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*
G.R. No. 138544. October 3, 2000.
* THIRD DIVISION.
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and the November 30, 1981 term. It did not give the bank or Sta.
Ines any license to modify the nature and scope of the original
credit accommodation, without informing or getting the consent of
respondent who was solidarily liable. Taking the banks submission
to the extreme, respondent (or his successors) would be liable for
loans even amounting to, say, P100 billion obtained 100 years after
the expiration of the credit accommodation, on the ground that he
consented to all alterations and extensions thereof.
Same; Same; Same; It is a well-settled legal principle that if
there is any doubt on the terms and conditions of the surety
agreement, the doubt should be resolved in favor of the surety; In the
absence of an unequivocal provision that the surety waived his right
to be notified of or to give consent to any alteration of the credit
accommodation, waiver could not be presumed.It has been held
that a contract of surety cannot extend to more than what is
stipulated. It is strictly construed against the creditor, every doubt
being resolved against enlarging the liability of the surety.
Likewise, the Court has ruled that it is a well-settled legal
principle that if there is any doubt on the terms and conditions of
the surety agreement, the doubt should be resolved in favor of the
surety x x x. Ambiguous contracts are construed against the party
who caused the ambiguity. In the absence of an unequivocal
provision that respondent waived his right to be notified of or to
give consent to any alteration of the credit accommodation, we
cannot sustain petitioners view that there was such a waiver.
Same; Same; Same; The submission that only the borrower, not
the surety, is entitled to be notified of any modification in the
original loan accommodation is untenablesuch theory is contrary
to the principle that a surety cannot assume an obligation more
onerous than that of the principal.We reject petitioners
submission that only Sta. Ines as the borrower, not respondent, was
entitled to be notified of any modification in the original loan
accommodation. Following the banks reasoning, such modification
would not be valid as to Sta. Ines if no notice were given; but would
still be valid as to respondent to whom no notice need be given. The
latters liability would thus be more burdensome than that of the
former. Such untenable theory is contrary to the principle that a
surety cannot assume an obligation more onerous than that of the
principal.
Same; Same; Same; Continuing Sureties; Words and Phrases;
That the Indemnity Agreement is a continuing surety does not
authorize the lender to extend the scope of the principal obligation
inordinately; A continuing guaranty is one which covers all
transactions, including those
785
786
PANGANIBAN, J .:
787
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788
The Facts
5
The facts are narrated by the Court of Appeals as follows:
789
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6 According to the RTC, Sta. Ines Timber License Agreement, which was
supposed to expire on July 15, 1998, was suspended by the Department of
Environment and Natural Resources on December 6, 1989 and eventually
cancelled on May 4, 1990. (RTC Decision, p. 3; rollo, p. 12.)
790
791
792
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7 This case was deemed submitted for decision on May 8, 2000, upon
receipt by this Court of respondents Reply Memorandum signed by
Attys. Elvira C. Oquendo and Vissia Concepcion C. Calderon of Carpio
Villaraza & Cruz. Filed earlier on March 3, 2000, was petitioners
Memorandum, signed by Attys. Menardo I. Guevarra, Adrian Ferdinand
S. Sugay and Ma. Jazmin B. Banal of De Borja Medialdea Bello
Guevarra & Gerodias.
8 Petitioners Memorandum, pp. 9-10; rollo, pp. 320-321. All in upper
case in the original.
793
Distilling the foregoing, the Court will resolve the following issues:
(a) whether the 1989 Loan Agreement novated the original credit
accommodation and Cuencas liability under the Indemnity
Agreement; and (b) whether Cuenca waived his right to be notified
of and to give consent to any substitution, renewal, extension,
increase, amendment, conversion or revival of the said credit
accommodation. As preliminary matters, the procedural questions
raised by respondent will also be addressed.
794
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9 2, Rule 37 of the Rules of Court, provides that [a] pro forma motion for
new trial or reconsideration shall not toll the reglementary period of appeal.
10 Respondents Memorandum, pp. 114-115; rollo, pp. 480-481.
11 See Guerra Enterprises v. CFI, 32 SCRA 314, April 17, 1970.
12 251 SCRA 87, December 8, 1995, per Feliciano, J.
795
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796
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15 Lim Tay v . CA, 293 SCRA 364, August 5, 1998, per Panganiban, J.
