herein, I/We, jointly and severally, agree and promise to pay to you, on demand, whatever sum or sums of money which you may call upon me/us to pay to you, arising out of, pertaining to, and/or in any way connected with, this Trust Receipt, in the event of default and/or non-fulfillment in any respect of this undertaking on the part of the

said ………. I/we further agree that my/our liability in this guarantee shall be DIRECT AND IMMEDIATE, without any need whatsoever on your part to take any steps or exhaust any legal remedies that you may have against the said ………. Before making demand upon me/us. (Underlining supplied; capitalization in the original)

The lower courts interpreted this to mean that petitioner Jose Tupaz bound himself solidarily liable with El Oro Corporation for the latter’s debt under that trust receipt.

This is error.

In Prudential Bank v. Intermediate Appellate Court,16 the Court interpreted a substantially identical clause17 in a trust receipt signed by a corporate officer who bound himself personally liable for the corporation’s obligation. The petitioner in that case contended that the stipulation "we jointly and severally agree and undertake" rendered the corporate officer solidarily liable with the corporation. We dismissed this claim and held the corporate officer liable as guarantor only. The Court further ruled that had there been more than one signatories to the trust receipt, the solidary liability would exist between the guarantors. We held:

Petitioner [Prudential Bank] insists that by virtue of the clear wording of the xxx clause "x x x we jointly and severally agree and undertake x x x," and the concluding sentence on exhaustion, [respondent] Chi’s liability therein is solidary.

xxx

Our xxx reading of the questioned solidary guaranty clause yields no other conclusion than that the obligation of Chi is only that of a guarantor. This is further bolstered by the last sentence which speaks of waiver of exhaustion, which, nevertheless, is ineffective in this case because the space therein for the party whose property may not be exhausted was not filled up. Under Article 2058 of the Civil Code, the defense of exhaustion (excussion) may be raised by a guarantor before he may be held liable for the obligation. Petitioner likewise admits that the questioned provision is a solidary

guaranty clause, thereby clearly distinguishing it from a contract of

surety. It, however, described the guaranty as solidary between the guarantors; this would have been correct if two (2) guarantors had signed it. The clause "we jointly and severally agree and undertake" refers to the undertaking of the two (2) parties who are to sign it or to the liability existing between themselves. It does not refer to the undertaking between either one or both of them on the one hand and the petitioner on the other with respect to the liability described under the trust receipt. xxx

Furthermore, any doubt as to the import or true intent of the solidary guaranty clause should be resolved against the petitioner. The trust receipt, together with the questioned solidary guaranty clause, is on a form drafted and prepared solely by the petitioner; Chi’s participation therein is limited to the affixing of his signature thereon. It is, therefore, a contract of adhesion; as such, it must be strictly construed against the party responsible for its preparation.18 (Underlining supplied; italicization in the original)

However, respondent bank’s suit against petitioner Jose Tupaz stands despite the Court’s finding that he is liable as guarantor only. First, excussion is not a pre-requisite to secure judgment against a

execution of the judgment against him until after the assets of the principal debtor shall have been exhausted.19 Second, the benefit of excussion may be waived.20 Under the trust receipt dated 30 September 1981, petitioner Jose Tupaz waived excussion when he agreed that his "liability in [the] guaranty shall be DIRECT AND IMMEDIATE, without any need whatsoever on xxx [the] part [of respondent bank] to take any steps or exhaust any legal remedies xxx." The clear import of this stipulation is that petitioner Jose Tupaz waived the benefit of excussion under his guarantee.

As guarantor, petitioner Jose Tupaz is liable for El Oro Corporation’s principal debt and other accessory liabilities (as stipulated in the trust receipt and as provided by law) under the trust receipt dated 30 September 1981. That trust receipt (and the trust receipt dated 9 October 1981) provided for payment of attorney’s fees equivalent to 10% of the total amount due and an "interest at the rate of 7% per

annum, or at such other rate as the bank may fix, from the date due

until paid xxx."21 In the applications for the letters of credit, the parties stipulated that drafts drawn under the letters of credit are subject to interest at the rate of 18% per annum.22

The lower courts correctly applied the 18% interest rate per

annum considering that the face value of each of the trust receipts is

based on the drafts drawn under the letters of credit. Based on the guidelines laid down in

