SECOND
DIVISION
E.
ZOBEL, INC.,
Petitioner,
G.
R.
No. 113931
May
6,
1998
-versus-
THE COURT
OF APPEALS,CONSOLIDATED
BANK
AND TRUST CORPORATIONAND
SPOUSES RAUL
AND ELEA R. CLAVERIA,
Respondents.
D
E C I S I
O N
MARTINEZ,
J :
This Petition for Review
on Certiorari seeks the reversal of the Decision[1]
of the Court of Appeals dated July 13, 1993 which affirmed the Order of
the Regional Trial Court of Manila, Branch 51, denying petitioner's
Motion
to Dismiss the complaint, as well as the Resolution[2]
dated February 15, 1994 denying the motion for reconsideration thereto.
The facts are as
follows:
Respondent spouses
Raul and Elea Claveria, doing business under the name "Agro Brokers,"
applied
for a loan with respondent Consolidated Bank and Trust Corporation [now
SOLIDBANK] in the amount of Two Million Eight Hundred Seventy Five
Thousand
Pesos [P2,875,000.00] to finance the purchase of two [2] maritime
barges
and one tugboat[3]
which would be used in their molasses business. The loan was granted
subject
to the condition that respondent spouses execute a chattel mortgage
over
the three [3] vessels to be acquired and that a continuing guarantee be
executed by Ayala International Philippines, Inc., now, herein
petitioner
E. Zobel, Inc., in favor of SOLIDBANK. The respondent spouses agreed to
the arrangement. Consequently, a chattel mortgage and a Continuing
Guaranty[4]
were executed.
Respondent spouses
defaulted in the payment of the entire obligation upon maturity. Hence,
on January 31, 1991, SOLIDBANK filed a Complaint for sum of money with
a prayer for a Writ of Preliminary Attachment against respondents
spouses
and petitioner. The case was docketed as Civil Case No. 91-55909 in the
Regional Trial Court of Manila.
Petitioner moved to
dismiss the complaint on the ground that its liability as guarantor of
the loan was extinguished pursuant to Article 2080 of the Civil Code of
the Philippines. It argued that it has lost its right to be subrogated
to the first chattel mortgage in view of SOLIDBANK's failure to
register
the chattel mortgage with the appropriate government agency.
SOLIDBANK opposed the
motion contending that Article 2080 is not applicable because
petitioner
is not a guarantor but a surety.
On February 18, 1993,
the trial court issued an Order, portions of which reads:
"After a careful
consideration
of the matter on hand, the Court finds the ground of the motion to
dismiss
without merit. The document referred to as 'Continuing Guaranty' dated
August 21, 1985 (Exh. 7) states as follows:
'For and in
consideration
of any existing indebtedness to you of Agro Brokers, a single
proprietorship
owned by Mr. Raul Claveria for the payment of which the undersigned is
now obligated to you as surety and in order to induce you, in your
discretion,
at any other manner, to, or at the request or for the account of the
borrower.'
"The provisions of
the document are clear, plain and explicit.
"Clearly, therefore,
defendant E. Zobel, Inc. signed as surety. Even though the title of the
document is 'Continuing Guaranty', the Court's interpretation is not
limited
to the title alone but to the contents and intention of the parties
more
specifically if the language is clear and positive. The obligation of
the
defendant Zobel being that of a surety, Art. 2080 New Civil Code will
not
apply as it is only for those acting as guarantor. In fact, in the
letter
of January 31, 1986 of the defendants (spouses and Zobel) to the
plaintiff
it is requesting that the chattel mortgage on the vessels and tugboat
be
waived and/or rescinded by the bank inasmuch as the said loan is
covered
by the Continuing Guaranty by Zobel in favor of the plaintiff thus
thwarting
the claim of the defendant now that the chattel mortgage is an
essential
condition of the guaranty. In its letter, it said that because of the
Continuing
Guaranty in favor of the plaintiff the chattel mortgage is rendered
unnecessary
and redundant.
