INVESTORS FINANCE CORPORATION (CITYTRUST FINANCE CORP.), PLAINTIFF-APPELLEE, VS. R. C. GONZALES COMPANY, INC., AND RAMON GONZALES AND MARIA CARMEN GONZALES, DEFENDANTS-APPELLANTS.
SANTIAGO-LAGMAN, J.:
“WHEREFORE, premises considered, judgment is hereby rendered as follows:
1. Ordering the defendants to pay the plaintiff jointly and severally the following amounts:
a) On the first cause of action the sum of P1,000,000.00 with past due charges thereon at the rate of 2% per month or P666.67 daily from 30 July 1980, until fully paid plus legal interest thereon from the time the complaint was filed;
b) On the second cause of action, the sum of P557,016.06 plus P3,217.58 per day from 21 September 1981 plus the stipulated interest of P14% per annum until all the leased equipment are returned to the plaintiff with legal interest from the time the complaint was filed;
c) On the third cause of action, ordering the defendants to return the leased property or jointly and severally to pay the value of the leased property in case of failure to return;
d) The sum of P50,000.00 as and for attorney’s fees.
2. Dismissing defendants’ counterclaim.
SO ORDERED.”[2]
The factual antecedents as summarized by the RTC in its decision, are:
“Plaintiff (appellee herein) brought this action to recover a sum of money and damages against the defendant R.C. Gonzales Co., Inc. (defendant company) (herein referred to as Appellant Company) and spouses Ramon and Carmen Gonzales (herein referred to as Appellant-Spouses) in their capacity as guarantors of the obligations contracted by the defendant company. The complaint includes a prayer for the issuance of the writ of preliminary attachment on the ground that defendants have removed or disposed or are so planning to remove or dispose of their properties with intent to defraud the plaintiff.
After plaintiff filed the attachment bond and the Affidavit in support of its application for the issuance of the writ of preliminary attachment, the Court by Order dated 15 June 1983, issued the writ of attachment ex parte. This writ was later lifted by Order dated 1 August 1983, after defendant filed an Urgent Motion for Recall and Quashal of the Writ of Preliminary Attachment and the Court made a finding that defendants obligation to the plaintiff remains fully secured.
As a backgrounder, plaintiff is a corporation duly organized and existing under the laws of the Philippines doing business under the name and style FNCB Finance Corporation. During the pendency of this action, plaintiff, with the approval of the Securities and Exchange Commission changed its corporate name to Citytrust Finance Corporation.
Defendant R.C. Gonzales Co. Inc., on the other hand is a corporation duly organized and existing under the laws of the Philippines and engaged in the general construction business, while defendant spouses Ramon and Carmen Gonzales are the president and treasurer of the defendant company respectively.
It appears from the records that prior to the commencement of the instant suit, defendants availed of various credit facilities extended by the plaintiff. These credit facilities include the receivables purchase financing facility and the purchase-lease-back financing facility.
On 7 July 1978, plaintiff extended to the defendant company a receivable purchase financing facility for up to P 1 million. As agreed upon by the parties, each availment was to have a maximum term of sixty (60) days with the plaintiff earning a purchase discount at 2% on the receivables purchased. The parties stipulated that there shall be additional charges of two percent (2&) per month (past due charges) in case certain stipulations are not met by the debtor. This financing facility was to be secured by the following:
a) a Continuing Guaranty to be executed by the defendant Spouses Ramon and Carmen Gonzales;
b) Chattel Mortgage of various construction equipment owned by the defendant company;
c) Assignment of receivables due to the defendant company for the construction of a provincial road in Mindoro Oriental.
Under the Continuing Guaranty, . Spouses Ramon and Carmen Gonzales agreed to guarantee the punctual payment of any and all such instruments, loans, advances, credits and any other indebtedness which are due or may become due or owing to the plaintiff by defendant company. Defendant spouses also waived the benefit of excussion it being agrees that their liability under the Continuing Guaranty is joint and several with the defendant company.
