Southern Motors to JN Development Corparation

8/10/2019 Southern Motors to JN Development Corparation

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G.R. No. L-9306. May 25, 1956.]

SOUTHERN MOTORS, INC., Plainti f f-Appel lee, vs. ELISEO BARBOSA, Defendant-Appel lant.

This is an appeal from a decision of the Court of First Instance of Iloilo: (a) Ordering the DefendantEliseo Barbosa to pay to theCourt, for the benefit of the Plaintiffwithin a period of ninety (90) days from receipt by the Defendanthereof, the sum ofP2,889.53, with interest at the rate of 12% per annum computed on the basis of the amounts of the installments mentioned inthe mortgage and of the dates they respectively fell due, until fully paid; chan roblesvirtualawlibrarythe sum of P200 by way ofattorneys fees, plus costs; chan roblesvirtualawlibraryand (b) Upon failure of the Defendant to pay as aforesaid, ordering theland described in the complaint and subject of the mortgage to be sold at public auction in accordance with law in order to

realize the amount of the judgment debt and costs.

Although originally forwarded to the Court of Appeals, the same has certified the record to this Court in view of the fact that theissues raised in the appeal involve merely questions of law.

Plaintiff, Southern Motors, Inc., brought this action against Eliseo Barbosa, to foreclose a real estate mortgage, constituted bythe latter in favor of the former, as security for the payment of the sum of P2,889.53 due to said Plaintiff from one AlfredoBrillantes, who had failed to settle his obligation in accordance with the terms and conditions of the corresponding deed ofmortgage. DefendantEliseo Barbosa filed an answer admitting the allegations of the complaint and alleging, by way of specialand affirmative defense:chanroblesvirtuallawlibrary

That theDefendant herein has executed the deed of mortgage Annex A for the only purpose of guaranteeing as suretyand/or guarantor the payment of the above mentioned debt of Mr. Alfredo Brillantes in favor of the Plaintiff.

That thePlaintiff until now has no right action against the herein Defendant on the ground that said Plaintiff, without motive

whatsoever, did not intent or intent to exhaust all recourses to collect from the true debtor Mr. Alfredo Brillantes the debtcontracted by the latter in favor of said Plaintiff, and did not resort nor intends to resort all the legal remedies against the truedebtor Mr. Alfredo Brillantes, notwithstanding the fact that said Mr. Alfredo Brillantes is solvent and has many properties withinthe Province of Iloilo.

Thereupon, Plaintiffmoved for summary judgment which a branch of the Court of First Instance of Iloilo, presided over by Hon.Roman Ibaez, Judge, denied upon the ground that it is premature. Plaintiffmoved for a reconsideration of the order to thiseffect. Soon later, he filed, also, another motion praying that the case be transferred to another branch of said court, becausethat of Judge Ibaez would be busy trying cadastral cases, and had adopted the policy of refraining from entertaining any ot hercivil cases and all incidents related thereto, until after said cadastral cases shall have bee n finally disposed of. With the expressauthority of Judge Ibaez, the case was referred to the branch of said court, presided over by Hon. Querube C. Makalintal,Judge, for action, upon said motion for reconsideration. Thereafter, Judge Makalintal rendered the aforementioned decision,from which the Defendanthas appealed. He maintains, in his brief, that:chanroblesvirtuallawlibrary

1. The trial court erred in hearing Plaintiff-Appellees motion for reconsideration dated June 9, 1951, notwithstanding the factthat Defendant-Appellantwas not served with a copy thereof nor served with notice of the hearing thereof.

2. The trial court erred in rendering a judgment on the pleadings in Appellees favor when no issue was at all submitted to it forresolution, to the prejudice of the substantial rights ofAppellant.

3. The court a quo erred in deprivingDefendant-Appellantof his property rights without due process of law.

The first assignment of error is based upon an erroneous predicate, for, contrary to Defendants assertion, his counsel in thelower court, Atty. Manuel F. Zamora, through an employee of his office, by the name of Agripino Aguilar, was actually served onJune 9, 1951, with copy of Plaintiffs motion for reconsideration, with notice to the effect that said motion would be submitted forthe consideration and approval of the lower court, on Saturday, June 16, 1951, at 8:chanroblesvirtuallawlibrary00 a.m., or soonthereafter as counsel may be heard.

The second assignment of error is, likewise, untenable. It is not true that there was no issue submitted for determination by the

lower court when it rendered the decision appealed from.It will be recalled that each one of the allegations made in Plaintiffs complaint were expressly admitted inDefendants answer, inwhich he merely alleged, as special and affirmative defense, thatPlaintiffis not entitled to foreclose the mortgage constituted inits favor by theDefendant, because the property of Alfredo Brillantes, the principal debtors, had not been exhausted as yet, andwere not sought to be exhausted, for the satisfaction of Plaintiffs credit. Thus, there was no question of fact left fordetermination. The only issue set up by the pleadings was the sufficiency of said affirmative defense. And such was the onlypoint discussed by the Defendantin his opposition to Plaintiffs motion for a summary judgment, referring, evidently, to ajudgment on the pleadings.

Plaintiffs motion for reconsideration of the order of Judge Roman Ibaez refusing to render said judgment, upon the ground thatit was premature, revived said issue of sufficiency of the aforementioned affirmative defense, apart from calling for areexamination of the question posed by said order of Judge Ibaez, namely, whether it was proper, under the circumstances, torender a judgment on the pleadings. In other words, said motion for reconsideration had the effect of placing before then JudgeMakalintal, for resolution, the following issues, to wit:chanroblesvirtuallawlibrary (1) whether a summary judgment or a judgment

on the pleadings was in order, considering the allegations of Plaintiffs complaint and those ofDefendants answer;chanroblesvirtualawlibraryand (2) whether the mortgage in question could be foreclosed although Plaintiffhad not exhausted, and didnot intend to exhaust, the properties of his principal debtor, Alfredo Brillantes.

The third assignment of error is predicated upon the alleged lack of notice of the hearing ofPlaintiffs motion for reconsideration.As stated in our discussion of the first assignment of error, this pretense is refuted by the record. Moreover, it is obviousthat Defendants affirmative defense is devoid of merit for:chanroblesvirtuallawlibrary

1. The deed of mortgage executed by him specifically provides:chanroblesvirtuallawlibrary

That if said Mr. Alfredo Brillantes or herein mortgagor, his heirs, executors, administrators and assigns shall well and tru lyperform the full obligations above-stated according to the terms thereof, then this mortgage shall be null and void, otherwise it


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That this guaranty is attached to the properties above mentioned as first lien and for this reason the parties agree toregister this compromise with the Register of Deeds of Pampanga, said lien to be cancelled only on the payment of thefull amount of the judgment in this case.