"With regard to the
claim that the failure of the plaintiff to register the chattel
mortgage
with the proper government agency, i.e., with the Office of the
Collector of Customs or with the Register of Deeds makes the obligation
a guaranty, the same merits a scant consideration and could not be
taken
by this Court as the basis of the extinguishment of the obligation of
the
defendant corporation to the plaintiff as surety. The chattel mortgage
is an additional security and should not be considered as payment of
the
debt in case of failure of payment. The same is true with the failure
to
register, extinction of the liability would not lie.
"WHEREFORE, the
Motion
to Dismiss is hereby denied and defendant E. Zobel, Inc., is ordered to
file its answer to the complaint within ten (10) days from receipt of a
copy of this Order."[5]
Petitioner moved for reconsideration
but was denied on April 26, 1993.[6]
Thereafter, petitioner
questioned said Orders before the respondent Court of Appeals, through
a petition for certiorari, alleging that the trial court committed
grave
abuse of discretion in denying the motion to dismiss.
On July 13, 1993, the
Court of Appeals rendered the assailed decision the dispositive portion
of which reads:
"WHEREFORE, finding
that respondent Judge has not committed any grave abuse of discretion
in
issuing the herein assailed orders, We hereby dismiss the petition."
A Motion for Reconsideration
filed by petitioner was denied for lack of merit on February 15, 1994.
Petitioner now comes
to Us via this petition arguing that the respondent Court of Appeals
erred
in its finding: [1] that Article 2080 of the New Civil Code which
provides:
"The guarantors, even though they be solidary, are released from their
obligation whenever by some act of the creditor they cannot be
subrogated
to the rights, mortgages, and preferences of the latter," is not
applicable
to petitioner; [2] that petitioner's obligation to respondent SOLIDBANK
under the continuing guaranty is that of a surety; and [3] that the
failure
of respondent SOLIDBANK to register the chattel mortgage did not
extinguish
petitioner's liability to respondent SOLIDBANK.
We shall first resolve
the issue of whether or not petitioner under the "Continuing Guaranty"
obligated itself to SOLIDBANK as a guarantor or a surety.
A contract of surety
is an accessory promise by which a person binds himself for another
already
bound, and agrees with the creditor to satisfy the obligation if the
debtor
does not.[7]
A contract of guaranty, on the other hand, is a collateral undertaking
to pay the debt of another in case the latter does not pay the debt.[8]
Strictly speaking,
guaranty and surety are nearly related, and many of the principles are
common to both. However, under our civil law, they may be distinguished
thus: A surety is usually bound with his principal by the same
instrument,
executed at the same time, and on the same consideration. He is an
original
promissor and debtor from the beginning, and is held, ordinarily, to
know
every default of his principal. Usually, he will not be discharged,
either
by the mere indulgence of the creditor to the principal, or by want of
notice of the default of the principal, no matter how much he may be
injured
thereby. On the other hand, the contract of guaranty is the guarantor's
own separate undertaking, in which the principal does not join. It is
usually
entered into before or after that of the principal, and is often
supported
on a separate consideration from that supporting the contract of the
principal.
The original contract of his principal is not his contract, and he is
not
bound to take notice of its non-performance. He is often discharged by
the mere indulgence of the creditor to the principal, and is usually
not
liable unless notified of the default of the principals.[9]
Simply put, a surety
is distinguished from a guaranty in that a guarantor is the insurer of
the solvency of the debtor and thus binds himself to pay if the
principal
is unable to pay while a surety is the insurer of the debt, and he
obligates
himself to pay if the principal does not pay.[10]
Based on the
aforementioned
definitions, it appears that the contract executed by petitioner in
favor
of SOLIDBANK, albeit denominated as a "Continuing Guaranty," is a
contract
of surety. The terms of the contract categorically obligates petitioner
as "surety" to induce SOLIDBANK to extend credit to respondent spouses.