Pursuant also to the agreed financing facility, defendant company mortgaged in favor of the plaintiff various items of construction equipment under Chattel Mortgage dated 12 July 1978. These mortgaged equipment were later substituted with three Mercedes Benz dump trucks in a deed denominated by the parties as “Release and Substitution of Collaterals” dated September 15, 1978.
On 27 July 1978, defendant company mortgaged additional construction equipment which were later substituted with two Mercedes Benz dump trucks in another Release and Substitution of Collaterals dated September 15, 1978.
On various occasions, defendant company availed itself of the receivables purchase financing facility and one such occasion was in June 1980, when defendant availed itself of the facility by discounting receivables valued at P600,000.00 and P400,000.,00. The availments are each evidenced by a Disclosure Statement of Loan/Credit Transaction both dated 18 June 1980.
As security for the availments, in addition to the Continuing Guaranty of the defendant spouses and the mortgage of various construction equipment, defendant company assigned to the plaintiff receivables from the Ministry of Public Works for the construction of a provincial road in Mindoro Oriental.
Defendant company’s total obligations under the receivables purchase financing facility arising from two availments of P600,000. and P400,000 have become due and demandable as of 29 July 1980. Despite repeated demands made by the plaintiff, defendants refused and failed to pay their outstanding obligations. As stipulated in their agreement, defendants shall pay past due charges at the rate of 2% per month (if computed daily will result to P666.67 daily interest) in case the obligation is not paid at maturity.
As a second cause of action, plaintiff alleged that defendants likewise availed of the purchase-lease-back financing facility. Under this scheme, plaintiff purchased various items of construction equipment and leased the same back to the defendant company for a period of two years commencing on 20 September 1979 and ending on 20 September 1981, pursuant to the Lease Agreement. Defendants Ramon and Carmen Gonzales likewise executed a Continuing Guaranty of Lease Obligations dated 5 September 1978.
The aggregate amount of rentals to be paid under the agreement is P2,316.656.64 payable in twenty-four (24) equal monthly installments of P96,527.36 each. The parties stipulated that in the event the defendants fail to return any leased property on the date required, the defendants shall continue to pay rent at a rate per month equal to the monthly rent payable during the original term divided by thirty (30) which is equivalent to P3,217.57 daily rental. Under paragraph 17 of the Lease Agreement, the parties stipulated that delinquent rent shall earn late charges of fourteen percent (14%) per annum.
Plaintiff alleged that of the P2,316.656.54 rental stipulated under their Lease Agreement, defendants were able to pay only P1,759,595.58, leaving a balance of P557,016.06 in unpaid rentals for the regular term of the lease. There was likewise failure on the part of the defendants to return the properties subject of the lease despite the expiration of the term on 21 September 1981.
Plaintiff sent several demands to the defendants for the settlement of their outstanding obligations on both financing facilities but defendants failed to fully settle their obligations, Hence the suit.
The third, fourth, and fifth causes of action pleaded by the plaintiff in its complaint merely seek the enforcement of the stipulation regarding damages and attorney’s fees in all the loan agreements with the defendants.
On 23 August 1983, defendants filed their Answer with Compulsory Counterclaim. Defendants admitted having availed of both financing facilities extended by the plaintiff. Spouses Ramon and Carmen Gonzales likewise admitted the execution of the Continuing Guaranty but denied liability under the same alleging that it was a mere formality in the extension of the credit facilities and is in no way intended to bind them.
With respect to the purchase-lease-back financing facility, defendants admitted the execution of the Lease Agreement but raised as an affirmative defense that the contract does not express the true intent and agreement between them. They denied that the transaction was a lease and alleged that it was in effect a conditional sale of the equipment listed in the Annex to the Lease Schedule ( Exhibit P)and they are therefore under no obligation to return the equipment much less to pay the additional rentals.
In their counterclaim, defendants seek to recover the following amounts: P3 million for damages allegedly sustained by reason of the implementation of the writ of preliminary attachment which was later lifted; P 1 million for the value of the payloader which fell off the bridge in the course of the attachment; P50,000 as and for attorney’s fees and P1 million for moral damages.