Wherefore, the parties pray that the above compromise be admitted and that an order issue requiring the register ofDeeds of Pampanga to register this compromise previous to the filing of the legal fees.

David paid the sum of P343.47 to Wise & Co., on account of the P640 which he bound himself to pay under Exhibit B, leaving anunpaid balance of P296.53.

Wise & Co. now institutes this case against Tanglao for the recovery of said balance of P296.53.

There is no doubt that under Exhibit, A, Tanglao empowered David, in his name, to enter into a contract of suretyship and acontract of mortgage of the property described in the document, with Wise & Co. However, David used said power of attorneyonly to mortgage the property and did not enter into contract of suretyship. Nothing is stated in Exhibit B to the effect thatTanglao became David's surety for the payment of the sum in question. Neither is this inferable from any of the clauses thereof,and even if this inference might be made, it would be insufficient to create an obligation of suretyship which, under the law, mustbe express and cannot be presumed.

It appears from the foregoing that defendant, Tanglao could not have contracted any personal responsibility for the payment ofthe sum of P640. The only obligation which Exhibit B, in connection with Exhibit A, has created on the part of Tanglao, is thatresulting from the mortgage of a property belonging to him to secure the payment of said P640. However, a foreclosure suit isnot instituted in this case against Tanglao, but a purely personal action for the recovery of the amount still owed by David.

At any rate, even granting that defendant Tanglao may be considered as a surety under Exhibit B, the action does not yet lieagainst him on the ground that all the legal remedies against the debtor have not previously been exhausted (art. 1830 of theCivil Code, and decision of the Supreme Court of Spain of March 2, 1891). The plaintiff has in its favor a judgment againstdebtor David for the payment of debt. It does not appear that the execution of this judgment has been asked for and Exhibit B,on the other hand, shows that David has two pieces of property the value of which is in excess of the balance of the debt thepayment of which is sought of Tanglao in his alleged capacity as surety.

For the foregoing considerations, the appealed judgment is reversed and the defendant is absolved from the complaint, with thecosts to the plaintiff. So ordered.

CONCEPCION J. VIUDA DE SYQUIA, in her capacity as administratrix of the state of the deceased GregorioSyquia,Plaintiff-Appellee, vs. PERFECTO JACINTO, ET AL.,defendants.RAFAEL PALMA,appellants.

On December 15, 1924, the Bank of the Philippine Islands obtained a judgment against Perfecto and Felipe Jacinto and RafaelPalma on a promissory note in its favor executed by the defendants on May 27, 1922, for the sum of P22,000 with interest at therate of 9 per cent per annum plus 10 per cent of the principal as costs and attorney's fees. The dispositive part of this judgmentis as follows:

Se condena a los Sres. P. y F. Jacinto y Rafael Palma a que paguen a la parte demandante, los primeros como obligadosprincipales y el ultimo como fiador, la suma de veinticuatro mil pesos (P24,000) al interes de 9 por ciento al ao desde el 27 demayo de 1923, mas el uno por ciento sobre el principal en concepto de honorarios de abogado y costas.

No debe expedirse ejecucion contra el demandado Sr. Rafael Palma, sino despues de haberse hecho excusion de los bienesde los senores P. y F. Jacinto.

On August 16, 1928, the Bank of the Philippine Islands "in consideration of the sum of P1 and other valuable considerations"assigned and transferred said judgment to Gregorio Syquia.chanroblesvirtualawlibrary chanrobles virtual law library

On July 12, 1932, the widow of Gregorio Syquia, as administratrix of his estate, filed suit in the Court of First Instance of Manilaagainst Perfecto and Felipe Jacinto and Rafael Palma reciting the aforementioned judgment and assignment and alleging thatsince the date of said judgment none of the defendants had paid anything thereon and there remains still due the sum ofP24,000 with interest at 9 per cent since May 27, 1923. The plaintiff prayed that the judgment be revived and that defendantsPerfecto and Felipe Jacinto as principal and Rafael Palma as guarantor be adjudged to pay the sum of P24,000 with interestsince May 27, 1923, and costs. To this petition were attached a copy of the judgment of December 15, 1924, Exhibit A, and a

copy of the assignment thereof to the plaintiff, Exhibit B.chanroblesvirtualawlibrary chanrobles virtual law library

The defendants filed a joint amended answer in which they admitted the judgment, Exhibit A, and that said judgment had lapsedand it was necessary to revive the same; but they denied the assignment to Syquia and the allegation that nothing had beenpaid on said judgment and that the full amount thereof was still due. They set up as a special defense that the judgment whichthe plaintiff was attempting to revive has been fully paid; that at the time of making the assignment to Gregorio Syquia, the bankhad no right or interest under said judgment, the same having been fully paid, and that the partition does not state facts sufficientto constitute a cause of action.

In the same answer they set up a counter-demand to the following effect: that in the month of April, 925, the Bank of thePhilippine Islands caused an execution to be issued under said judgment and the sheriff on the request of the bank sold at public


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sale three properties belonging to the defendants Jacinto which had been previously attached; that at said public sale threeproperties belonging to the defendants Jacinto which had been previously attached; that at said public sale the bank was thehighest bidder crediting the amount of its bid on the said judgment; that said parcels of land with their improvements consistingof four houses yielded a monthly revenue of P880 or P10,560 a year; that during the year allowed the judgment debtors forredemption the said bank took control and possession of the said parcels of land and collected and retained the revenuesthereof as aforesaid and that Gregorio Syquia has been receiving the same since that time, though without any right whatever;that the said revenues during the year of redemption in the sum of P10,560 were never applied by the bank as a credit on saidjudgment. The defendants prayed that they be absolved from the demand of the petitioner and that the estate of GregorioSyquia be condemned to pay the sum of P10,560 with costs. The answer concludes with a prayer for general relief. On the trialof this cause it was shown that at the execution sale held on April 18, 1925, the bank bought two of the properties of thedefendants Jacinto for the sum of P15,045. The third property was sold to Rufino Reyes for P1,000 which was not credited on

the judgment debt pending the determination of Reyes' claim of priority. The trial court stated the judgment debt as of April 18,1925, as follows:

Loan..............................................................................................