16 Cruz v . CA, 293 SCRA 239, July 27, 1998; citing Vitug,
Compendium of Civil Law and Jurisprudence, 1993 ed., p. 528.
17 Petitioners Memorandum, pp. 25-26; rollo, pp. 336-337.
18 As will be shown later, only one loan was obtained before the expiry
date of the 1980 credit accommodation.
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19 Rollo, p. 125.
20 Carmen Comia, former manager of the banks Loans and Discounts
Department.
21 Respondents Memorandum, pp. 67-68; rollo, pp. 433-434; citing
TSN, June 17, 1994, pp. 21, 90, 95-96.
22 Credit Approval Memorandum, p. 1; rollo, p. 109.
23 1989 Loan Agreement, p. 4; rollo, p. 128.
24 Ibid.
798
Alleged Extension
Petitioner insists that the 1989 Loan Agreement was a
mere renewal or extension of the P8 million original
25
accommodation; it was not a novation.
This argument must be rejected. To begin with, the 1989
Loan Agreement expressly stipulated that its purpose was
to liquidate, not to renew or extend, the outstanding
indebtedness. Moreover, respondent did not sign or consent
to the 1989 Loan Agreement, which had allegedly extended
the original P8 million credit facility. Hence, his obligation
as a surety should be deemed extinguished, pursuant to
Article 2079 of the Civil Code, which specifically states that
[a]n extension granted to the debtor by the creditor
without the consent of the guarantor extinguishes the
26
guaranty, x x x. In an earlier case, the Court explained
the rationale of this provision in this wise:
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800
Rodolfo M. Cuenca of legal age, with postal address c/o Sta. Ines
Malale Forest Products Corp., Alco Bldg., 391 Buendia Avenue Ext.,
Makati Metro Manila for and in consideration of the credit
accommodation in the total amount of eight million pesos
(P8,000,000.00) granted by the SECURITY BANK AND TRUST
COMPANY, a commercial bank duly organized and existing under
and by virtue of the laws of the Philippine, 6778 Ayala Avenue,
Makati, Metro Manila hereinafter referred to as the BANK in favor
of STA. INES MELALE FOREST PRODUCTS CORP., x x x
hereinafter referred to as the CLIENT, with the stipulated interests
and charges thereon, evidenced by that/those certain
PROMISSORY NOTE[(S)], made, executed and delivered by the
CLIENT in favor of the BANK hereby bind(s) himself/themselves
jointly and severally with the CLIENT in favor of the BANK for the
payment, upon demand and without benefit of excussion of whatever
amount or amounts the CLIENT may be indebted to the BANK
under and by virtue of aforesaid credit accommodation(s) including
the substitutions, renewals, extensions, increases, amendment,
conversions and revivals of the aforesaid credit accommodation(s),
as well as of the amount or amounts of such other obligations that
the CLIENT may owe the BANK, whether direct or indirect,
principal or secondary, as appears in the accounts, books and
records of the BANK, plus interest and expenses arising from any
agreement or agreements that may have heretofore been made, or
may hereafter be executed by and
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801
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802
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803
Continuing Surety
Contending that the Indemnity Agreement was in the
nature of a continuing surety, petitioner maintains that
there was no need for respondent to execute another surety
contract to secure the 1989 Loan Agreement.
This argument is incorrect. That the Indemnity
Agreement is a continuing surety does not authorize the
bank to extend the scope of the principal obligation
37 38
inordinately. In Dino v. CA, the Court held that a
continuing guaranty is one which covers all transactions,
including those arising in the future, which are within the
description or contemplation of the contract of guaranty,
until the expiration or termination thereof.
To repeat, in the present case, the Indemnity Agreement
was subject to the two limitations of the credit
accommodation: (1) that the obligation should not exceed
P8 million, and (2) that the accommodation should expire
not later than November 30, 1981. Hence, it was a
continuing surety only in regard to loans obtained on or
before the aforementioned expiry date and not exceeding
the total of P8 million.
Accordingly, the surety of Cuenca secured only the first
loan of P6.1 million obtained on November 26, 1991. It did
not secure the
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37 In Atok Finance Corp. v. CA, 222 SCRA 232, 245, May 18, 1993, per
Feliciano, J., the Court explained the nature of a continuing surety in
this wise:
38 216 SCRA 9, November 26, 1992, per Davide, J. (now CJ). See also
Fortune Motors v. CA, 267 SCRA 653, February 7, 1997.
804
805
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