This can be seen in the following stipulations:
"For and in
consideration
of any existing indebtedness to you of AGRO BROKERS, a single
proprietorship
owned by MR. RAUL P. CLAVERIA, of legal age, married and with business
address [hereinafter called the Borrower], for the payment of which the
undersigned is now obligated to you as surety and in order to induce
you,
in your discretion, at any time or from time to time hereafter, to make
loans or advances or to extend credit in any other manner to, or at the
request or for the account of the Borrower, either with or without
purchase
or discount, or to make any loans or advances evidenced or secured by
any
notes, bills receivable, drafts, acceptances, checks or other
instruments
or evidences of indebtedness upon which the Borrower is or may become
liable
as maker, endorser, acceptor, or otherwise, the undersigned agrees to
guarantee,
and does hereby guarantee, the punctual payment, at maturity or upon
demand,
to you of any and all such instruments, loans, advances, credits and/or
other obligations herein before referred to, and also any and all other
indebtedness of every kind which is now or may hereafter become due or
owing to you by the Borrower, together with any and all expenses which
may be incurred by you in collecting all or any such instruments or
other
indebtedness or obligations hereinbefore referred to, and or in
enforcing
any rights hereunder, and also to make or cause any and all such
payments
to be made strictly in accordance with the terms and provisions of any
agreement (g), express or implied, which has (have) been or may
hereafter
be made or entered into by the Borrower in reference thereto,
regardless
of any law, regulation or decree, now or hereafter in effect which
might
in any manner affect any of the terms or provisions of any such
agreements(s)
or your right with respect thereto as against the Borrower, or cause or
permit to be invoked any alteration in the time, amount or manner of
payment
by the Borrower of any such instruments, obligations or indebtedness;"
[Emphasis Supplied].
One need not look too deeply
at the contract to determine the nature of the undertaking and the
intention
of the parties. The contract clearly disclose that petitioner assumed
liability
to SOLIDBANK, as a regular party to the undertaking and obligated
itself
as an original promissor. It bound itself jointly and severally to the
obligation with the respondent spouses. In fact, SOLIDBANK need not
resort
to all other legal remedies or exhaust respondent spouses' properties
before
it can hold petitioner liable for the obligation. This can be gleaned
from
a reading of the stipulations in the contract, to wit:
"If default be made
in the payment of any of the instruments, indebtedness or other
obligation
hereby guaranteed by the undersigned, or if the Borrower, or the
undersigned
should die, dissolve, fail in business, or become insolvent, or if any
funds or other property of the Borrower, or of the undersigned which
may
be or come into your possession or control or that of any third party
acting
in your behalf as aforesaid should be attached of distrained, or should
be or become subject to any mandatory order of court or other legal
process,
then, or any time after the happening of any such event any or all of
the
instruments of indebtedness or other obligations hereby guaranteed
shall,
at your option become [for the purpose of this guaranty] due and
payable
by the undersigned forthwith without demand of notice, and full power
and
authority are hereby given you, in your discretion, to sell, assign and
deliver all or any part of the property upon which you may then have a
lien hereunder at any broker's board, or at public or private sale at
your
option, either for cash or for credit or for future delivery without
assumption
by you of credit risk, and without either the demand, advertisement or
notice of any kind, all of which are hereby expressly waived. At any
sale
hereunder, you may, at your option, purchase the whole or any part of
the
property so sold, free from any right of redemption on the part of the
undersigned, all such rights being also hereby waived and released. In
case of any sale and other disposition of any of the property
aforesaid,
after deducting all costs and expenses of every kind for care,
safekeeping,
collection, sale, delivery or otherwise, you may apply the residue of
the
proceeds of the sale and other disposition thereof, to the payment or
reduction,
either in whole or in part, of any one or more of the obligations or
liabilities
hereunder of the undersigned whether or not except for disagreement
such
liabilities or obligations would then be due, making proper allowance
or
interest on the obligations and liabilities not otherwise then due, and
returning the overplus, if any, to the undersigned; all without
prejudice
to your rights as against the undersigned with respect to any and all
amounts
which may be or remain unpaid on any of the obligations or liabilities
aforesaid at any time[s]."
xxx
'Should the Borrower
at this or at any future time furnish, or should be heretofore have
furnished,
another surety or sureties to guarantee the payment of his obligations
to you, the undersigned hereby expressly waives all benefits to which
the
undersigned might be entitled under the provisions of Article 1837 of
the
Civil Code [beneficio division], the liability of the
undersigned
under any and all circumstances being joint and several;" [Emphasis
Ours].