P24,000.00

Interest from May 27, 1923 to April 1, 1925 at 9 per cent ... 4,083.29

Cost including sheriff's sale ..................................................... 657.95

Total obligation ......................................... P28,741.24

from which is to be deducted P15,045 the value of the two parcels sold to the bank on April 18, 1925, leaving a balance due ofP13,696.24. On September 2, 1925, the defendant Palma paid the bank P100 leaving thus a net balance due of P13,596.24.The trial court entered the following judgment:

Dictese sentencia condenando a los demandados, Perfecto Jacinto y Felipe Jacinto, como obligados principales, y RafaelPalma como fiador, a pagar a la demandante la cantidad de trece mil quinientos noventa y seis pesos con veinte y cuatrocentimos (P13,596.24), mas las costas del juicio.chanroblesvirtualawlibrary chanrobles virtual law library

Se sobresee la reconvencion de los demandados.chanroblesvirtualawlibrary chanrobles virtual law library

Asi se ordena. Manila, I.F., 25 de septiembre de 1933.

From this judgment only defendant Palma appeals. He submits the following assignments of error:

1. El Juzgado erro al no apreciar que la cuenta de los deudores P. y F. Jacinto quedo liquidada con el banco al efectuarse laventa de las fincas embargadas por este a favor de Gregorio Syquia por la suma de P45,000 y que, por consiguiente, lasentencia firme de diciembre 14, 1924, quedo ipso facto saldada y con creces, en virtud de aquella venta.

2. El Juzgado erro al no apreciar que el banco no transmitio ningun derecho, interes o participacion en la sentencia referida altiempo de hacerse el traspaso de los mismos a Gregorio Syquia.

3. Aun suponiendo que la sentencia firme era subsistente contra los deudores y su fiador al tiempo de hacerse el traspaso porel banco de cualquier titulo, derecho, interes o participacion en dicha sentencia, el Juzgado erro al no apreciar que se haconstituido una novacion de la obligacion del fiador sin su conocimiento ni consentimiento, y, por tanto, sin eficacia juridicacontra el. 4. El Juzgado erro al no apreciar que el demandado Rafael Palma, como fiador, ha quedado eximido de su obligacion

no solo por efecto de la novacion hecha sin su conocimiento ni consentimiento, sino tambien por efecto de la aceptacion por elbanco de los bienes inmuebles de los deudores P. y F. Jacinto, en pago de deuda.

It is to be noted that Palma filed no separate answer nor special defenses available to him as guarantor but merely joined in theanswer of his codefendants pleading that the bank had been fully paid. It should be noted too that the execution which wasissued under the judgment of December 15, 1924, and under which said parcels of land were sold on April 18, 1925, wasdirected solely against the principal debtors, Perfecto and Felipe Jacinto, Palma not being mentioned therein. Under his first andsecond assignments of error, the appellant argues that when the bank acquired said properties at the sheriff's sale on April 18,1925, for the sum of P15,045, it paid much less than they were worth, in view of the fact that they yielded an annual revenue ofP10,560; and this is further established by the fact that the bank on August 16, 1928, sold and conveyed said parcels toGregorio Syquia for the sum of P45,000. Exhibits 2-A and 2-Bare copies of pages of the " libro de diversas cuentas" of the bank,upon which appears the account of Perfecto and Felipe Jacinto and Rafael Palma. From these it appears that after the sale bythe bank to Syquia, said account was marked as balanced and closed. From these facts the appellant contends that the principal

debtors, and therefore the guarantor, were discharged from further liability on the judgment; and that being true, Syquia acquirednothing by the assignment of the judgment to him by the bank. In strict law, it is obvious that the plea that the defendants haspaid their debt cannot be sustained. Indeed the appellant himself in arguing his first and second assignments of error invokesthe equitable principle that no person should enrich himself unjustly at the expense of another. Clearly this equitable principlehas no application to a legally conducted sheriff's sale. The appellant does not question the regularity of the sale. A purchaser ata sheriff's sale, when his title has once become vested, may dispose of the property for such consideration as he sees fit or ashe can obtain. The rule which the appellant asks us to introduce into our jurisprudence with regard to sheriff's sales would castsuch a doubt upon such sales that bidders would abstain therefrom and even judgment creditors would offer less, all to theprejudice of judgment debtors. The Code of Civil Procedure goes far in protecting the judgment debtor. He may prevent the saleof the property on execution (sec. 456); or he may redeem it from the purchaser at any time within twelve months after thesale(sec. 465). In the instant case, although it was alleged the property was sold for greatly below its value, the defendants didnot exercise any right of redemption. We hold, therefore, that the judgment debt in its entirety was not discharged before the


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action for the revival of the judgment was brought. However, the majority of the court are of the opinion that there should becredited upon the judgment for the benefit of the guarantor alone the sum of P10,560, being the revenues collected and retainedduring the year of redemption by Gregorio Syquia from said properties, according to the testimony of Perfecto Jacinto (t.s.n., 19,20,22). This conclusion is based on the interpretation given to the provisions of the Code of Civil Procedure by this court in thecases of Pabico vs. Ong Pauco (43 Phil., 572); Flores vs. Lim (50 Phil. 738); Powell vs. National Bank (54 Phil., 54). It is view ofthe writer that this defense so far as the guarantor is concerned is premature. In his brief and upon the oral argument theappellant has pressed upon our attention several defenses available to guarantors under our law which, he claims, entitle him toa reversal of the judgment. With reference to all these defences, it suffices to say that it is conceded that Palma as guarantor isstill entitled to the benefits of articles 1830,1832 and 1852 of the Civil Code. Up to the present, the judgment creditor has madeno demand on Palma. Joining him in the suit against the principal debtor is not the demand intended articles 1832 of the CivilCode. That demand can be made only after judgment on the debt, for obviously the "exhaustion of the principal's property" - the

benefit of which the guarantor claims - cannot even begin to take place before judgment has been obtained. Only then can thecreditor "levy upon the property of the principal" - only then can the liability of the creditor begin under article 1833 of the CivilCode. It would be absurd and futile to point out "saleable property of the debtor" at the inception of the suit, when it cannot beseized or sold, and require the creditor to make a "levy" upon it. There is no competent evidence that the principal debtors,Perfecto and Felipe Jacinto, are insolvent - even if they were now, there can be no certainty that they may not be in funds whenan exemption on the revived judgment is issued. So far as this record shows, the judgment creditor has not exhausted hisremedies against the principal debtors and he is still looking to them for payment. It is not for the guarantor to anticipate thatthere will be a return of nulla bona on the execution, when and if issued. Nor is it for him to anticipate a demand on him underarticle 1832 and to offer defences thereto which have not matured. The occasion for these defences may never arise. Thepresent revived judgment could not therefore be res judicata as to such future defences. The revived judgment does notforeclose any defence which the guarantor may raise when "demand for payment" is made on him. Indeed, he cannot claim thebenefits of articles 1830, 1832, 1834 and 1852 of the Civil Code before demand is made on him; they are all available to himonly after "demand for payment" (art. 1832).

