Credit Transactions Case Digest Finals(Guaranty)

CREDIT TRANSACTIONS CASE DIGEST FINALS (GUARANTY)

ATOK FINANCE VS. CORPORATION, petitioner, vs. COURT OF APPEALS, SANYU CHEMICAL CORPORATION, DANILO E. ARRIETA, NENITA B. ARRIETA, PABLITO BERMUNDO and LEOPOLDO HALILI, respondents. ||| FACTS: On 27 July 1979, Private respondents Sanyu Chemical Corporation ("Sanyu Chemical") as principal and Sanyu Trading Corporation ("Sanyu Trading") along with individual private stockholders of Sanyu Chemical, namely, private respondents spouses Danilo E. Arrieta and Nenita B. Arrieta, Leopoldo G. Halili and Pablito Bermundo as sureties, executed a Continuing Suretyship Agreement in favor of Atok Finance as creditor. Under this Agreement, Sanyu Trading and the individual private respondents who were officers and stockholders of Sanyu Chemical did: "(1) For Valuable and/or other consideration . . ., jointly and severally unconditionally guarantee to ATOK FINANCE CORPORATION (hereinafter called Creditor), the full, faithful and prompt payment and discharge of any and all indebtedness of [Sanyu Chemical] . . . (hereinafter called Principal) to the Creditor. The word 'indebtedness' is used herein in its most comprehensive sense and includes any and all advances, debts, obligations and liabilities of Principal or any one or more of them, here[to]fore, now or hereafter made, incurred or created, whether voluntary or involuntary and however arising, whether direct or acquired by the Creditor by assignment or succession, whether due or not due, absolute or contingent, liquidated or unliquidated, determined or undetermined and whether the Principal may be liable individually or jointly with others, or whether recovery upon such indebtedness may be or hereafter become barred by any statute of limitations, or whether such indebtedness may be or otherwise become unenforceable.” Sanyu Chemical assigned its trade receivables outstanding as of 27 November 1981 with a total face value of P125,871.00, to Atok Finance in consideration of receipt from Atok Finance of the amount of P105,000.00. The assigned receivables carried a standard term of thirty (30) days; it appeared, however, that the standard commercial practice was to grant an extension of up to one hundred twenty (120) days without penalties.||| PERTINENT PROVISION OF DEED OF ASSIGNMENT: (g) The debtor/s under the assigned Contract/s are solvent and his/its/their failure to pay the assigned Contracts and/or any installment thereon upon maturity thereof shall be conclusively considered as a violation of this warranty On 13 January 1984, Atok Finance commenced action against Sanyu Chemical, the Arrieta spouses, Pablito Bermundo and Leopoldo Halili before the Regional Trial Court of Manila to collect the sum of P120,240.00 plus penalty charges amounting to P0.03 for every peso due and payable for each month starting from 1 September 1983. Atok Finance alleged that Sanyu Chemical had failed to collect and remit the amounts due under the trade receivables. Sanyu Chemical and the individual private respondents sought dismissal of Atok's claim upon the ground that such claim had prescribed under Article 1629 of the Civil Code and for lack of cause of action. The private respondents contended that the Continuing Suretyship Agreement, being an accessory contract, was null and void since, at the time of its execution, Sanyu Chemical had no pre-existing obligation due to Atok Finance. Private respondents went on appeal before the then Intermediate Appellate Court ("IAC")|. Atok Finance moved to set aside the decision of the 15th Division of the Court of Appeals, inviting attention to the resolution of the IAC's Third Civil Cases Division of 21 March 1986 originally dismissing private respondents' appeal for abandonment thereof.||| (Atok Finance Corp. v. Court of Appeals, G.R. No. 80078, [May 18, 1993]) In the present Petition for Review, Atok Finance assigns the following as errors on the part of the Court of Appeals in rendering its decision of 18 August 1987: cdrep "(1) that it had erred in ruling that a continuing suretyship agreement cannot be effected to secure future debts; (2) that it had erred in ruling that the continuing suretyship agreement was null and void for lack of consideration without any evidence whatsoever [being] adduced by private respondents; (3) that it had erred in granting the Petition for Relief from Judgment while execution proceedings [were] on-going in the trial court." ISSUE: WON continuing suretyship agreement can be effected to secure future debts?

WON private respondents are liable under the Deed of Assignment RULINGS:

YES. The continuing suretyship agreement can be effected to secure future debts. We consider that the Court of Appeals here was in serious error. It is true that a guaranty or a suretyship agreement is an accessory contract in the sense that it is entered into for the purpose of securing the performance of another obligation which is denominated as the principal obligation. It is also true that Article 2052 of the Civil Code states that "a guarantee cannot exist without a valid obligation." This legal proposition is not, however, like most legal principles, to be read in an absolute and literal manner and carried to the limit of its logic. This is clear from Article 2052 of the Civil Code itself: "Art. 2052. A guaranty cannot exist without a valid obligation. Nevertheless, a guaranty may be constituted to guarantee the performance of a voidable or an unenforceable contract. It may also guarantee a natural obligation." Moreover, Article 2053 of the Civil Code states: "Art. 2053. A guaranty may also be given as security for future debts, the amount of which is not yet known; there can be no claim against the guarantor until the debt is liquidated. A conditional obligation may also be secured. “FUTURE DEBTS as used above, may also refer to debts existing at the time of the constitution of the guaranty but the amount thereof is unknown and not to debts not yet incurred and existing at that time. Ofcourse a surety is not bound under any particular principal obligation until that obligation is born. But there is no theoretical or doctrinal difficulty in saying that the surety agreement itself is valid and binding even before the principal obligation intended to be secured thereby is born, any more than there would be in saying that obligations which are subject to a condition precedent are valid and binding before the occurrence of the condition precedent.” (2nd issue) It may be stressed as a preliminary matter that the Deed of Assignment was valid and binding upon Sanyu Chemical. Assignment of receivables is a commonplace commercial transaction today. It is an activity or operation that permits the assignee to monetize or realize the value of the receivables before the maturity thereof. In other words, Sanyu Chemical received from Atok Finance the value of its trade receivables it had assigned; Sanyu Chemical obviously benefited from the assignment. The payments due in the first instance from the trade debtors of Sanyu Chemical would represent the return of the investment which Atok Finance had made when it paid Sanyu Chemical the transfer value of such receivables. Article 1629 of the Civil Code invoked by private respondents and accepted by the Court of Appeals is not, in the case at bar, material. The liability of Sanyu Chemical to Atok Finance rests not on the breach of the warranty of solvency; the liability of Sanyu Chemical was not ex lege (ex Article 1629) but rather ex contractu. Under the Deed of Assignment, the effect of nonpayment by the original trade debtors was a breach of warranty of solvency by Sanyu Chemical, resulting in turn in the assumption of solidary liability by the assignor under the receivables assigned. In other words, the assignor Sanyu Chemical becomes a solidary debtor under the terms of the receivables covered and transferred by virtue of the Deed of Assignment. And because assignor Sanyu Chemical became, under the terms of the Deed of Assignment, solidary obligor under each of the assigned receivables, the other private respondents (the Arrieta spouses, Pablito Bermundo and Leopoldo Halili), became solidarily liable for that obligation of Sanyu Chemical, by virtue of the operation of the Continuing Suretyship Agreement. Put a little differently, the obligations of individual private respondent officers and stockholders of Sanyu Chemical under the Continuing Suretyship Agreement, were activated by the resulting obligations of Sanyu Chemical as solidary obligor under each of the assigned receivables by virtue of the operation of the Deed of Assignment. That solidary liability of Sanyu Chemical is not subject to the limiting period set out in Article 1629 of the Civil Code. LexLib It follows that at the time the original complaint was filed by Atok Finance in the trial court, it had a valid and enforceable cause of action against Sanyu Chemical and the other private respondents. We also agree with the Court of Appeals that the original obligors under the receivables assigned to Atok Finance remain liable under the terms of such receivables. WHEREFORE, for all the foregoing, the Petition for Review is hereby GRANTED DUE COURSE, and the Decision of the Court of Appeals dated 18 August 1987 and its Resolution dated 30 September 1987 are hereby REVERSED and SET ASIDE. A new judgment is hereby entered REINSTATING the Decision of the trial court in Civil Case No. 84-22198 dated 1 April 1985, except only that, in the exercise of this Court's discretionary authority equitably to mitigate the penalty clause attached to the Deed of Assignment, that penalty is hereby reduced to eighteen percent (18%) per annum (instead of P0.03 for every peso