The use of the term
"guarantee" does not ipso facto mean that the contract is one of
guaranty.
Authorities recognize that the word "guarantee" is frequently employed
in business transactions to describe not the security of the debt but
an
intention to be bound by a primary or independent obligation. 11 As
aptly
observed by the trial court, the interpretation of a contract is not
limited
to the title alone but to the contents and intention of the parties.
Having, thus,
established
that petitioner is a surety, Article 2080 of the Civil Code, relied
upon
by petitioner, finds no application to the case at bar. In Bicol
Savings
and Loan Association vs. Guinhawa, 12 we have ruled that Article 2080
of
the New Civil Code does not apply where the liability is as a surety,
not
as a guarantor.
But even assuming that
Article 2080 is applicable, SOLIDBANK's failure to register the chattel
mortgage did not release petitioner from the obligation. In the
Continuing
Guaranty executed in favor of SOLIDBANK, petitioner bound itself to the
contract irrespective of the existence of any collateral. It even
released
SOLIDBANK from any fault or negligence that may impair the contract.
The
pertinent portions of the contract so provides:
"The undersigned
[Petitioner]
who hereby agrees to be and remain bound upon this guaranty,
irrespective
of the existence, value or condition of any collateral, and
notwithstanding
any such change, exchange, settlement, compromise, surrender, release,
sale, application, renewal or extension, and notwithstanding also that
all obligations of the Borrower to you outstanding and unpaid at any
time[s]
may exceed the aggregate principal sum herein above prescribed.
"This is a Continuing
Guaranty and shall remain in full force and effect until written notice
shall have been received by you that it has been revoked by the
undersigned,
but any such notice shall not be released the undersigned from any
liability
as to any instruments, loans, advances or other obligations hereby
guaranteed,
which may be held by you, or in which you may have any interest, at the
time of the receipt or such notice. No act or omission of any kind on
your
part in the premises shall in any event affect or impair this guaranty,
nor shall same be affected by any change which may arise by reason of
the
death of the undersigned, of any partner(s) of the undersigned, or of
the
Borrower, or of the accession to any such partnership of any one or
more
new partners." [Emphasis supplied].
In fine, We find the
petition to be without merit as no reversible error was committed by
respondent
Court of Appeals in rendering the assailed Decision.
WHEREFORE, the Decision
of the respondent Court of Appeals is hereby AFFIRMED. Costs against
the
petitioner.
SO ORDERED.
Regalado, Melo and
Puno, JJ., concur.
Mendoza, J.,
took no part, having concurred in the Decision of the Court of Appeals
when I was a member of that Court.
________________________
Endnotes:
[1]
Annex "I," p. 80, Rollo; The Decision was penned by Justice Ma. Alicia
Austria-Martinez and concurred in by Justice Vicente V. Mendoza and
Justice
Alfredo L. Benipayo.
[2]
Annex "J," p. 91, ibid.
[3]
Annex "A," p. 39, Rollo.
[4]
Annex "B," pp. 41-42.
[5]
Annex "G," pp. 70-75, Rollo.
[6]
Annex "H," p. 77, ibid.
[7]
Bouvier's Law Dictionary, Vol. I, Eighth Edition, p. 1386; Hope vs.
Board,
43 La. Ann. 738, 9 South. 754.
[8]
Ibid.; Shaw, C. J. Dole vs Young, 24 Pick. [Mass.], 252.
[9]
Brandt, Surety and Guaranty; cited in Bouvier's Law Dictionary, supra.,
p. 1386.
[10]
Machetti
vs.
Hospicio,
43 Phil. 297.
[11]
24 Am. Jur. 876 cited in De Leon, Credit Transactions, 1984 Edp. 187.
[12]
188 SCRA 647. |