The appellant's defences may be all be considered when they are property presented at the proper time. The case which he nowpresents, in anticipation of a demand which has not yet been made, is purely hypothetical. The courts do not undertake todecide hypothetical cases.

It results that the judgment appealed from must be modified in the sense that Rafael Palma as guarantor maybe heldcontingently liable only in the sum of P3,034.24 under said judgment, which is in all other respects affirmed, without specialpronouncement as to costs in this instance.

LUZON STEEL CORPORATION, represented by TOMAS AQUINO CU,plaintiff-appellant,vs.JOSE O. SIA,defendant,TIMES SURETY & INSURANCE CO. INC.,surety-appellee.

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

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

Luzon Steel Corporation has sued Metal Manufacturing of the Philippines and Jose O. Sia, the former's manager, for breach ofcontract and damages. It obtained a writ of preliminary attachment of the properties of the defendants, but the attachment was

lifted upon a P25,000.00 counterbond executed by the defendant Sia, as principal, and the Times Surety & Insurance Co., Inc.(hereinafter designated as the surety), as solidary guarantor, in the following terms:

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

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

1. That the defendant shall settle with the Plaintiff the amount of TWENTY FIVE THOUSAND (P25,000.00) PESOS, inthe following manner: FIVE HUNDRED (P500.00) PESOS, monthly for the first six (6) months to be paid at the end of

every month and to commence in January, 1965, and within one month after paying the last installment of P500.00, thebalance of P22,000.00 shall be paid in lump sum, without interest. It is understood that failure of the Defendant to payone or any installment will make the whole obligation immediately due and demandable and that a writ of execution willbe issued immediately against Defendants bond. lawphi1.et

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

Defendant having failed to comply, plaintiff moved for and obtained a writ of execution against defendant and the joint andseveral counterbond. The surety, however, moved to quash the writ of execution against it, averring that it was not a party to thecompromise, and that the writ was issued without giving the surety notice and hearing. The court, overruling the plaintiff's


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opposition, set aside the writ of execution, and later cancelled the counterbond, and denied the motion for reconsideration.Hence this appeal.

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

Both questions can be solved by bearing in mind that we are dealing with a counterbond filed to discharge a levy on attachment.Rule 57, section 12, specifies that an attachment may be discharged upon the making of a cash deposit or filing a counterbond"in an amount equal to the value of the property attached as determined by the judge"; that upon the filing of the counterbond

"the property attached ... shall be delivered to the party making the deposit or giving the counterbond, or the person appearingon his behalf, the deposit or counterbond aforesaid standing in place of the property so released".

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

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

Under section 12, Rule 59, of the Rules of Court, the bond filed, as in this case, for the discharge of an attachment is "to

secure the payment to the plaintiff of any judgment he may recover in the action," and stands "in place of the property soreleased". It follows that the order of cancellation issued by the respondent judge is erroneous. Indeed, judgment hadalready been rendered by the Court of First Instance of Manila in civil case No. 11748, sentencing Benjamin Aguilar topay the sum of P3,500.00 to the petitioner; and it is not pretended that said judgment is a nullity. There is no point in thecontention of the respondent Surety Company that the compromise was entered into without its knowledge and consent,thus becoming as to it essentially fraudulent. The Surety is not a party to civil case No. 11748 and, therefore, need notbe served with notice of the petition for judgment. As against the conjecture of said respondent that the parties mayeasily connive by means of a compromise to prejudice it, there is also the likelihood that the same end may be attainedby parties acting in bad faith through a simulated trial. At any rate, it is within the power of the Surety Company toprotect itself against a risk of the kind.

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

The lower court and the appellee herein appear to have relied on doctrines of this Court concerning the liability of sureties inbonds filed by a plaintiff for the issuance of writs of attachment, without discriminating between such bonds and those filed by adefendant for the lifting of writs of attachment already issued and levied. This confusion is hardly excusable considering that thisCourt has already called attention to the difference between these kinds of bonds. Thus, in Cajefe vs. Judge Fernandez, etal., L-15709, 19 October 1960, this Court pointed out that

The diverse rule in section 17 of Rule 59 for counterbonds posted to obtain the lifting of a writ of attachment is due tothese bonds being security for the payment of any judgment that the attaching party may obtain; they are thus merereplacements of the property formerly attached, and just as the latter may be levied upon after final judgment in the casein order to realize the amount adjudged, so is the liability of the countersureties ascertainable after the judgment hasbecome final. This situation does not obtain in the case of injunction counterbonds, since the sureties in the latter casemerely undertake "to pay all damages that the plaintiff may suffer by reason of the continuance ... of the acts complained

of" (Rule 60, section 6) and not to secure payment of the judgment recovered.1

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

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

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

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

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


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

A second reason against the stand of the surety and of the court below is that even if the surety's undertaking were not solidarywith that of the principal debtor, still he may not demand exhaustion of the property of the latter, unless he can point out

sufficient leviable property of the debtor within Philippine territory. There is no record that the appellee surety has done so. SaysArticle 2060 of the Civil Code of the Philippines:

ART. 2060. In order that the guarantor may make use of the benefit of excussion, he must set it up against the creditorupon the latter's demand for payment from him, and point out to the creditor available property of the debtor withinPhilippine territory, sufficient to cover the amount of the debt.

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

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

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

TOWERS ASSURANCE CORPORATION, petitioner,vs.ORORAMA SUPERMART, ITS OWNER-PROPRIETOR, SEE HONG and JUDGE BENJAMIN K. GOROSPE, PresidingJudge, Court of First Instance of Misamis Oriental, Branch I, respondents.

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 Ongand Conching Ong in the Court of First Instance of Misamis Oriental for the collection of the sum of P 58,400 plus litigationexpenses and attorney's fees (Civil Case No. 4930).

See Hong asked for a writ of preliminary attachment. On March 5, 1976, the lower court issued an order of attachment. Thedeputy 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 TowersAssurance Corporation as surety. In that undertaking, the Ong spouses and Towers Assurance Corporation bound themselvesto 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 spouseswere declared in default.

On October 25, 1976, the lower court rendered a decision, ordering not only the Ong spouses but also their surety, TowersAssurance Corporation, to pay solidarily to See Hong the sum of P 58,400. The court also ordered the Ong spouses to pay P10,000 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. Thelower court granted that motion. The writ of execution was issued on March 14 against the judgment debtors and their surety. OnMarch 29, 1977, Towers Assurance Corporation filed the instant petition for certiorari where it assails the decision and writ ofexecution.