monthly [or 36% per annum]). As so modified, the Decision of the trial court is hereby AFFIRMED. Costs against private respondents. SO ORDERED. EMMANUEL C. ONGSIAKO, ET AL., plaintiffs, vs. THE WORLD WIDE INSURANCE & SURETY CO., INC., ET AL., defendants. THE WORLD WIDE INSURANCE & SURETY CO. INC., crossclaimantappellant, vs. CATALINA DE LEON, cross-defendant-appellee. FACTS: On November 10, 1951, Catalina de Leon executed in favor of Augusto V. Ongsiako a promissory note in the amount of P1,200.00, payable ninety (90) days after date, with interest at 1 per cent per month. On the same date, a surety bond was executed by Catalina de Leon, as principal, and the World Wide Insurance & Surety Co., Inc., as surety, whereby they bound to pay said amount jointly and severally to Augusto V. Ongsiako. As the obligation was not paid on its date of maturity either by Catalina de Leon or by the surety notwithstanding the demands made upon them, Ongsiako brought this action on March 6, 1953 in the Municipal Court of Manila to recover the same from both the principal and the surety. Judgment having been rendered for the ,plaintiff, both defendants appealed to the court of first instance. In the latter court, Catalina de Leon failed to answer and so she was declared in default. In due time the surety company filed its answer setting up a counterclaim against plaintiff and a cross-claim against its co-defendant. After hearing, the court rendered judgment ordering Catalina de Leon to pay plaintiff the sum of P1,200.00, with interest at the rate of 1 per cent per month from February 10, 1952, and the sum of P300.00 as attorneys' fees, and costs. Defendant surety company was likewise ordered to pay to plaintiff the same judgment but with the proviso that "execution should not issue against defendant The World-Wide Insurance & Surety Co. Inc., until a return is made by the Sheriff upon execution against defendant Catalina de Leon showing that the judgment against her remained unsatisfied in whole or in part; and provided, further, that defendant Catalina de Leon shall reimburse to defendant Company whatever amount the latter might pay under this judgment together with such expenses as may be necessary to effectuate said reimbursement." From this judgment, the surety company appealed and the case is now before us because, as certified by the Court of Appeals, it only involves questions of law. Augusto V. Ongsiako, having died in the meantime, was substituted by his special administrators Emmanuel Ongsiako and Severino Santiangco. The surety bond in question was executed in November 10, 1951 and among the important provisions it contains is the following: that the principal and the surety "are held and firmly bound unto Dr. Augusto V. Ongsiako in the sum of One Thousand Two Hundred Pesos (P1,200.00), Philippine Currency, for the payment of which well and truly to be made, we bind ourselves . . . jointly and severally, firmly by these presents (and referring to the Promissory Note) "whose terms and conditions are made parts hereof.' In said bond there also appears a special condition which recites: The Liability of the World-Wide Insurance & Surety Co. Inc. under this bond will expire on February 10, 1952." The note therein referred to, on the other hand, provides that the obligation is payable ninety days from date of issue, November 10, 1951, which means that its date of maturity is February 10, 1952. The evidence shows that neither the principal nor the surety paid the obligation on said date of maturity and immediately thereafter demands for payment were made upon them. Thus, it appears that as early as February 12, 1952, or two days thereafter, the creditor wrote to the surety company a letter notifying it of the failure of its principal to pay the obligation and requesting that it make good its guaranty under the bond (Exhibit B), which demand was reiterated in subsequent letters (Exhibits C, D and E). To these demands, the company merely set up the defense that it only acted as a guarantor and as such its liability cannot be exacted until after the property of the principal shall have been exhausted (Exhibit G). ISSUE: WON THE LIABILITY OF THE SURETY TO EXPIRE ON MATURITY OF PRINCIPAL OBLIGATION ALSO CEASES ITS RESPONSIBILITY? RULINGS: NO. It should be noted that the principal obligation is payable ninety days from date of issue, which falls on February 10, 1952. Only on this date can demand for payment be made on the principal debtor. If the debtor should fail to pay and resort is made to the surety for payment on the next day, it would be unfair for the latter to allege that its liability has already expired. And yet such is the stand taken by appellant. As the terms of the bond should be given a reasonable interpretation, it is logical to hold that the liability of the surety attaches as soon as the principal debtor defaults, and notice thereof is given the surety within reasonable time to enable it to take steps to protect its interest. This is what was done by appellee in the present case. After all, the surety has a remedy under the law which is to foreclose the counterbond put up by the principal debtor. This is in effect what was done by the lower court. Where one of the conditions of the bond filed by the surety provides that the latter's liability will expire on the date of the maturity of the obligation," which it interposed as a defense to an action instituted therefor, such stipulation is unfair and unreasonable for it practically nullifies the nature of the undertaking it had assumed.||| This Court has taken note of the reprehensible attitude adopted by the surety company in this case by resorting to improper means in an effort to evade its clear responsibility under the law. An instance of such attitude is the insertion in the bond of a provision which in

essence ten ds to nullify its commitment. This is a subtle way of making money thru trickery and deception. Such practice should be stopped if only to protect honest dealers or people in financial stress because of such improper conduct, this Court finds no justification for the present appeal and considers it frivolous and unnecessary. For this appellant should be made to pay treble costs. Wherefore, the decision appealed from is affirmed, with treble costs against appellant. CITIZENS SURETY and INSURANCE COMPANY, INC., petitioner, vs. COURT OF APPEALS and PASCUAL M. PEREZ, respondents.||| FACTS This is a petition to review the decision of the Court of Appeals which reversed the decision of the Court of First Instance of Batangas in a case involving a claim for a sum of money against the estate of the late Nicasia Sarmiento, administered by her husband Pascual M. Perez. On December 4, 1959, the petitioner issued two (2) surety bonds CSIC Nos. 2631 and 2632 to guarantee compliance by the principal Pascual M. Perez Enterprises of its obligation under a "Contract of Sale of Goods" entered into with the Singer Sewing Machine Co. In consideration of the issuance of the aforesaid bonds, Pascual M. Perez, in his personal capacity and as attorney-in-fact of his wife, Nicasia Sarmiento and in behalf of the Pascual M. Perez Enterprises executed on the same date two (2) indemnity agreements wherein he obligated himself and the Enterprises to indemnify the petitioner jointly and severally, whatever payments advances and damage it may suffer or pay as a result of the issuance of the surety bonds. In addition to the two indemnity agreements, Pascual M. Perez Enterprises was also required to put up a collateral security to further insure reimbursement to the petitioner of whatever losses or liabilities it may be made to pay under the surety bonds. Pascual M. Perez therefore executed a deed of assignment on the same day, December 4, 1959, of his stock of lumber with a total value of P400,000.00. On April 12, 1960, a second real estate mortgage was further executed in favor of the petitioner to guarantee the fulfillment of said obligation. Pascual M. Perez Enterprises failed to comply with its obligation under the contract of sale of goods with Singer Sewing Machine Co., Ltd. Consequently, the petitioner was compelled to pay, as it did pay, the fair value of the two surety bonds in the total amount of P144,000.00. Except for partial payments in the total sum of P55,600.00 and notwithstanding several demands, Pascual M. Perez Enterprises failed to reimburse the petitioner for the losses it sustained under the said surety bonds.The petitioner filed a claim for sum of money against the estate of the late Nicasia Sarmiento which was being administered by Pascual M. Perez. In opposing the money claim, Pascual M. Perez asserts that the surety bonds and the indemnity agreements had been extinguished by the execution of the deed of assignment. After the trial on the merits, the Court of First Instance of Batangas rendered judgment on April 15, 1968, the dispositive portion of which reads:"WHEREFORE, considering that the estate of the late Nicasia Sarmiento is jointly and severally liable to the Citizens' Surety and Insurance Co., Inc., for the amount the latter had paid the Singer Sewing Machine Company, Ltd., the court hereby orders the administrator Pascual M. Perez to pay the claimant the sum of P144,000.00, with interest at the rate of ten (10%) per cent per annum from the date this claim was filed, until fully paid, minus the payments already made in the amount of P55,600.00." ISSUE: WON the administrator's obligation under the surety bonds and indemnity agreements had been extinguished by reason of the execution of the deed of assignment.||| RULINGS: The deed of assignment cannot be regarded as an absolute conveyance whereby the obligation under the surety bonds was automatically extinguished. The subsequent acts of the private respondent bolster the fact that the deed of assignment was intended merely as a security for the issuance of the two bonds. Partial payments amounting to P55,600.00 were made after the execution of the deed of assignment to satisfy the obligation under the two surety bonds. Since later payments were made to pay the indebtedness, it follows that no debt was extinguished upon the execution of the deed of assignment. Moreover, a second real estate mortgage was executed on April 12, 1960 and eventually cancelled only on May 15, 1962. If indeed the deed of assignment extinguished the obligation, there was no reason for a second mortgage to still have to be executed. We agree with the two dissenting opinions in the Court of Appeals that the only conceivable reason for the execution of still another mortgage on April 12, 1960 was because the obligation under the indemnity bonds still existed. It was not yet extinguished when the deed of assignment was executed on December 4, 1959. The deed of assignment was therefore intended merely as another collateral security for the issuance of the two surety bonds. Recapitulating the facts of the case, the records show that the petitioner surety company paid P144,000.00 to Singer on the basis of the two surety bonds it had issued in behalf of Pascual Perez Enterprises. Perez in turn was able to indemnify the petitioner for its payment to Singer in the amount of P55,600.00 thus leaving a balance of only P88,400.00. The petitioner surety company was more than adequately protected. Lumber worth P400,000.00 was assigned to it as collateral. A second real estate mortgage was also given by Perez although it was later cancelled obviously because the P400,000.00 worth of lumber was more than enough guaranty for the obligations assumed by the petitioner. As pointed out by Justice Paras in his separate opinion, the proper procedure was for Citizens' Insurance and Surety Co., to collect the remaining P88,400.00 from the sales of lumber and to return whatever remained to Perez. We cannot order the return in this decisions because the Estate of Mrs. Perez has not asked for any return of excess lumber or its value. There appears to have been other transactions, surety bonds, and performance bonds between the

petitioner and Perez Enterprises but these are extraneous matters which, the records show, have absolutely no bearing on the resolution of the issues in this petition. With respect to the claim for interests and attorney's fees, we agree with the private respondent that the petitioner is not entitled to either one. It had the means to recoup its investment and losses many times over, yet it chose to litigate and delay the final determination of how much was really owing to it. WHEREFORE, the petition is hereby DISMISSED. ANTONIO GARCIA, JR., Petitioner, v. COURT OF APPEALS, LASAL DEVELOPMENT CORPORATION, Respondents.