Eastern Shipping Lines, Inc. v. Court of Appeals,23 the accrued stipulated interest earns 12% interest per annum from the time of the filing of the Informations in the Makati Regional Trial Court on 17 January 1984. Further, the total amount due as of the date of the finality of this Decision will earn interest at 18% per annum until fully paid since this was the stipulated rate in the applications for the letters of credit.24

The accounting of El Oro Corporation’s debts as of 23 January 1992, which the trial court used, is no longer useful as it does not specify the amounts owing under each of the trust receipts. Hence, in the execution of this Decision, the trial court shall compute El Oro Corporation’s total liability under each of the trust receipts dated 30 September 1981 and 9 October 1981 based on the following formula:25

TOTAL AMOUNT DUE = [principal + interest + interest on interest] – partial payments made26

Interest = principal x 18 % per annum x no. of years from due date27 until finality of judgment

Interest on interest = interest computed as of the filing of the complaint (17 January 1984) x 12% x no. of years until finality of judgment

Attorney’s fees is 10% of the total amount computed as of finality of judgment

Total amount due as of the date of finality of judgment will earn an interest of 18% per annum until fully paid.

In so delegating this task, we reiterate what we said in Rizal Commercial Banking Corporation v. Alfa RTW Manufacturing Corporation28 where we also ordered the trial court to compute the

amount of obligation due based on a formula substantially similar to that indicated above:

The total amount due xxx [under] the xxx contract[] xxx may be easily determined by the trial court through a simple mathematical computation based on the formula specified above. Mathematics is an exact science, the application of which needs no further proof from the parties.

Petitioner Jose Tupaz’s Acquittal did not Extinguish his Civil Liability

The rule is that where the civil action is impliedly instituted with the criminal action, the civil liability is not extinguished by acquittal —

[w]here the acquittal is based on reasonable doubt xxx as only preponderance of evidence is required in civil cases; where the court expressly declares that the liability of the accused is not criminal but only civil in nature xxx as, for instance, in the felonies of estafa, theft, and malicious mischief committed by certain relatives who thereby incur only civil liability (See Art. 332, Revised Penal Code); and, where the civil liability does not arise from or is not based upon the criminal act of which the accused was acquitted xxx.29 (Emphasis supplied)

Here, respondent bank chose not to file a separate civil action30 to recover payment under the trust receipts. Instead, respondent bank sought to recover payment in Criminal Case Nos. 8848 and 8849. Although the trial court acquitted petitioner Jose Tupaz, his acquittal did not extinguish his civil liability. As the Court of Appeals correctly held, his liability arose not from the criminal act of which he was acquitted (ex delito) but from the trust receipt contract (ex

contractu) of 30 September 1981. Petitioner Jose Tupaz signed the

trust receipt of 30 September 1981 in his personal capacity.

On the other Matters Petitioners Raise

Petitioners raise for the first time in this appeal the contention that El Oro Corporation’s debts under the trust receipts are not yet due and demandable. Alternatively, petitioners assail the trust receipts as simulated. These assertions have no merit. Under the terms of the trust receipts dated 30 September 1981 and 9 October 1981, El Oro Corporation’s debts fell due on 29 December 1981 and 8 December 1981, respectively.

Neither is there merit to petitioners’ claim that the trust receipts were simulated. During the trial, petitioners did not deny applying for the letters of credit and subsequently executing the trust receipts to secure payment of the drafts drawn under the letters of credit.

WHEREFORE, we GRANT the petition in part. We AFFIRM the

Decision of the Court of Appeals dated 7 September 2000 and its Resolution dated 18 October 2000 with the following MODIFICATIONS:

1) El Oro Engraver Corporation is principally liable for the total amount due under the trust receipts dated 30 September 1981 and 9 October 1981, as computed by the Regional Trial Court, Makati,

provided above;

2) Petitioner Jose C. Tupaz IV is liable for El Oro Engraver Corporation’s total debt under the trust receipt dated 30 September 1981 as thus computed by the Regional Trial Court, Makati, Branch 144; and

3) Petitioners Jose C. Tupaz IV and Petronila C. Tupaz are not liable under the trust receipt dated 9 October 1981.

G.R. No. 138544 October 3, 2000

SECURITY BANK AND TRUST COMPANY, Inc., petitioner,

vs.

RODOLFO M. CUENCA, respondent.