We hold that the lower court acted with grave abuse of discretion in issuing a writ of execution against the surety without firstgiving 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 returnedunsatisfied in whole or in part, the surety or sureties on any counterbound given pursuant to the provisions ofthis rule to secure the payment of the judgment shall become charged on such counterbound, and bound to payto the judgment creditor upon demand, the amount due under the judgment, which amount may be recoveredfrom 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) thatexecution be first issued against the principal debtor and that such execution was returned unsatisfied in whole or in part; (2) that


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the creditor made a demand upon the surety for the satisfaction of the judgment, and (3) that the surety be given notice and asummary 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 solidaryliability for the satisfaction of the judgment. A surety is not entitled to the exhaustion of the properties of the principal debtor (Art.2959, Civil Code; Luzon Steel Corporation vs. Sia, L-26449, May 15, 1969, 28 SCRA 58, 63).

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 caseinvolving his principal. Notice and hearing constitute the essence of procedural due process. (Martinez vs. Villacete 116 Phil.326; Insurance & Surety Co., Inc. vs. Hon. Piccio, 105 Phil. 1192, 1200, Luzon Surety Co., Inc. vs. Beson, L-26865-66, January

30. 1970. 31 SCRA 313).

WHEREFORE, the order and writ of execution, insofar as they concern Towers Corporation, are set aside. The lower court isdirected to conduct a summary hearing on the surety's liability on its counterbound. No costs.

SO ORDERED.

MIRA HERMANOS, INC.,plaintiff-appellee,vs.MANILA TOBACCONISTS, INC., ET AL.,defendants.PROVIDENT INSURANCE CO.,defendant-appellant.

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

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

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

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

The Provident Insurance Co., paid only the sum of P1,363.67, which is 60% of the amount owned by the Tobacconists to MiraHermanos, alleging that the remaining 40% should be paid by the other surety, Manila Compaia de Seguros, in accordancewith article 8137 of the Civil Code. The Manila Compaia de Seguros refused to pay the balance, contending that so long as the

liability of the Tobacconists did not exceed P3,000, it was not bound to pay anything because its bond referred only to theobligation of the Tobacconists in excess of P3,000 and up to P5,000. Hence Mira Hermanos, Inc., brought this action against theManila Tobacconists, Inc., Provident Insurance Co., and Manila Compaia de Seguros to recover from them jointly and severallythe sum of P909.12 with legal interest thereon from the date of the complaint.

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

4. Que la fianza otorgada por esta demandada 'Manila Compania de Seguros', el Octubre de 1940 fue exigida por lademandante solo cuando el importe de las mercancias servidas por esta y pedidas por la demandada ManilaTobacconists, Inc., excedio de la suma de P3,000 garantizada por la otra demandada Provident Insurance Co.; por loque quedo entendido entre la demandante y las tres demandadas que la fianza de P2,000 prestada el Octubre de 1940por esta demandada, 'Manila Compaia de Seguros', se limitaba y era para responder solamente del importe de

mercancias servidad a la demandada Manila Tobacconists, Inc., en tanto en cuanto el valor de esas mercanciasexcediese de P3,000 asegurada por la fianza P3,000 de la Manila Tobacconists, Inc.

To that the defendant Provident Insurance Co. replied:

Que no es verdad el hecho alegado por la demandada 'Manila Compaia de Seguros' en el parrafo 4 de sucontestacion que dice: 'que quedo entendido entre la demandante y las tres demandadas que la fianza de P2,000prestada el Octubre de 1940 por esta demandada "Manila Compaia de Seguros" se limitaba y era para respondersolamente del importe de mercancias servidas a la demandada Manila Tocacconists, Inc., en tanto en cuanto el valorde esas mercancias excediese de P3,000 asegurada por la fianza de P3,000 de la "Manila Tobacconists, Inc."


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Que la demandada, aqui compareciente, nunca ha tenido conocimiento ni menos prestado su consentimiento a esasupuesta inteligencia.

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

Thus there was an issue of fact between the two surety companies, viz.: whether the understanding between the plaintiff and thethree defendants was, that the bond of P2,000 given by the Manila Compaia de Seguros was limited to and responded for theobligation of the Tobacconists only insofar as it might exceed the amount of P3,000 secured by the bond of the ProvidentInsurance Co. That issue of fact was decided by the trial court in favor of the contention of the Manila Compaia de Seguros;

and judgment was rendered by it against the Provident Insurance Co. alone for the amount claimed by the plaintiff.

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

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

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

Discussing these two assignments of error jointly, counsel says:

La unica cuestion que se presenta en esta causa es puramente de derecho. Si el saldo deudor de P2,272.79 queTobacconists ha dejado de pagar, deben pagarlo en su lugar, los dos fiadores proporcionalmente a la cuantia en que seobligaron o debe pagarlo sola y exclusivamente la fiadora Provident Insurance Co., como ordena la sentencia opelada.

Thus it appears that the issue of fact raised by and between the two surety companies before the trial court and decided by thelatter in favor of the appellee Manila Compaia de Seguros is no longer raised before this Court, appellant Provident InsuranceCo. having limited the issue in this appeal to whether or not it is entitled to the "benefit of division" provided in article 1837 of theCivil Code, which reads as follows:

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

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

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

The evidence upon which that finding is based is not only undisputed but perfectly reasonable and convincing. For, as the trialcourt observed, there would have been no need for the additional bond of P2,000 if its purpose were to cover the first P2,000already covered by the P3,000 bond of the Provident Insurance Co. Indeed, we might add, if the purpose of the additional bondof P2,000 were to cover not the excess over and above P3,000 but the first P2,000 of the obligation of the principal debtor likethe bond of P3,000 which covered only the first P3,000 of said obligation, then it would result that had the obligation of theTobacconists exceeded P3,000, neither of the two bonds would have responded for the excess, and that was precisely the eventagainst which Mira Hermanos wanted to protect itself by demanding the additional bond of P2,000. For instance, suppose thatthe obligation of the principal debtor, the Tobacconists, amounted to P5,000; if both bonds were co-extensive up to P2,000 aswould logically follow if appellant's contention were correct the result would be that the first P2,000 of the obligation wouldhave to be divided between and paid equally by the two surety companies, which should pay P1,000 each, and of the balance ofP3,000 the Provident Insurance Co. would have to pay only P1,000 more because its liability is limited to the first P3,000, thusleaving the plaintiff in the lurch as to the excess of P2,000. That was manifestly not the intention of the parties. As a matter of

fact, when the Provident gave its bond and fixed the premiums thereon it assumed an obligation of P3,000 in solidum with theTobacconists without any expectation of any benefit of division with any other surety. The additional bond of P2,000 was, morethan a year later, required by the creditor of the principal debtor for the protection of said creditor and certainly not for the benefitof the original surety, which was not entitled to expect any such benefit.