FACTS OF THE CASE:

On April 15, 1977, the Western Minolco Corporation (WMC) obtained from the Philippine Investments Systems Organization (PISO) two loans for P2,500,000.00 and P1,000,000.00 for which it issued the corresponding promissory notes payable on May 30, 1977. On the same date, Antonio Garcia and Ernest Kahn executed a surety agreement binding themselves jointly and severally for the payment of the loan of P2,500,000.00 on due date. Upon failure of WMC to pay after repeated demands, demand was made on Garcia pursuant to the surety agreement. Garcia also failed to pay. Hence, on April 5, 1983, Lasal Development Corporation (to which the credit had been assigned earlier by PISO) sued Garcia for recovery of the debt in the RTC Makati. Garcia moved to dismiss and the trial court dismissed because the surety agreement was invalid for absence of consideration. CA reversed. The petitioner’s first ground is that, as found by the trial court, the surety agreement was invalid because no consideration had been paid to him by PISO for executing the contract and that the amount of the entire loan had been received and enjoyed by WMC. He cites the following articles of the Civil Code in support of his contention: Art. 2047. By guaranty a person, called the guarantor, binds himself to the creditor to fulfill the obligation of the principal debtor in case the latter should fail to do so. 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. Art. 1222. A solidary debtor may, in action filed by the creditor, avail himself of all defenses which are derived from the nature of the obligation and of those which are personal to him, or pertain to his own share. With respect to those which personally belong to the others, he may avail himself thereof only as regards that part of the debt for which the latter are responsible. ISSUE OF THE CASE:

RULING OF THE COURT: Petition is denied. In favor of respondents. Suretyship is a contractual relation resulting from an agreement whereby one person, the surety, engages to be answerable for the debt, default or miscarriage of another, known as the principal. The surety’s obligation is not an original and direct one for the performance of his own act, but merely accessory or collateral to the obligation contracted by the principal. Nevertheless, although the contract of a surety is in essence secondary only to a valid principal obligation, his liability to the creditor or promisee of the principal is said to be direct, primary and absolute; 1 in other words, he is directly and equally bound with the principal. The surety therefore becomes liable for the debt or duty of another although he possesses no direct or personal interest over the obligations nor does he receive any benefit therefrom. 2 The peculiar nature of a surety agreement is that it is regarded as valid despite the absence of any direct consideration received by the surety either from the principal obligor or from the creditor. A contract of surety, like any other contract, must generally be supported by a sufficient consideration. However, the consideration necessary to support a surety obligation need not pass directly to the surety; a consideration moving to the principal alone will suffice. It follows from the above principles that Lasal would not be unjustly enriched if the petitioner were to be held liable for the obligation contracted by WMC. The creditor would only be recovering the amount of its loan plus its increments. The petitioner, for his part, can still go against WMC for the amount he may have to pay Lasal as assignee of the PISO credit. Regarding the petitioner’s claim that he is liable only as a corporate officer of WMC, the surety agreement shows that he

signed the same not in representation of WMC or as its president but in his personal capacity. He is therefore personally bound. While the limited liability doctrine is intended to protect the stockholder by immunizing him from personal liability for the corporate debts, he may nevertheless divest himself of this protection by voluntarily binding himself to the payment of the corporate debts. The petitioner cannot therefore take refuge in this doctrine that he has by his own acts effectively waived. The

petitioner

invokes

Article

2079

of

the

Civil

Code,

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Art. 2079. An extension granted to the debtor by the creditor without the consent of the guarantor extinguishes the guaranty. The 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 time referred to herein. However, Paragraph 5 of the surety agreement clearly stipulated that : The sureties expressly waive all rights to demand payment and notice of non-payment and protest, and agree that the securities of every kind. Since in the surety contract, the petitioner not only consented to an extension in the payment of the obligation but even waived his right to be notified of such extension, he cannot now claim that he has been released from his undertaking because of the extension granted to the principal.c Thus, despite the compounding of the interest, the liability of the surety remains only up to the original uncompounded interest, as stipulated in the promissory note, that is, 17% per annum, with a penalty charge of 2 1/2% per month until full payment. As for the compounded interest, we apply by analogy the case of Bank of the Philippine Islands v. Gooch and Redfern, (45 Phil. 514) which was affirmed in the later case of the Bank of the Philippine Islands v. Albaladejo & Cia (53 Phil. 141). In the said cases, the respective sureties claimed that since the creditor changed the rate of interest in the principal obligation without their knowledge or consent, they were relieved from liability under their contract. It was held, however, that the change in the rate of interest was merely a collateral agreement between the creditor bank and the principal debtor that did not affect the surety. When the debtor promised to pay the extra rate of interest on demand of the plaintiff, the liability he assumed was his alone and was separate and apart from the original contract. His agreement to pay the additional rate of interest was an additional burden upon him and him only. That obligation in no way affected the original contract of the surety, whose liability remained unchanged. (Keene’s Admr. v. Miller, 103 Ky, 628; Parson on Bills and Notes, 571, Chitty on Bills, 212; Malteson v. Ellsworth, 33 Wis 488). The petitioner cites other supposed agreements in support of his theory of novation such as the prepayment of the restructured loans of WMC before the distribution of dividends to the common stockholders, the proposed sale on installments of its assets to Negros Occidental Copperfield Mines, and the preference given to other creditors of WMC over PISO. But we do not think these are material as, to be so, the alteration must change the legal effects of the original contract. The alleged alterations do not have that effect. The most important argument against the alleged novation is the failure of the petitioner to establish the validity of the new contract, an essential requisite for the novation of a previous valid obligation. Petitioner insists that the various communications made by WMC with DBP, together with the memorandum of agreement (Annexes 1 to 7), are sufficient to establish the new undertaking made by WMC with all its creditors, including DBP. We do not think so. It is true as a general rule no form of words or writing is necessary to give effect to a novation. (Re Dissolution of F. Yeager Bridge Culvert Co., 150 Mich. App. 386, NW 2d 99). Nevertheless, since the parties involved here are corporations, it must first be proved that the contracts, assuming they were made, were executed by the persons possessing the proper authority to bind their respective principals. Annexes 1-4 are a mere exchange of correspondence between the officers of WMC and DBP. Although they contain the provisions and proposals that, according to petitioner, should suffice to establish that the original contract between WMC and PISO has been materially altered, they cannot be considered per se sufficient to give rise to a valid new obligation. WMC was in fact directed by Joseph W. Edralin, the Assistant Executive Officer of the DBP, to communicate with Atty. Hilario Oraolino of the Office of the Chief Legal Counsel for the preparation and execution of the necessary legal documents to cover the approval and confirmation of the several proposals made. No such documents, as duly signed by the parties, were ever presented in court. Annexes 5 to 7 are also incomplete documents and not binding without the signatures of the supposed contracting parties. We approve the following observations made by the Court of Appeals: Novation of contract cannot be presumed. In order that an obligation may be extinguished by another which substitutes the same, it is imperative that it be so declared in unequivocal terms, or that the old and the new obligations be on every point incompatible with each other (Art. 1292, Civil Code). In every novation there are four essential requisites. (1) a previous valid obligation; (2) the agreement of all the parties to the new contract; (3) the extinguishment of the old contract; and (4) validity of the new one. Novation requires the creation of new contractual relations as well as the extinguishment of the old. There must be a consent of all the parties to the substitution, resulting in the extinction of the old obligation and the creation of a valid new one (Tiu Siuco v. Habana, 45 Phil. 707). The acceptance of the promissory note by the plaintiff is not novation of the contract. The legal doctrine is that an obligation to pay a sum of money is not novated in a new instrument by changing the term of payment and adding other obligations not incompatible with the old one (Inchausti & Co. v. Yulo, 34 Phil. 978). It is not proper to consider an obligation novated as in the case at bar by the mere granting of extension of payment which did not even alter its essence. To sustain novation necessitates that the same be so declared in unequivocal terms or that there is complete and substantial incompatibility between the two obligations (Sandico v. Paquing, 42 SCRA 322). An obligation to pay a sum of money is not novated in a new instrument

wherein the old is ratified by changing only the terms of payment and adding other obligations not incompatible with the old one or wherein the old contract is merely supplementing the new one. VISAYAN SURETY & INSURANCE CORPORATION, petitioner, vs. THE HONORABLE COURT OF APPEALS, SPOUSES JUN BARTOLOME+ and SUSANBARTOLOME and DOMINADOR V. IBAJAN,+ respondents. PARDO, J.: FACTS OF THE CASE:

On February 2, 1993, the spouses Danilo Ibajan and Mila Ambe Ibajan filed with RTC Laguna a complaint against spouses Jun and Susan Bartolome, for replevin to recover from them the possession of an Isuzu jeepney, with damages. Plaintiffs Ibajan alleged that they were the owners of an Isuzu jeepney which was forcibly and unlawfully taken by defendants while parked at their residence. On February 8, 1993, plaintiffs filed a replevin bond through petitioner Visayan Surety & Insurance Corporation. The contract of surety provided thus: WHEREFORE, we, sps. Danilo Ibajan and Mila Ibajan and the VISAYAN SURETY & INSURANCE CORP., of Cebu, Cebu, with branch office at Manila, jointly and severally bind ourselves in the sum of Three Hundred Thousand Pesos (P300,000.00) for the return of the property to the defendant, if the return thereof be adjudged, and for the payment to the defendant of such sum as he/she may recover from the plaintiff in the action.[3] On February 8, 1993, the trial court granted issuance of a writ of replevin directing the sheriff to take the Isuzu jeepney into his custody. Consequently, on February 22, 1993, Sheriff Arnel Magat seized the subject vehicle and turned over the same to plaintiff spouses Ibajan.[4] On February 15, 1993, the spouses Bartolome filed with the trial court a motion to quash the writ of replevin and to order the return of the jeepney to them. On May 3, 1993, Dominador V. Ibajan, father of plaintiff Danilo Ibajan, filed with the trial court a motion for leave of court to intervene, stating that he has a right superior to the plaintiffs over the ownership and possession of the subject vehicle. On June 1, 1993, the trial court granted the motion to intervene. On August 8, 1993, the trial court issued an order granting the motion to quash the writ of replevin and ordering plaintiff Mila Ibajan to return the subject jeepney to the intervenor Dominador Ibajan. [5]nOn August 31, 1993, the trial court ordered the issuance of a writ of replevin directing the sheriff to take into his custody the subject motor vehicle and to deliver the same to the intervenor who was the registered owner.[6] On September 1, 1993, the trial court issued a writ of replevin in favor of intervenor Dominador Ibajan but it was returned unsatisfied. Judgement was rendered in favor of Dominador Ibajan to pay the jeepney in the amount og P150,000.00. CA affirmed the decision of the trial court. ISSUE OF THE CASE: Whether or not the surety is liable to an intervenor on a replevin bond posted by petitioner in favor of respondents. [13]

RULING OF THE COURT: The Court rules that petitioner Visayan Surety & Insurance Corporation is not liable under the replevin bond to the intervenor, respondent Dominador V. Ibajan. It is a basic principle in law that contracts can bind only the parties who had entered into it; it cannot favor or prejudice a third person. [15] Contracts take effect between the parties, their assigns, and heirs, except in cases where the rights and obligations arising from the contract are not transmissible by their nature, or by stipulation or by provision of law.[16]

A contract of surety is an agreement where a party called the surety guarantees the performance by another party called the principal or obligor of an obligation or undertaking in favor of a third person called the obligee. [17] Specifically, suretyship is a contractual relation resulting from an agreement whereby one person, the surety, engages to be answerable for the debt, default or miscarriage of another, known as the principal . The obligation of a surety cannot be extended by implication beyond its specified limits.[19] When a surety executes a bond, it does not guarantee that the plaintiffs cause of action is meritorious, and that it will be responsible for all the costs that may be adjudicated against its principal in case the action fails. The extent of a suretys liability is determined only by the clause of the contract of suretyship. [20] A contract of surety is not presumed; it cannot extend to more than what is stipulated.[21] Since the obligation of the surety cannot be extended by implication, it follows that the surety cannot be held liable to the intervenor when the relationship and obligation of the surety is limited to the defendants specified in the contract of surety PHILIPPINE NATIONAL BANK, petitioner, vs. THE HONORABLE COURT OF APPEALS (Special Fourth Division), LUZON SURETY CO., INC., and ESTANISLAO E. DEPUSOY, trading under the style of E.E. DEPUSOY CONSTRUCTION, respondents. FACTS On August 6, 1955, Estanislao Depusoy, doing business under the name of E.E. Depusoy Construction, entered into a building contract, Exhibit 2-Luzon, for the construction of the GSIS building at Arroceros Street, Manila, Depusoy to furnish all materials, labor, plans, and supplies needed in the construction. Depusoy applied for credit accommodation with the plaintiff. This was approved by the Board of Directors in various resolutions subject to the conditions that he would assign all payments to be received from the Bureau of Public Works of the GSIS to the bank, furnish a surety bond, and the surety to deposit P10,000.00 to the plaintiff. The total accommodation granted to Depusoy was P100,000.00. This was later extended by another P10,000.00 and P25,000.00, but in no case should the loan exceed P100,000.00, Exhibits K-1, K-2, K-3 and K-4. In compliance with these conditions, Depusoy executed a Deed of Assignment of all money to be received by him from the GSIS to transfer and convey unto the said PHILIPPINE NATIONAL BANK, its successors and assigns all payment to be received from my contract with the Bureau of Public Works, Republic of the Philippines date (sic) August 6, 1955. Luzon thereafter executed two surety bonds, one for the sum of P40,000.00 Exhibit D, and the other for P60,000.00, The liability of LUZON SURETY COMPANY, INC., under this bond will expire January 31, 1957. Furthermore, it is hereby agreed and understood that the LUZON SURETY COMPANY, INC. will not be liable for any claim not discovered and presented to the company within THREE (3) months from the expiration of this bond and that the obligee hereby waives his right to file any court action against the surety after the termination of the period of the three months above mentioned. With the consent of Luzon, the bond was extended for another 6 months from January 31, 1957. Under the credit accommodation granted by the plaintiff bank, Depusoy obtained several amounts from the bank. On January 14, 1957, Depusoy received P50,000.00 from the bank which he promised to pay in installments on the dates therein indicated, Exhibit A. On January 17, 1957, he received another P50,000.00 under the same conditions as the promissory note Exhibit A, except with respect to the time of payment. Under this arrangement all payments made by the GSIS were payable to the Philippine National Bank. The treasury warrants or checks, however, were not sent directly to the plaintiff. They were received by Depusoy, who in turn delivered them to the plaintiff bank. The plaintiff then applied the money thus received, first, to the payment of the amount due on the promissory notes at the time of the receipt of the treasury warrants or checks, and the balance was credited to the current account of Depusoy with the plaintiff bank. A total of P1,309,461.89 were (sic) paid by the GSIS to the plaintiff bank for the account of Estanislao Depusoy, Exhibit 1-Luzon. Of this amount, P246,408.91 were (sic) paid according to Exhibit 1 for the importation of construction materials, and P1,063,408.91 were (sic) received by the Loans and Discounts Department of the plaintiff bank. This amount was disposed off by the plaintiffs Loans & Discounts Department as follows: a) P795,976.64 were (sic) credited to the current account of Depusoy with the plaintiff; b) P20,000.00 were (sic) credited to the plaintiffs Foreign Department; c) d)

P2,552.94 were (sic) credited to the payment of interest; and P210,000.00 were (sic) applied to the principal of indebtedness. (Exh. N-1).

Depusoy defaulted in his building contract with the Bureau of Public Works, and sometime in September, 1957, the Bureau of Public Works rescinded its contract with Depusoy. No further amounts were thereafter paid by the GSIS to the plaintiff bank. The amount of the loan of Depusoy which remains unpaid, including interest, is over P100,000.00. Demands for payment were made upon Depusoy and Luzon, and as no payment was made. ISSUE OF THE CASE: Whether or not Luzon is liable under the terms of the surety RULING OF THE COURT:

YES. It is the contention of the plaintiff that the surety bonds, Exhibits D and E, guaranteed the payment of the loans or the debt of Depusoy to the plaintiff to the extent of P100,000.00. Luzon, however, contends that what it guaranteed was the performance of Depusoy of his obligation under the Deed of Assignment, Exhibit C, and not other agreements between Depusoy and the bank. This contention was upheld by the lower court. This, we believe is the correct construction of the surety bonds. Under the surety bonds, Depusoy and Luzon bound themselves to the plaintiff in the sum of P100,000.00. It recited that the principal, Depusoy, and Luzon bound themselves jointly and severally to the PNB under the following conditions: that "in consideration of a certain loan, Depusoy executed a Deed of Assignment in favor of the PNB on all payments to be received by him from the Bureau of Public Works in connection with a contract of August 6, 1956"; that the PNB required the principal to give a good and sufficient bond to secure the full and faithful performance on his part of said agreement; and that, "if the principal shall well and truly perform and fulfill all the undertakings, covenants, terms and conditions, and agreements stipulated in said agreement, this obligation shall be null and void". Now, what are the undertakings, covenants, terms, conditions, and agreements stipulated in the said agreement or Deed of Assignment? The undertakings of the principal Depusoy, under the Deed of Assignment, Exhibit C, were to assign, transfer, and convey to the plaintiff bank all payments to be received by Depusoy from the Bureau of Public Works; that Depusoy acknowledged that such sums assigned and received by the plaintiff would belong to the PNB, and if any conversion should be made by the assignor or his representative, he would be criminally liable; that the PNB could collect and receive all sums and monies, and payments, and the bank was authorized to endorse for deposit or for encashment all checks or money orders, or negotiable instruments that it might receive in connection with the assignment. Nowhere in the Deed of Assignment nor in the bonds did Luzon guarantee that Depusoy would pay his indebtedness to the plaintiff and that upon Depusoy's default, Luzon would be liable. When the terms of the agreement are clear, there can be no room for construction. If the intention of the parties, and particularly of Luzon, was to guarantee the payment of the debt of Depusoy to the plaintiff, the bonds would have recited in its preamble that the principal was indebted to the PNB and that the PNB required the principal to give a good and sufficient bond to secure the faithful performance on his part of the terms of the promissory notes. Instead of doing so, it recited that in consideration of a certain loan, the principal had executed a Deed of Assignment. The recital of the loan in the amount of P40,000.00, Exhibit D and P60,000.00, Exhibit E, is merely a statement of the cause or consideration of the Deed of Assignment and not a statement of the obligation. The Deed of Assignment necessarily was executed for a consideration, otherwise, it would be null and void. The obligation recited in the surety bonds, Exhibits D and E, is not the loan, but the Deed of Assignment; and that precisely was what was guaranteed by Luzon in the bonds, Exhibits D and E, as shown by the following: It is not disputed that no payment was made directly to Depusoy after the Deed of Assignment. All amounts due to Depusoy were paid to the PNB for the account of Depusoy. It is true that in accordance with Exhibit M, only P1,063,408.91 were received by the Loans and Discounts Department of the plaintiff bank, and that of the total amount of P1,309,461.89 paid by the GSIS, P246,062.98 were paid for the importation of construction materials. As to the so-called 10% retention fund, there is no evidence that the Bureau of Public Works had retained any amount. In any case what was assigned was "all payments to be received" under the building contract, and the 10% retention was not to be received by Depusoy until certain conditions had been met. We are in full accord with the conclusion of the trial court and the Court of Appeals that the bonds executed by private respondent LSCI were to guarantee the faithful performance of Depusoy of his obligation under the Deed of Assignment and not to guarantee the payment of the loans or the debt of Depusoy to petitioner to the extent of P100,000.00. The language of the bonds is clear, explicit and unequivocal. It leaves no room for interpretation. Article 1370 of the Civil Code provides: If the terms of a contract are clear and leave no doubt upon the intention of the contracting parties, the literal meaning of its stipulations shall control. Besides, even if there had been any doubt on the terms and conditions of the surety agreement, the doubt should be resolved in favor of the surety. As concretely put in Article 2055 of the Civil Code, "A guaranty is not presumed, it must be expressed and cannot extend to more than what is stipulated therein." In the recent case of Umali, et al. vs. Court of Appeals, et al., 21 We reiterated the unrippled rule that the liability of the surety is measured by the terms of the contract, and, while he is liable to the full extent thereof, such liability is strictly limited to that assumed by its terms. 22 Nothing can be clearer, both upon principles and authority, than the doctrine that the liability of a surety is not to be extended, by implication, beyond the terms of his contract. To the extent and in the manner, and under the circumstances pointed out in his obligation, he is bound, and no farther.

MARIANO LIM, Petitioner, vs. SECURITY BANK CORPORATION,* Respondent FACTS: Petitioner executed a Continuing Suretyship in favor of respondent to secure "any and all types of credit accommodation that may be granted by the bank hereinto and hereinafter" in favor of Raul Arroyo for the amount of P2,000,000.00 which is covered by a Credit Agreement/Promissory Note.3 Said promissory note stated that the interest on the loan shall be 19% per annum, compounded monthly, for the first 30 days from the date thereof, and if the note is not fully paid when due, an additional penalty of 2% per month of the total outstanding principal and interest due and unpaid, shall be imposed. In turn, the Continuing Suretyship4 executed by petitioner stipulated that:

3. Liability of the Surety. - The liability of the Surety is solidary and not contingent upon the pursuit of the Bank of whatever remedies it may have against the Debtor or the collaterals/liens it may possess. If any of the Guaranteed Obligations is not paid or performed on due date (at stated maturity or by acceleration), the Surety shall, without need for any notice, demand or any other act or deed, immediately become liable therefor and the Surety shall pay and perform the same. Guaranteed Obligations are defined in the same document as follows: a) "Guaranteed Obligations" - the obligations of the Debtor arising from all credit accommodations extended by the Bank to the Debtor, including increases, renewals, roll-overs, extensions, restructurings, amendments or novations thereof, as well as (i) all obligations of the Debtor presently or hereafter owing to the Bank, as appears in the accounts, books and records of the Bank, whether direct or indirect, and (ii) any and all expenses which the Bank may incur in enforcing any of its rights, powers and remedies under the Credit Instruments as defined hereinbelow.6 The debtor, Raul Arroyo, defaulted on his loan obligation. Thereafter, petitioner received a Notice of Final Demand dated August 2, 2001, informing him that he was liable to pay the loan obtained by Raul and Edwina Arroyo, including the interests and penalty fees amounting to P7,703,185.54, and demanding payment thereof. For failure of petitioner to comply with said demand, respondent filed a complaint for collection of sum of money against him and the Arroyo spouses. Since the Arroyo spouses can no longer be located, summons was not served on them, hence, only petitioner actively participated in the case. ISSUE: Whether petitioner may validly be held liable for the principal debtor's loan obtained six months after the execution of the Continuing Suretyship. HELD: In this case, what petitioner executed was a Continuing Suretyship. The terms of the Continuing Suretyship executed by petitioner, quoted earlier, are very clear. It states that petitioner, as surety, shall, without need for any notice, demand or any other act or deed, immediately become liable and shall pay "all credit accommodations extended by the Bank to the Debtor, including increases, renewals, roll-overs, extensions, restructurings, amendments or novations thereof, as well as (i) all obligations of the Debtor presently or hereafter owing to the Bank, as appears in the accounts, books and records of the Bank, whether direct or indirect, and (ii) any and all expenses which the Bank may incur in enforcing any of its rights, powers and remedies under the Credit Instruments as defined hereinbelow."15 Such stipulations are valid and legal and constitute the law between the parties, as Article 2053 of the Civil Code provides that "[a] guaranty may also be given as security for future debts, the amount of which is not yet known; x x x." Thus, petitioner is unequivocally bound by the terms of the Continuing Suretyship. There can be no cavil then that petitioner is liable for the principal of the loan, together with the interest and penalties due thereon, even if said loan was obtained by the principal debtor even after the date of execution of the Continuing Suretyship. With regard to the award of attorney's fees, it should be noted that Article 2208 of the Civil Code does not prohibit recovery of attorney's fees if there is a stipulation in the contract for payment of the same. [T]he attorney's fees here are in the nature of liquidated damages and the stipulation therefor is aptly called a penal clause. It has been said that so long as such stipulation does not contravene law, morals, or public order, it is strictly binding upon defendant. The attorney's fees so provided are awarded in favor of the litigant, not his counsel. On the other hand, the law also allows parties to a contract to stipulate on liquidated damages to be paid in case of breach. A stipulation on liquidated damages is a penalty clause where the obligor assumes a greater liability in case of breach of an obligation. The obligor is bound to pay the stipulated amount without need for proof on the existence and on the measure of damages caused by the breach. However, even if such attorney's fees are allowed by law, the courts still have the power to reduce the same if it is unreasonable. The award of attorney's fees amounting to ten percent (10%) of the principal debt, plus interest and penalty charges, would definitely exceed the principal amount; thus, making the attorney's fees manifestly exorbitant. Hence, we reduce the amount of attorney's fees to ten percent (10%) of the principal debt only. VISAYAN INSURANCE SURETY VS CA FACTS: The spouses Danilo Ibajan and Mila Ambe Ibajan filed with the Regional Trial Court, Laguna, Bian a complaint against spouses Jun and Susan Bartolome, for replevin to recover from them the possession of an Isuzu jeepney, with damages. Plaintiffs Ibajan alleged that they were the owners of an Isuzu jeepney which was forcibly and unlawfully taken by defendants Jun and Susan Bartolome on December 8, 1992, while parked at their residence. Plaintiffs filed a replevin bond through petitioner Visayan Surety & Insurance Corporation. The contract of surety provided thus: WHEREFORE, we, sps. Danilo Ibajan and Mila Ibajan and the VISAYAN SURETY & INSURANCE CORP., of Cebu, Cebu, with branch office at Manila, jointly and severally bind ourselves in the sum of Three Hundred Thousand Pesos (P300,000.00) for the return of the property to the defendant, if the return thereof be adjudged, and for the payment to the defendant of such sum as he/she may recover from the plaintiff in the action. [3] On February 8, 1993, the trial court granted issuance of a writ of replevin directing the sheriff to take the Isuzu jeepney into his custody. Consequently, on