On September 29, 1995, the court a quo issued the challenged decision. In resolving the case against the appellants spouses, the court a quo anchored its findings on the admission of the appellants that they have availed of the financing facility extended to them by the appellee secured by collaterals owned by the appellant company as represented by the appellant-Spouses. The same holds true as regards the purchase lease back financing facility considering that appellee was able to prove its ownership over the leased machineries and equipment leased by the appellants, in addition to the fact that the latter admitted the execution of the Lease Agreement in favor of the appellee. More importantly, the trial court likewise debunked the contention raised by the appellants that the contracts they executed in favor of the appellee was a mere formality which, in any manner, cannot bind them.
Undaunted by the said decision, appellants now come to Us via the present appeal, raising the following assignment of errors:
“I.) THE TRIAL COURT ERRED IN ORDERING APPELLANTS GONZALES TO PAY APPELLEE JOINTLY AND SEVERALLY THE SUM OF P1 MILLION PESOS PLUS 2% INTEREST MONTHLY INTEREST OR P666.67 DAILY INTEREST FROM JULY 30, 1980, UNTIL FULLY PAID PLUS LEGAL INTEREST THEREON FROM THE TIME THE COMPLAINT WAS FILED;
II.) THE TRIAL COURT ERRED IN DECLARING AS A CONTRACT OF LEASE THE DOCUMENT DENOMINATED “PURCHASE LEASE BACK AGREEMENT;
III.) THE TRIAL COURT ERRED IN ORDERING APPELLANTS TO RETURN THE ALLEGED LEASED PROPERTY OR JOINTLY AND SEVERALLY TO PAY THE VALUE OF THE ALLEGED LEASED PROPERTY IN CASE OF FAILURE TO RETURN;
IV.) THE TRIAL COURT ERRED IN AWARDING ATTORNEY’S FEES IN THE AMOUNT OF OF P50,000.00 TO THE APPELLEE;
V.) THE TRIAL COURT ERRED IN DISMISSING APPELLANT’S COUNTERCLAIM.”[3]
From the foregoing, the issues to be resolved can be simplified by addressing the following issues of:
- Whether or not the court a quo correctly held the appellants jointly and severally liable under the Continuing Guarantee executed by the former in favor of the latter;
- Whether or not the court a quo correctly ordered the appellants to pay the adjudged amount in favor of the appellee pursuant to the “Purchase Lease Back Agreement”;
- Whether or not the court a quo properly granted the award of attorney’s fees.
Anent the first issue, appellants Spouses raise several defenses, mainly to evade liability under the Continuing Guaranty. First, the existence of the word “may” under the document creates doubt as to whether the liability is joint or several, such that, such confusion should be construed as a mere joint obligation under Article 1208 of the Civil Code and not as a joint and several obligation. Second, the contract denominated as the Continuing Guaranty is one of adhesion and is therefore to be construed against the appellee. Third, the said document cannot bind them ( Spouses Gonzales) as the same was merely executed as a formality for the approval of the credit facility. Fourth, appellant Spouses are mere guarantors, to the effect that their liability is only secondary to that of the appellant corporation and therefore, they are entitled to the benefit of excussion pursuant to Article 2058 of the Civil Code.
In light of these contentions raised by the appellants spouses, We are confronted whether their (Spouses Gonzales) liability is one of a surety, thus, solidarily liable with the appellant Company or that of an ordinary guarantor. In resolving this query, We quote the pertinent provisions of the Continuing Guaranty[4] executed on July 11, 1978 by the appellants spouses in favor of the appellee, viz:
“Paragraph I. For and in consideration of any existing indebtedness to you of R.C. GONZALEZ CO., INC (thereinafter called the “Borrower”), for the payment of which the undersigned is now obligated to you either as guarantor or otherwise, and or 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 or without security, and or to 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 (all hereinafter called “instruments”)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 of maturity to you of any and all such instruments, loans, advances, credits and or other obligations hereinbefore referred to, and also other indebtedness of every kind which is now or may hereafter become due or owing to you by the Borrower, x- x- x , that the liability of the undersigned hereunder shall not exceed at any one time the aggregate principal sum of ONE MILLION only (irrespective of the currency (ies) in which the obligation hereby guaranteed are payable, and such interest as may accrue thereon either before or after any maturity (ies) thereof, and such expenses as may be incurred by you as referred to above.