The foregoing considerations, which fortify the trial court's conclusion as to the real intent and agreement of the parties withregard to the bond of P2,000 given by the Manila Compaia de Seguros, destroys at the same time the theory of the appellantregarding the applicability of article 1837 of the Civil Code.

That article refers to several sureties of only one debtor for the same debt. In the instant case, altho the two bonds on their faceappear to guarantee the same debt co-extensively up to P2,000 that of the Provident Insurance Co. alone extending beyondthat sum up to P3,000 it was pleaded and conclusively proven that in reality said bonds, or the two sureties, do not guarantee


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the same debt because the Provident Insurance Co. guarantees only the first P3,000 and the Manila Compaia de Seguros,only the excess over and above said amount up to P5,000. Article 1837 does not apply to this factual situation.

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

BENJAMIN BITANGA,petitioner,vs.

PYRAMID CONSTRUCTION ENGINEERING CORPORATION,respondent.

Assailed in this Petition for Review under Rule 451of the Revised Rules of Court are: (1) the Decision

2dated 11 April 2006 of the

Court of Appeals in CA-G.R. CV No. 78007 which affirmed with modification the partial Decision3dated 29 November 2002 of

the Regional Trial Court (RTC), Branch 96, of Quezon City, in Civil Case No. Q-01-45041, granting the motion for summaryjudgment filed by respondent Pyramid Construction and Engineering Corporation and declaring petitioner Benjamin Bitanga andhis wife, Marilyn Bitanga (Marilyn), solidarily liable to pay P6,000,000.000 to respondent; and (2) the Resolution

4dated 5 July

2006 of the appellate court in the same case denying petitioners Motion for Reconsideration.

The generative facts are:

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

Q-01-45041.

Respondent alleged in its Complaint that on 26 March 1997, it entered into an agreement with Macrogen Realty, of whichpetitioner is the President, to construct for the latter the Shoppers Gold Building, located at Dr. A. Santos Avenue corner PalayagRoad, Sucat, Paraaque City. Respondent commenced civil, structural, and architectural works on the construction project byMay 1997. However, Macrogen Realty failed to settle respondents progress billings. Petitioner, through his representatives andagents, assured respondent that the outstanding account of Macrogen Realty would be paid, and requested respondent tocontinue working on the construction project. Relying on the assurances made by petitioner, who was no less than the Presidentof Macrogen Realty, respondent continued the construction project.

In August 1998, respondent suspended work on the construction project since the conditions that it imposed for the continuationthereof, including payment of unsettled accounts, had not been complied with by Macrogen Realty. On 1 September 1999,respondent instituted with the Construction Industry Arbitration Commission (CIAC) a case for arbitration against Macrogen

Realtyseeking payment by the latter of its unpaid billings and project costs. Petitioner, through counsel, then conveyed torespondent his purported willingness to amicably settle the arbitration case. On 17 April 2000, before the arbitration case couldbe set for trial, respondent and Macrogen Realty entered into a Compromise Agreement,

5with petitioner acting as signatory for

and in behalf of Macrogen Realty. Under the Compromise Agreement, Macrogen Realty agreed to pay respondent the totalamount of P6,000,000.00 in six equal monthly installments, with each installment to be delivered on the 15

thday of the month,

beginning 15 June 2000. Macrogen Realty also agreed that if it would default in the payment of two successive monthlyinstallments, immediate execution could issue against it for the unpaid balance, without need of judgment or decree from anycourt or tribunal. Petitioner guaranteed the obligations of Macrogen Realty under the Compromise Agreement by executing aContract of Guaranty

6in favor of respondent, by virtue of which he irrevocably and unconditionally guaranteed the full and

complete payment of the principal amount of liability of Macrogen Realty in the sum of P6,000,000.00. Upon joint motion of

respondent and Macrogen Realty, the CIAC approved the Compromise Agreement on 25 April 2000 .7

However, contrary to petitioners assurances, Macrogen Realty failed and refused to pay all the monthly installments agreed

upon in the Compromise Agreement. Hence, on 7 September 2000, respondent moved for the issuance of a writ ofexecution

8against Macrogen Realty, which CIAC granted.

On 29 November 2000, the sheriff9filed a return stating that he was unable to locate any property of Macrogen Realty, except its

bank deposit of P20,242.33, with the Planters Bank, Buendia Branch.

Respondent then made, on 3 January 2001, a written demand10

on petitioner, as guarantor of Macrogen Realty, to paythe P6,000,000.00, or to point out available properties of the Macrogen Realty within the Philippines sufficient to cover the

obligation guaranteed. It also made verbal demands on petitioner. Yet, respondents demands were left unheeded.

Thus, according to respondent, petitioners obligation as guarantor was already due and demandable. As to Marilyns liability ,respondent contended that Macrogen Realty was owned and controlled by petitioner and Marilyn and/or by corporations owned

and controlled by them. Macrogen Realty is 99% owned by the Asian Appraisal Holdings, Inc. (AAHI), which in turn is 99%owned by Marilyn. Since the completion of the construction project would have redounded to the benefit of both petitioner andMarilyn and/or their corporations; and considering, moreover, Marilyns enormous interest in AAHI, the corporation whichcontrols Macrogen Realty, Marilyn cannot be unaware of the obligations incurred by Macrogen Realty and/or petitioner in thecourse of the business operations of the said corporation.

Respondent prayed in its Complaint that the RTC, after hearing, render a judgment ordering petitioner and Marilyn to complywith their obligation under the Contract of Guaranty by paying respondent the amount of P6,000,000.000 (less the bank deposit

of Macrogen Realty with Planters Bank in the amount ofP20,242.23) and P400,000.000 for attorneys fees and expenses of

litigation. Respondent also sought the issuance of a writ of preliminary attachment as security for the satisfaction of anyjudgment that may be recovered in the case in its favor.
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Marilyn filed a Motion to Dismiss,11

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

The RTC denied Marilyns Motion to Dismiss for lack of merit, and in its Order dated 24 January 2002 decreed that:

The Motion To Dismiss Complaint Against Defendant Marilyn Andal Bitanga filed on November 12, 2001 is denied forlack of merit considering that Sec. 4, Rule 3, of the Rules of Court (1997) specifically provides, as follows:

"SEC. 4. Spouses as parties.Husband and wife shall sue or be sued jointly, except as provided by law."