February 22, 1993, Sheriff Arnel Magat seized the subject vehicle and turned over the same to plaintiff spouses Ibajan. On February 15, 1993, the spouses Bartolome filed with the trial court a motion to quash the writ of replevin and to order the return of the jeepney to them. On May 3, 1993, Dominador V. Ibajan, father of plaintiff Danilo Ibajan, filed with the trial court a motion for leave of court to intervene, stating that he has a right superior to the plaintiffs over the ownership and possession of the subject vehicle. The trial court granted the motion to intervene and issued an order granting the motion to quash the writ of replevin and ordering plaintiff Mila Ibajan to return the subject jeepney to the intervenor Dominador Ibajan. The trial court ordered the issuance of a writ of replevin directing the sheriff to take into his custody the subject motor vehicle and to deliver the same to the intervenor who was the registered owner but it was returned unsatisfied. Intervenor Dominador Ibajan filed with the trial court a motion/application for judgment against plaintiffs bond. The trial court rendered judgement in favor of Dominador Ibajan and against Mila Ibajan and the Visayan Surety and Insurance Corporation ordering them to pay the former jointly and severally the value of the subject jeepney in the amount of P150,000.00 and such other damages as may be proved by Dominador Ibajan plus costs. Visayan Surety and Insurance Corporation and Mila Ibajan filed with the trial court their respective motions for reconsideration. The trial court denied both motions. Visayan Surety and Insurance Corporation (hereafter Visayan Surety) appealed the decision to the Court of Appeals, Court of Appeals promulgated its decision affirming the judgment of the trial court. Petitioner filed a motion for reconsideration but was denied for lack of merit. Respondent Dominador Ibajan asserts that as intervenor, he assumed the personality of the original defendants in relation to the plaintiffs bond for the issuance of a writ of replevin. Petitioner Visayan Surety contends that it is not liable to the intervenor, Dominador Ibajan, because the intervention of the intervenor makes him a party to the suit, but not a beneficiary to the plaintiffs bond. The intervenor was not a party to the contract of surety, hence, he was not bound by the contract. ISSUE: Whether the surety is liable to an intervenor on a replevin bond posted by petitioner in favor of respondents. HELD: The petition is meritorious. An intervenor is a person, not originally impleaded in a proceeding, who has legal interest in the matter in litigation, or in the success of either of the parties, or an interest against both, or is so situated as to be adversely affected by a distribution or other disposition of property in the custody of the court or of an officer thereof. May an intervenor be considered a party to a contract of surety which he did not sign and which was executed by plaintiffs and defendants? It is a basic principle in law that contracts can bind only the parties who had entered into it; it cannot favor or prejudice a third person. Contracts take effect between the parties, their assigns, and heirs, except in cases where the rights and obligations arising from the contract are not transmissible by their nature, or by stipulation or by provision of law. A contract of surety is an agreement where a party called the surety guarantees the performance by another party called the principal or obligor of an obligation or undertaking in favor of a third person called the obligee. Specifically, suretyship is a contractual relation resulting from an agreement whereby one person, the surety, engages to be answerable for the debt, default or miscarriage of another, known as the principal. The obligation of a surety cannot be extended by implication beyond its specified limits. When a surety executes a bond, it does not guarantee that the plaintiffs cause of action is meritorious, and that it will be responsible for all the costs that may be adjudicated against its principal in case the action fails. The extent of a suretys liability is determined only by the clause of the contract of suretyship. A contract of surety is not presumed; it cannot extend to more than what is stipulated. Since the obligation of the surety cannot be extended by implication, it follows that the surety cannot be held liable to the intervenor when the relationship and obligation of the surety is limited to the defendants specified in the contract of surety. WHEREFORE, the Court REVERSES and sets aside the decision of the Court of Appeals and ruled that petitioner Visayan Surety & Insurance Corporation is not liable under the replevin bond to the intervenor, respondent Dominador V. Ibajan. TOWERS ASSURANCE CORPORATION, petitioner, vs. ORORAMA SUPERMART, ITS OWNER-PROPRIETOR, SEE HONG and JUDGE BENJAMIN K. GOROSPE, Presiding Judge, Court of First Instance of Misamis Oriental, Branch I, respondents. FACTS This case is about the liability of a surety in a counterbond for the lifting of a writ of preliminary attachment. On February 17, 1976 See Hong, the proprietor of Ororama Supermart in Cagayan de Oro City, sued the spouses Ernesto Ong and Conching Ong in the Court of First Instance of Misamis Oriental for the collection of the sum of P 58,400 plus litigation expenses and attorney's fees. See Hong asked for a writ of preliminary attachment. On March 5, 1976, the lower court issued an order of attachment. The deputy sheriff attached the properties of the Ong spouses in Valencia, Bukidnon and in Cagayan de Oro City. To lift the attachment, the Ong spouses filed on March 11, 1976 a counterbond in 'the amount of P 58,400 with Towers Assurance Corporation as surety. In that undertaking, the Ong spouses and Towers Assurance Corporation bound themselves to pay solidarity to See Hong the sum of P 58,400. On March 24, 1976 the Ong spouses filed an answer with a counterclaim. For non-appearance at the pre- trial, the Ong spouses were declared in default. On October 25, 1976, the lower court rendered a decision, ordering not only the Ong spouses but also their surety, Towers Assurance Corporation, to pay solidarily to See Hong the sum of P 58,400. The court also ordered the Ong spouses to pay P 10,000 as litigation expenses and attorney's fees. Ernesto Ong manifested that he did not want to appeal. On March 8, 1977, Ororama Supermart filed a motion for execution. The lower court granted that motion. The writ of execution was issued on March 14 against the judgment debtors and their surety. On March 29, 1977, Towers Assurance Corporation filed the instant petition for certiorari where it assails the decision and writ of execution. We hold that the lower court acted with grave abuse of discretion in issuing a writ of execution against the surety without first giving it an opportunity to be heard as required in Rule 57 of tie Rules of Court which provides: SEC. 17. When execution returned unsatisfied, recovery had upon bound. — If the execution be returned unsatisfied in whole or in part, the surety or sureties on any counterbound given pursuant to the provisions of this rule to secure the payment of the judgment shall become charged on such counterbound, 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. Under section 17, in order that the judgment creditor might recover from the surety on the counterbond, it is necessary (1) that execution be first issued against the principal debtor and that such execution was returned unsatisfied in whole or in part; (2) that the creditor made a demand upon the surety for the satisfaction of the judgment, and (3) that the surety be given notice and a summary hearing in the same action as to his liability for the judgment under his counterbond. The first requisite mentioned above is not applicable to this case because Towers Assurance Corporation assumed a solidary liability for the satisfaction of the judgment. A surety is not entitled to the exhaustion of the properties of the principal debtor. But certainly, the surety is entitled to be heard before an execution can be issued against him since he is not a party in the case involving his principal. Notice and hearing constitute the essence of procedural due process.

FINMAN GENERAL ASSURANCE CORPORATION, petitioner, vs .ABDULGANI SALIK (10-11-12) Facts: Abdulgani Salik et al., private respondents, allegedly applied with Pan Pacific Overseas Recruiting Services, Inc. (hereinafter referred to as Pan Pacific) on April 22, 1987 and were assured employment abroad by a certain Mrs. Normita Egil. In consideration thereof, they allegedly paid fees totalling P30,000.00. But despite numerous assurances of employment abroad given by Celia Arandia and Mrs. Egil, they were not employed (Ibid., p. 15). Accordingly, they filed a joint complaint with the Philippine Overseas Employment Administration (herein referred to as POEA) against Pan Pacific for Violation of Articles 32 and 34(a) of the Labor Code, as amended, with claims for refund of a total amount of P30,000.00 (Ibid.). The POEA motu proprio impleaded and summoned herein petitioner surety Finman General Assurance Corporation (hereinafter referred to as Finman), in the latter's capacity as Pan Pacific's bonding company. Summons were served upon both Pan Pacific and Finman, but they failed to answer. On October 9, 1987, a hearing was called, but only the private respondents appeared. Despite being deemed in default for failing to answer, both Finman and Pan Pacific were still notified of the scheduled hearing. Again they failed to appear. Thus, ex-parte proceedings ensued. Herein petitioner, Finman, in an answer which was not timely filed, alleged, among others, that herein private respondents do not have a valid cause of action against it; that Finman is not privy to any transaction undertaken by Pan Pacific with herein private respondents; that herein private respondents claims are barred by the statute of frauds and by the fact that they executed a waiver; that the receipts presented by herein private respondents are mere scraps of paper; that it is not liable for the acts of Mrs. Egil that Finman has a cashbond of P75,000.00 only which is less than the required amount of P100,000.00; and that herein private respondents should proceed directly against the cash bond of Pan Pacific or against Mrs. Egil Decision of Secretary of Labor Both respondents are hereby directed to pay jointly and severally the claims of complainants, Issues: WON THE HONORABLE SECRETARY OF LABOR ACTED WITHOUT OR IN EXCESS OF JURISDICTION AND WITH GRAVE ABUSE OF DISCRETION AMOUNTING TO LACK OF JURISDICTION IN DIRECTING FINMAN TO PAY JOINTLY AND SEVERALLY WITH PAN PACIFIC THE CLAIMS OF PRIVATE RESPONDENTS ON THE BASIS OF THE SURETYSHIP AGREEMENT BETWEEN FINMAN AND PAN PACIFIC AND THE PHILIPPINE OVERSEAS EMPLOYMENT ADMINISTRATION (POEA FOR SHORT) HELD: No. In the case at bar, it remains uncontroverted that herein petitioner and Pan Pacific entered into a suretyship agreement, with the former agreeing that the bond is conditioned upon the true and faithful performance and observance of the bonded principal (Pan Pacific) of its duties and obligations. It was also understood that under the suretyship agreement, herein petitioner undertook itself to be jointly and severally liable for all claims arising from recruitment violation of Pan Pacific (Ibid., p. 23), in keeping with Section 4, Rule V, Book I of the Implementing Rules of the Labor Code, which provides: Section 4. Upon approval of the application, the applicant shall pay to the Ministry (now Department) a license fee of P6,000.00, post a cash bond of P50,000.00 or negotiable bonds of equivalent amount convertible to cash issued by banking or financial institution duly endorsed to the Ministry (now Department) as well as a surety bond of P150,000.00 from an accredited bonding company to answer for valid and legal claims arising from violations of the conditions of the license or the contracts of employment and guarantee compliance with the provisions of the Code, its implementing rules and regulations and appropriate issuances of the Ministry (now Department). (Emphasis supplied) Accordingly, the nature of Finman's obligation under the suretyship agreement makes it privy to the proceedings against its principal (Pan Pacific). As such Finman is bound, in the absence of collusion, by a judgment against its principal even though it was not a party to the proceedings Leyson v. Rizal Surety and Insurance Co., 16 SCRA 551 (1966). Furthermore, in Government of the Philippines v. Tizon (20 SCRA 1182 [1967]), this Court ruled that where the surety bound itself solidarily with the

principal obligor the former is so dependent on the principal debtor "that the surety is considered in law as being the same party as the debtor in relation to whatever is adjudged touching the obligation of the latter." Applying the foregoing principles to the case at bar, it can be very well said that even if herein Finman was not impleaded in the instant case, still it (petitioner) can be held jointly and severally liable for all claims arising from recruitment violation of Pan Pacific. Moreover, as correctly stated by the Solicitor General, private respondents have a legal claim against Pan Pacific and its insurer for the placement and processing fees they paid, so much so that in order to provide a complete relief to private respondents, petitioner had to be impleaded in the case (Rollo, p. 87).