D E C I S I O N

PANGANIBAN, J.:

Being an onerous undertaking, a surety agreement is strictly construed against the creditor, and every doubt is resolved in favor of the solidary debtor. The fundamental rules of fair play require the creditor to obtain the consent of the surety to any material alteration in the principal loan agreement, or at least to notify it thereof. Hence, petitioner bank cannot hold herein respondent liable for loans obtained in excess of the amount or beyond the period stipulated in the original agreement, absent any clear stipulation showing that the latter waived his right to be notified thereof, or to give consent thereto. This is especially true where, as in this case, respondent was no longer the principal officer or major stockholder of the corporate debtor at the time the later obligations were incurred. He was thus no longer in a position to compel the debtor to pay the creditor and had no more reason to bind himself anew to the subsequent obligations.

The Case

This is the main principle used in denying the present Petition for Review under Rule 45 of the Rules of Court. Petitioner assails the December 22, 1998 Decision1 of the Court of Appeals (CA) in CA-GR CV No. 56203, the dispositive portion of which reads as follows:

"WHEREFORE, the judgment appealed from is hereby amended in the sense that defendant-appellant Rodolfo M. Cuenca [herein respondent] is RELEASED from liability to pay any amount stated in the judgment.

"Furthermore, [Respondent] Rodolfo M. Cuenca’s counterclaim is hereby DISMISSED for lack of merit.

"In all other respect[s], the decision appealed from is AFFIRMED."2

Also challenged is the April 14, 1999 CA Resolution,3 which denied petitioner’s Motion for Reconsideration.

Modified by the CA was the March 6, 1997 Decision4 of the Regional Trial Court (RTC) of Makati City (Branch 66) in Civil Case No. 93-1925, which disposed as follows:

"WHEREFORE, judgment is hereby rendered ordering defendants Sta. Ines Melale Corporation and Rodolfo M. Cuenca to pay, jointly and severally, plaintiff Security Bank & Trust Company the sum of P39,129,124.73 representing the balance of the loan as of May 10, 1994 plus 12% interest per annum until fully paid, and the sum of P100,000.00 as attorney’s fees and litigation expenses and to pay the costs.

SO ORDERED."

The Facts

The facts are narrated by the Court of Appeals as follows:5

"The antecedent material and relevant facts are that defendant-appellant Sta. Ines Melale (‘Sta. Ines’) is a corporation engaged in logging operations. It was a holder of a Timber License Agreement issued by the Department of Environment and Natural Resources (‘DENR’).

"On 10 November 1980, [Petitioner] Security Bank and Trust Co. granted appellant Sta. Ines Melale Corporation [SIMC] a credit line in the amount of [e]ight [m]llion [p]esos (P8,000,000.00) to assist the latter in meeting the additional capitalization requirements of its logging operations.

"The Credit Approval Memorandum expressly stated that the P8M Credit Loan Facility shall be effective until 30 November 1981:

‘JOINT CONDITIONS:

‘1. Against Chattel Mortgage on logging trucks and/or inventories (except logs) valued at 200% of the lines plus JSS of Rodolfo M. Cuenca.

‘2. Submission of an appropriate Board Resolution authorizing the borrowings, indicating therein the company’s duly authorized signatory/ies;

‘3. Reasonable/compensating deposit balances in current account shall be maintained at all times; in this connection, a Makati account shall be opened prior to availment on lines;

‘4. Lines shall expire on November 30, 1981; and

‘5. The bank reserves the right to amend any of the aforementioned terms and conditions upon written notice to the Borrower.’ (Emphasis supplied.)

"To secure the payment of the amounts drawn by appellant SIMC from the above-mentioned credit line, SIMC executed a Chattel Mortgage dated 23 December 1980 (Exhibit ‘A’) over some of its machinery and equipment in favor of [Petitioner] SBTC. As additional security for the payment of the loan, [Respondent] Rodolfo M. Cuenca executed an Indemnity Agreement dated 17 December 1980 (Exhibit ‘B’) in favor of [Petitioner] SBTC whereby he solidarily bound himself with SIMC as follows:

x x x x x x x x x

‘Rodolfo M. Cuenca x x x hereby binds himself x x x jointly and

severally with the client (SIMC) in favor of the bank for the payment,

upon demand and without the benefit of excussion of whatever amount x x x the client may be indebted to the bank x x x by virtue of aforesaid credit accommodation(s) including the substitutions,

renewals, extensions, increases, amendments, conversions and revivals of the aforesaid credit accommodation(s) x x x .’ (Emphasis