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

Petitioner filed with the RTC on 12 November 2001, his Answer13

to respondents Complaint averring therein that he never maderepresentations to respondent that Macrogen Realty would faithfully comply with its obligations under the CompromiseAgreement. He did not offer to guarantee the obligations of Macrogen Realty to entice respondent to enter into the CompromiseAgreement but that, on the contrary, it was respondent that required Macrogen Realty to offer some form of security for itsobligations before agreeing to the compromise. Petitioner further alleged that his wife Marilyn was not aware of the obligationsthat he assumed under both the Compromise Agreement and the Contract of Guaranty as he did not inform her about saidcontracts, nor did he secure her consent thereto at the time of their execution.

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

At the pre-trial held on 5 September 2002, the parties submitted the following issues for the resolution of the RTC:

(1) whether the defendants were liable under the contract of guarantee dated April 17, 2000 entered into betweenBenjamin Bitanga and the plaintiff;

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

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

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

(5) whether the benefit of excussion can still be invoked by the defendant guarantor even after the notice has beenallegedly sent by the plaintiff although proper receipt is denied.

14

On 20 September 2002, prior to the trial proper, respondent filed a Motion for Summary Judgment.15

Respondent alleged thereinthat it was entitled to a summary judgment on account of petitioners admission during the pre-trial of the genuineness and dueexecution of the Contract of Guaranty. The contention of petitioner and Marilyn that they were entitled to the benefit of excussion

was not a genuine issue. Respondent had already exhausted all legal remedies to collect from Macrogen Realty, but its effortsproved unsuccessful. Given that the inability of Macrogen Realty as debtor to pay the amount of its debt was already proven bythe return of the writ of execution to CIAC unsatisfied, the liability of petitioner as guarantor already arose.

16In any event,

petitioner and Marilyn were deemed to have forfeited their right to avail themselves of the benefit of excussion because theyfailed to comply with Article 2060

17of the Civil Code when petitioner ignored respondents demand letter dated 3 January 2001

for payment of the amount he guaranteed.18

The duty to collect the supposed receivables of Macrogen Realty from its creditorscould not be imposed on respondent, since petitioner and Marilyn never informed respondent about such uncollected creditseven after receipt of the demand letter for payment. The allegation of petitioner and Marilyn that they could not respond torespondents demand letter since they did not receive the same was unsubstantiated and insufficient to raise a genuine issue offact which could defeat respondents Motion for Summary Judgment. The claim that Marilyn never participated in thetransactions that culminated in petitioners execution of the Contract of Guaranty was nothing more than a sham.

In opposing respondents foregoing Motion for Summary Judgment, petitioner and Marilyn countered that there were genuinely

disputed facts that would require trial on the merits. They appended thereto an affidavit executed by petitioner, in which hedeclared that his spouse Marilyn could not be held personally liable under the Contract of Guaranty or the CompromiseAgreement, nor should her share in the conjugal partnership be made answerable for the guaranty petitioner assumed, becausehis undertaking of the guaranty did not in any way redound to the benefit of their family. As guarantor, petitioner was entitled tothe benefit of excussion, and he did not waive his right thereto. He never received the respondents demand letter dated 3January 2001, as Ms. Dette Ramos, the person who received it, was not an employee of Macrogen Realty nor was sheauthorized to receive the letter on his behalf. As a guarantor, petitioner could resort to the benefit of excussion at any time beforejudgment was rendered against him.

19Petitioner reiterated that Macrogen Realty had uncollected credits which were more than

sufficient to satisfy the claim of respondent.

On 29 November 2002, the RTC rendered a partial Decision, the dispositive portion of which provides:
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WHEREFORE, summary judgment is rendered ordering defendants SPOUSES BENJAMIN BITANGA and MARILYNANDAL BITANGA to pay the [herein respondent], jointly and severally, the amount of P6,000,000.00, less P20,242.23

(representing the amount garnished bank deposit of MACROGEN in the Planters Bank, Buendia Branch); and the costsof suit.

Within 10 days from receipt of this partial decision, the [respondent] shall inform the Court whether it shall still pursue therest of the claims against the defendants. Otherwise, such claims shall be considered waived .

20

Petitioner and Marilyn filed a Motion for Reconsideration of the afore-quoted Decision, which the RTC denied in an Order dated26 January 2003.

21

In time, petitioner and Marilyn filed an appeal with the Court of Appeals, docketed as CA-G.R. CV 78007. In its Decision dated11 April 2006, the appellate court held:

UPON THE VIEW WE TAKE OF THIS CASE, THUS, the judgment appealed from must be, as it hereby is, MODIFIEDto the effect that defendant-appellant Marilyn Bitanga is adjudged not liable, whether solidarily or otherwise, with herhusband the defendant-appellant Benjamin Bitanga, under the compromise agreement or the contract of guaranty. Nocosts in this instance.

22

In holding that Marilyn Bitanga was not liable, the Court of Appeals cited Ramos v. Court of Appeals ,23

in which it was declaredthat a contract cannot be enforced against one who is not a party to it. The Court of Appeals stated further that the substantialownership of shares in Macrogen Realty by Marilyn Bitanga was not enough basis to hold her liable.

The Court of Appeals, in its Resolution dated 5 July 2006, denied petitioners Motion for Reconsideration24of its earlier Decision.

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

I

THE COURT OF APPEALS GRAVELY ERRED IN AFFIRMING THE VALIDITY OF THE PARTIAL SUMMARYJUDGMENT BY THE REGIONAL TRIAL COURT OF QUEZON CITY, BRANCH 96, DESPITE THE CLEAREXISTENCE OF DISPUTED GENUINE AND MATERIAL FACTS OF THE CASE THAT SHOULD HAVE REQUIRED ATRIAL ON THE MERITS.

II

THE COURT OF APPEALS GRAVELY ERRED IN NOT UPHOLDING THE RIGHT OF PETITIONER BENJAMIN M.BITANGA AS A MERE GUARANTOR TO THE BENEFIT OF EXCUSSION UNDER ARTICLES 2058, 2059, 2060, 2061,AND 2062 OF THE CIVIL CODE OF THE PHILIPPINES.

25

As in the two courts below, it is petitioners position that summary judgment is improper in Civil Case No. Q-01-45041 becausethere are genuine issues of fact which have to be threshed out during trial, to wit:

(A) Whether or not there was proper service of notice to petitioner considering the said letter of demand was allegedlyreceived by one Dette Ramosat Macrogen office and not by him at his residence.

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

We are not persuaded by petitioners arguments.