SOUTH CITY HOMES, INC., FORTUNE MOTORS (PHILS.), PALAWAN LUMBER MANUFACTURING CORPORATION, petitioners, vs. BA FINANCE CORPORATION, respondent. Facts: On January 17, 1983, Joseph L. G. Chua, President of Fortune Motors Corporation, executed in favor of plaintiff-appellant a Continuing Suretyship Agreement, in which he "jointly and severally unconditionally" guaranteed the "full, faithful and prompt payment and discharge of any and all indebtedness" of Fortune Motors Corporation to BA Finance Corporation. On February 3, 1983, Palawan Lumber Manufacturing Corporation represented by Joseph L.G. Chua, George D. Tan, Edgar C. Rodrigueza and Joselito C. Baltazar, executed in favor of plaintiff-appellant a Continuing Suretyship Agreement in which, said corporation "jointly and severally unconditionally" guaranteed the "full, faithful and prompt payment and discharge of any and all indebtedness of Fortune Motors Corporation to BA Finance Corporation (Folder of Exhibits, pp. 19-20). On the same date, South City Homes, Inc. represented by Edgar C. Rodrigueza and Aurelio F. Tablante, likewise executed a Continuing Suretyship Agreement in which said corporation "jointly and severally unconditionally" guaranteed the "full, faithful and prompt payment and discharge of any and all indebtedness" of Fortune Motors Corporation to BA Finance Corporation. Fortune Motors Corporation thereafter executed trust receipts covering the motor vehicles delivered to it by CARCO under which it agreed to remit to the Entruster (CARCO) the proceeds of any sale and immediately surrender the remaining unsold vehicles. ). The drafts and trust receipts were assigned to plaintiff-appellant, under Deeds of Assignment executed by CARCO. Upon failure of the defendant-appellant Fortune Motors Corporation to pay the amounts due under the drafts and to remit the proceeds of motor vehicles sold or to return those remaining unsold in accordance with the terms of the trust receipt agreements, BA Finance Corporation sent demand letter to Edgar C. Rodrigueza, South City Homes, Inc., Aurelio Tablante, Palawan Lumber Manufacturing Corporation, Joseph L. G. Chua, George D. Tan and Joselito C. Baltazar (Folder of Exhibits, pp. 29-37). Since the defendants-appellants failed to settle their outstanding account with plaintiff-appellant, the latter filed on December 22, 1983 a complaint for a sum of money with prayer for preliminary attachment, with the Regional Trial Court of Manila. Issue: WON the suretyship agreement is valid WON there was a novation of the obligation so as to extinguish the liability of the sureties WON respondent BAFC has a valid cause of action for a sum of money following the drafts and trust receipts transactions. Held: 1) Yes. It is valid. Article 2053 of the Civil Code provides that: Art. 2053 A guaranty may also be given as security for future debts, the amount of which is not yet known. x x x In Fortune Motors (Phils.) Corporation v. Court of Appeals,[6] we held: To fund their acquisition of new vehicles (which are later retailed or resold to the general public), car dealers normally enter into wholesale automotive financing schemes whereby vehicles are delivered by the manufacturer or assembler on the strength of trust receipts or drafts executed by the car dealers, which are backed up by sureties. These trust receipts or drafts are then assigned and/or discounted by the manufacturer to/with financing companies, which assume payment of the vehicles but with the corresponding right to collect such payment from the car dealers and/or the sureties. In this manner, car dealers are able to secure delivery of their stock-in-trade without having to pay cash therefor; manufacturers get paid without any receivables/collection problems; and financing companies earn their margins with the assurance of payment not only from the dealers but also from the sureties. When the vehicles are eventually resold, the car dealers are supposed to pay the financing companies -- and the business goes merrily on. However, in the event the car dealer defaults in paying the financing company, may the surety escape liability on the legal ground that the obligations were incurred subsequent to the execution of the surety contract? x x x Of course, a surety is not bound under any particular principal obligation until that principal obligation is born. But there is no theoretical or doctrinal difficulty inherent in saying that the suretyship agreement itself is valid and binding even before the principal obligation intended to be secured thereby is born, any more than there would be in saying that obligations which are subject to a condition precedent are valid and binding before the occurrence of the condition precedent.

Comprehensive or continuing surety agreements are in fact quite commonplace in present day financial and commercial practice. A bank or financing company which anticipates entering into a series of credit transactions with a particular company, commonly requires the projected principal debtor to execute a continuing surety agreement along with its sureties. By executing such an agreement, the principal places itself in a position to enter into the projected series of transactions with its creditor; with such suretyship agreement, there would be no need to execute a separate surety contract or bond for each financing or credit accommodation extended to the principal debtor. 2) No. There was no novation. An assignment of credit is an agreement by virtue of which the owner of a credit, known as the assignor, by a legal cause, such as sale, dacion en pago, exchange or donation, and without the consent of the debtor, transfers his credit and accessory rights to another, known as the assignee, who acquires the power to enforce it to the same extent as the assignor could enforce it against the debtor.[7] As a consequence, the third party steps into the shoes of the original creditor as subrogee of the latter. Petitioners obligations were not extinguished. Thus: x x x Moreover, in assignment, the debtors consent is not essential for the validity of the assignment (Art. 1624 in relation to Art. 1475, Civil Code), his knowledge thereof affecting only the validity of the payment he might make (Article 1626, Civil Code). Article 1626 also shows that payment of an obligation which is already existing does not depend on the consent of the debtor. It, in effect, mandates that such payment of the existing obligation shall already be made to the new creditor from the time the debtor acquires knowledge of the assignment of the obligation. The law is clear that the debtor had the obligation to pay and should have paid from the date of notice whether or not he consented. We have ruled in Sison & Sison vs. Yap Tico and Avancea, 37 Phil. 587 [1918] that definitely, consent is not necessary in order that assignment may fully produce legal effects. Hence, the duty to pay does not depend on the consent of the debtor. Otherwise, all creditors would be prevented from assigning their credits because of the possibility of the debtors refusal to give consent. What the law requires in an assignment of credit is not the consent of the debtor but merely notice to him. A creditor may, therefore, validly assign his credit and its accessories without the debtors consent (National Investment and Development Co. v. De Los Angeles, 40 SCRA 489 [1971]. The purpose of the notice is only to inform that debtor from the date of the assignment, payment should be made to the assignee and not to the original creditor.[8] 3) No. Petitioners finally posit (third issue) that as an entruster, respondent BAFC must first demand the return of the unsold vehicles from Fortune Motors Corporation, pursuant to the terms of the trust receipts. Having failed to do so, petitioners had no cause of action whatsoever against Fortune Motors Corporation and the action for collection of sum of money was, therefore, premature. A trust receipt is a security transaction intended to aid in financing importers and retail dealers who do not have sufficient funds or resources to finance the importation or purchase of merchandise, and who may not be able to acquire credit except through utilization, as collateral, of the merchandise imported or purchased.[9] In the event of default by the entrustee on his obligations under the trust receipt agreement, it is not absolutely necessary that the entruster cancel the trust and take possession of the goods to be able to enforce his rights thereunder. We ruled: x x x Significantly, the law uses the word may in granting to the entruster the right to cancel the trust and take possession of the goods. Consequently, petitioner has the discretion to avail of such right or seek any alternative action, such as a third party claim or a separate civil action which it deems best to protect its right, at any time upon default or failure of the entrustee to comply with any of the terms and conditions of the trust agreement ESTRELLA PALMARES, petitioner, vs.COURT OF APPEALS and M.B. LENDING CORPORATION, respondents. 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. 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. 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: WON the defendant Estrella Palmares is only a guarantor with a subsidiary liability and not a co-maker with primary liability Held: Yes. The Civil Code pertinently provides:

Art. 2047. By guaranty, a person called the guarantor binds himself to the creditor to fulfill the obligation of the principal debtor in case the latter should fail to do so. 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.13 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. Her pretension that the terms "jointly and severally or solidarily liable" contained in the second paragraph of her contract are technical and legal terms which could not be easily understood by an ordinary layman like her is diametrically opposed to her manifestation in the contract that she "fully understood the contents" of the promissory note and that she is "fully aware" of her solidary liability with the principal maker. Petitioner admits that she voluntarily affixed her signature thereto; ergo, she cannot now be heard to claim otherwise. Any reference to the existence of fraud is unavailing. Fraud must be established by clear and convincing evidence, mere preponderance of evidence not even being adequate. Petitioner's attempt to prove fraud must, therefore, fail as it was evidenced only by her own uncorroborated and, expectedly, self-serving allegations.Having entered into the contract with full knowledge of its terms and conditions, petitioner is estopped to assert that she did so under a misapprehension or in ignorance of their legal effect, or as to the legal effect of the undertaking.15 The rule that ignorance of the contents of an instrument does not ordinarily affect the liability of one who signs it also applies to contracts of suretyship. And the mistake of a surety as to the legal effect of her obligation is ordinarily no reason for relieving her of liability. Petitioner would like to make capital of the fact that although she obligated herself to be jointly and severally liable with the principal maker, her liability is deemed restricted by the provisions of the third paragraph of her contract wherein she agreed "that M.B. Lending Corporation may demand payment of the above loan from me in case the principal maker, Mrs. Merlyn Azarraga defaults in the payment of the note," which makes her contract one of guaranty and not suretyship. The purported discordance is more apparent than real. A surety is an insurer of the debt, whereas a guarantor is an insurer of the solvency of the debtor.17 A suretyship is an undertaking that the debt shall be paid; a guaranty, an undertaking that the debtor shall pay.18 Stated differently, a surety promises to pay the principal's debt if the principal will not pay, while a guarantor agrees that the creditor, after proceeding against the principal, may proceed against the guarantor if the principal is unable to pay.19 A surety binds himself to perform if the principal does not, without regard to his ability to do so. A guarantor, on the other hand, does not contract that the principal will pay, but simply that he is able to do so.20 In other words, a surety undertakes directly for the payment and is so responsible at once if the principal debtor makes default, while a guarantor contracts to pay if, by the use of due diligence, the debt cannot be made out of the principal debtor. Estate of K.H. Hemady vs. Luzon Surety Co., Inc. FACTS Luzon Surety filed a claim against the estate of K.H. Hemady based on indemnity agreements (counterbonds) subscribed by distinct principals and by the deceased K.H. Hemady as surety (solidary guarantor). As a contingent claim, Luzon Surety prayed for the allowance of the value of the indemnity agreements it had executed. The lower court dismissed the claim of Luzon Surety on the ground that “whatever losses may occur after Hemady’s death, are not chargeable to his estate, because upon his death he ceased to be a guarantor.” ISSUE: 1. Whether or not a solidary guarantor’s liability is extinguished by his death. 2. What obligations are transmissible upon the death of the decedent? Are contingent claims chargeable against the estate? HELD: 1. The solidary guarantor’s liability is not extinguished by his death, and that in such event, the Luzon Surety Co., had the right to file against the estate a contingent claim for reimbursement. The contracts of suretyship entered into by K. H. Hemady in favor of Luzon Surety Co. not being rendered intransmissible due to the nature of the undertaking, nor by the stipulations of the contracts themselves, nor by provision of law, his eventual liability thereunder necessarily passed upon his death to his heirs. 2. Under the present Civil Code (Article 1311), the rule is that “Contracts take effect only as between the parties, their assigns and heirs, except in case where the rights and obligations arising from the contract are not transmissible by their nature, or by stipulation or by

provision of law.” While in our successional system the responsibility of the heirs for the debts of their decedent cannot exceed the value of the inheritance they receive from him, the principle remains intact that these heirs succeed not only to the rights of the deceased but also to his obligations. Articles 774 and 776 of the New Civil Code expressly so provide, thereby confirming Article 1311.In Mojica v. Fernandez, the Supreme Court ruled — “Under the Civil Code the heirs, by virtue of the rights of succession are subrogated to all the rights and obligations of the deceased (Article 661) and can not be regarded as third parties with respect to a contract to which the deceased was a party, touching the estate of the deceased x x x which comes in to their hands by right of inheritance; they take such property subject to all the obligations resting thereon in the hands of him from whom they derive their rights.” The contracts of suretyship in favor of Luzon Surety Co. not being rendered intransmissible due to the nature of the undertaking, nor by stipulations of the contracts themselves, nor by provision of law, his eventual liability therefrom necessarily passed upon his death to his heirs. The contracts, therefore, give rise to contingent claims provable against his estate. A contingent liability of a deceased person is part and parcel of the mass of obligations that must be paid if and when the contingent liability is converted into a real liability. Therefore, the settlement or final liquidation of the estate must be deferred until such time as the bonded indebtedness is paid. GENERAL INSURANCE and SURETY CORPORATION, petitioner, vs. REPUBLIC OF THE PHILIPPINES and CENTRAL LUZON EDUCATIONAL FOUNDATION, INC., respondents. FACTS: The Central Luzon Educational Foundation, Inc. and the General Insurance and Surety Corporation posted in favor of the Department of Education a bond. On the same day, May 15, 1954, the Central Luzon Educational Foundation, Inc., Teofilo Sison and Jose M. Aruego executed an indemnity agreement binding themselves jointly and severally to indemnify the surety of "any damages, prejudices, loss, costs, payments, advances and expenses of whatever kind and nature, including attorney's fees and legal costs, which the COMPANY may, at any time sustain or incur, as well as to reimburse to said COMPANY all sums and amounts of money which the COMPANY or its representatives shall or may pay or cause to be paid or become liable to pay, on account of or arising from the execution of the above mentioned Bond." The surety advised the Secretary of Education that it was withdrawing and cancelling its bond. Copies of the letter were sent to the Bureau of Private Schools and to the Central Luzon Educational Foundation, Inc. It appears that on the date of execution of the bond, the Foundation was indebted to two of its teachers for salaries, to wit: to Remedios Laoag, in the sum of P685.64, and to H.B. Arandia, in the sum of P820.00, or a total of P1,505.64. Hearing was held and on December 18, 1956, the Court of First Instance rendered judgment holding the principal and the surety jointly and severally liable to the Government in the sum of P10,000.00 with legal interest from the date of filing of the complaint, until the sum is fully paid and ordering the principal to reimburse the surety whatever amount it may be compelled to pay to the Government by reason of the judgment, with costs against both principal and the surety. ISSUE: Whether or not the surety is liable on its bond from the moment of its execution? HELD: YES. It must be remembered that, by the terms of the bond the surety guaranteed to the Government "compliance (by the Foundation) with all obligations, including the payment of the salaries of its teachers and employees, past, present and future, and the payment of all other obligations incurred by, or in behalf of said school." Now, it is not disputed that even before the execution of the bond the Foundation was already indebted to two of its teachers for past salaries. From the moment, therefore, the bond was executed, the right of the Government to proceed against the bond accrued because since then, there has been violation of the terms of the bond regarding payment of past salaries of teachers at the Sison and Aruego Colleges. The fact that the action was filed only on July 11, 1956 does not militate against this position because actions based on written contracts prescribe in ten years. (Art. 1144, par. 1, Civil Code). In the present case, there is no provision that the bond will be cancelled unless the surety is notified of any claim and so no condition precedent has to be complied with by the Government before it can bring an action. Indeed, the provision of the bond in the NARIC and Santos cases that it would be cancelled ten days after its expiration unless notice of claim was given was inserted precisely because, without such a provision, the surety's liability for obligations arising while the bond was in force would subsist even after its expiration. THE HONGKONG & SHANGHAI BANKING CORP. vs. ALDECOA & CO. FACTS: Aldecoa and Co. obtained a credit worth P450,000 from HSBC secured by a mortgage of shares and real properties. On Dec. of 1906, the firm of Aldecoa and Co. went into liquidation and obtained another P50,000 from the bank upon the condition that this would be covered by the previous mortgage. In October 1908, Joaquin and Zoilo Ibañez de Aldecoa filed an action against the bank for the purpose of annulling the mortgages executed by them on the grounds that they were minors at the time incapable of creating a valid mortgage upon their real property. The Court of First Instance dismissed the complaint as to Joaquin upon the ground that he had ratified those mortgages after becoming of age, but entered a judgment annulling said mortgages with respect to Zoilo. Both parties appealed from this decision and the case was still pending in the Supreme Court when HSBC filed an action against Aldecoa and Co. and its partners for the collection of a sum of money and foreclosure of the mortgaged properties. Judgement was entered in favor of the bank.

ISSUE: Whether or not the action filed by the bank should be dismissed on the ground of lis pendens. HELD: No. A plea of the pendency of a prior action is not available unless the prior action is of such a character that, had a judgment been rendered therein on the merits, such a judgment would be conclusive between the parties and could be pleaded in bar of the second action. In the instant case, the former suit is to annul the mortgages while the other one is for the foreclosure. If the final judgment in the former action is that the mortgages be annulled, such an adjudication will deny the right of the bank to foreclose the mortgages. But a valid decree will not prevent the bank from foreclosing them. In such an event, the judgment would not be a bar to the prosecution of the present action. The rule is not predicated upon such a contingency. It is applicable, between the same parties, only when the judgment to be rendered in the action first instituted will be such that, regardless of which party is successful, it will amount to res judicata against the second action. DAVID.ALCAZAREN.IWAKI.MENDOZA.CARBONELL