Rule 35 of the Revised Rules of Civil Procedure provides:

Section 1. Summary judgment for claimant.A party seeking to recover upon a claim, counterclaim, or cross-claim or toobtain a declaratory relief may, at any time after the pleading in answer thereto has been served, move with supportingaffidavits, depositions or admissions for a summary judgment in his favor upon all or any part thereof.

For a summary judgment to be proper, the movant must establish two requisites: (a) there must be no genuine issue as to anymaterial fact, except for the amount of damages; and (b) the party presenting the motion for summary judgment must be entitledto a judgment as a matter of law. Where, on the basis of the pleadings of a moving party, including documents appendedthereto, no genuine issue as to a material fact exists, the burden to produce a genuine issue shifts to the opposing party. If the

opposing party fails, the moving party is entitled to a summary judgment.27

In a summary judgment, the crucial question is: are the issues raised by the opposing party not genuine so as to justify asummary judgment?

28

First off, we rule that the issue regarding the propriety of the service of a copy of the demand letter on the petitioner in his officeis a sham issue. It is not a bar to the issuance of a summary judgment in respondents favor.

A genuine issue is an issue of fact which requires the presentation of evidence as distinguished from an issue which is a sham,fictitious, contrived or false claim. To forestall summary judgment, it is essential for the non-moving party to confirm theexistence of genuine issues, as to which he has substantial, plausible and fairly arguable defense, i.e.,

29issues of fact calling for
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the presentation of evidence upon which reasonable findings of fact could return a verdict for the non-moving party, although amere scintilla of evidence in support of the party opposing summary judgment will be insufficient to preclude entry thereof.

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

30

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

SEC. 6. Personal service.Service of the papers may be made by delivering personally a copy to the party or hiscounsel, or by leaving it in his office with his clerk or with a person having charge thereof. If no person is found inhis office, or his office is not known, or he has no office, then by leaving the copy, between the hours of eight in themorning and six in the evening, at the partys or counsels residence, if known, with a person of sufficient age anddiscretion then residing therein.

The affidavit of Mr. Robert O. Pagdilao, messenger of respondents counsel states in part:

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

3. As instructed, I immediately proceeded to the office of Mr. Bitanga located at the 12 thFloor, Planters DevelopmentBank Building, 314 Senator Gil Puyat Avenue, Makati City. I delivered the said letter to Ms. Dette Ramos, a person ofsufficient age and discretion, who introduced herself as one of the employees of Mr. Bitanga and/or of the latterscompanies.

31(Emphasis supplied.)

We emphasize that when petitioner signed the Contract of Guaranty and assumed obligation as guarantor, his address in thesaid contract was the same address where the demand letter was served .

32He does not deny that the said place of service,

which is the office of Macrogen, was also the address that he used when he signed as guarantor in the Contract of Guaranty.Nor does he deny that this is his office address; instead, he merely insists that the person who received the letter and signed thereceiving copy is not an employee of his company. Petitioner could have easily substantiated his allegation by a submission ofan affidavit of the personnel manager of his office that no such person is indeed employed by petitioner in his office, but thatevidence was not submitted.

33All things are presumed to have been done correctly and with due formality until the contrary is

proved. Thisjuris tantumpresumption stands even against the most well-reasoned allegation pointing to some possible

irregularity or anomaly.34It is petitioners burden to overcome the presumption by sufficientevidence, and so far we have notseen anything in the record to support petitioners charges of anomaly beyond his bare allegation. Petitioner cannot now beheard to complain that there was an irregular service of the demand letter, as it does not escape our attention that petitionerhimself indicated "314 Sen. Gil Puyat Avenue, Makati City" as his office address in the Contract of Guaranty.

Moreover, under Section 6, Rule 13 of the Rules of Court, there is sufficiency of service when the papers, or in this case, whenthe demand letter is personally delivered to the party or his counsel, or by leaving it in his office with his clerk or with a personhaving charge thereof, such as what was done in this case.

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

35

The Court of Appeals was correct in holding that:

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

36

We further affirm the findings of both the RTC and the Court of Appeals that, given the settled facts of this case, petitionercannot avail himself of the benefit of excussion.

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

37

Article 2060 of the Civil Code reads:

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

38
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The afore-quoted provision imposes a condition for the invocation of the defense of excussion. Article 2060 of the Civil Codeclearly requires that in order for the guarantor to make use of the benefit of excussion, he must set it up against the creditor uponthe latters demand for payment and point out to the creditor available property of the debtor within the Philippines sufficient tocover the amount of the debt.

39

It must be stressed that despite having been served a demand letter at his office, petitioner still failed to point out to therespondent properties of Macrogen Realty sufficient to cover its debt as required under Article 2060 of the Civil Code. Suchfailure on petitioners part forecloses his right to set up the defense of excussion.

Worthy of note as well is the Sheriffs return stating that the only property of Macrogen Realty which he found was its deposit

of P20,242.23 with the Planters Bank.

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

Art. 2059. This excussion shall not take place:

x x x x

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

As the Court of Appeals correctly ruled:

We find untenable the claim that the [herein petitioner] Benjamin Bitanga cannot be compelled to pay Pyramid becausethe Macrogen Realty has allegedly sufficient assets. Reason: The said [petitioner] had not genuinely controverted thereturn made by Sheriff Joseph F. Bisnar, who affirmed that, after exerting diligent efforts, he was not able to locate anyproperty belonging to the Macrogen Realty, except for a bank deposit with the Planters Bank at Buendia, in the amountofP20,242.23. It is axiomatic that the liability of the guarantor arises when the insolvency or inability of the debtor to pay

the amount of debt is proven by the return of the writ of execution that had not been unsatisfied .40

WHEREFORE, premises considered, the instant petition is DENIEDfor lack of merit. The Decision of the Court of Appeals dated11 April 2006 and its Resolution dated 5 July 2006 are AFFIRMED. Costs against petitioner.

SO ORDERED.

TUASON, TUASON, INC.,plaintiff-appellee,vs.ANTONIO MACHUCA,defendant-appellant.

By giving a bond in the sum of P9,663 executed by "Manila Compaia de Seguros," the Universal Trading Company wasallowed by the Insular Collector of Custom to withdraw from the customhouse sundry goods imported by it and consignedthrough the bank of the Philippine Islands. Subsequently, the Bank of the Philippine Islands claimed the value of the goods, andthe Insular Collector of Customs obligated the "Manila Compaia de Seguros" to pay the sum of P9,663, the amount of thebond. Before paying this amount to the Insular Collector of Customs, the "Manila Compaia de Seguros" obtained from theUniversal Trading Company and Tuason, Tuason & Co., a solidary note for the sum of P9,663 executed by said companies in its

favor. Before signing said note, Tuason, Tuason &am

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