X-x-x
Paragraph VIII. Upon any default, you may proceed directly against the undersigned on this guaranty without first proceeding against the Borrower and without exhausting the property of the Borrower, the liability of the undersigned being joint and several with the Borrower.
X-x-x
Paragraph X. This guaranty shall be binding upon the undersigned, the heirs, executors, administrators, successors, and assigns of the undersigned and shall insure to the benefit of and be enforceable by you, your successors, transferees and assigns. If this guaranty is executed by two or more parties, they shall be severally liable hereunder, and the word “undersigned” wherever used herein shall be construed to refer to each of such parties separately, all in the same manner and with the same effect as if each of them had signed separate instruments: and in any such case this guaranty shall not be revoked or impaired as to any one or more of such parties by the death of any of the others or by the revocation or release of any obligations hereunder or any one or more of such other parties.
Paragraph XI. Should the Borrower at this or at any future furnish, or should he heretofore have furnished, another surety or sureties to guarantee the payment of his obligations as to you, the undersigned hereby expressly waives all benefits to which the undersigned might be entitled under the provisions of Article 2065 of the Civil Code (beneficio de division), the liability of the undersigned under any and all circumstances being joint and several.”
From the import of the Continuing Guaranty alone, it is beyond doubt that appellant Spouses Gonzales assumed liability and bound themselves to be jointly and severally liable to the obligation of the appellant Company. While it is true that the said contract refers to appellant Spouses as “guarantor” and agreed to “guarantee” to the obligation of the appellant Company (as the Borrower), this Court believes that the usage of the said terms do not limit or convert the same to a simple contract of guaranty. In fact, the Court has ruled in favor of suretyship, though a contract was denominated as a “Continuing Guaranty” [5], as in this case. On the contrary, the contract executed by the Spouses unequivocally disclosed their true intention, and that is to be solidarily liable for the obligations incurred by the appellant Company. Being solidarily liable with the principal debtor, appellant Spouses became a surety under Article 2047[6] of the Civil Code, and not mere guarantors as appellant Spouses insist. Indeed, the very terms of a contract govern the obligations of the parties or the extent of the obligor’s liability.
In addition, appellants Spouses’ claim that appellees cannot proceed against them without exhausting first the property of the appellant Company, deserves scant consideration. Appellants Spouses should be reminded that the benefit of excussion under the Civil Code shall not take place in the following instances, to wit: (a) if the guarantor has expressly renounced it; (b) if he has bound himself solidarily with the debtor.[7] At the risk of being repetitive, appellant Spouses, as previously mentioned, bound themselves to be solidarily liable with the appellant Company when they expressly waived and renounced the benefit of excussion and therefore, the same cannot be applied in their favor.
Appellants Spouses having benefited from the financing facility extended to them by the appellee cannot belatedly question the terms and conditions incorporated in the Continuing Guaranty on the grounds and defenses they raised. Contracts have the force of law between the parties, who are free to stipulate any matter not contrary to law, morals, good customs, public order or public policy. None of these had been proved by the appellants, for Us to set aside the contract entered by them with the appellee. Having entered into a well defined contractual relationship, appellants should honor and adhere to their obligations and should be complied with in good faith. Equity demands that the appellant Spouses cannot disown their previous declaration to the prejudice of the appellee, the latter having relied on such declaration. A refusal to enforce said contract would virtually sanction the perpetration of fraud or injustice,[8] which this Court cannot allow.
On the second issue, appellants Spouses claim that the appellant Company owned the alleged leased equipments such that they are not obligated to pay the unpaid rentals for it or to return the same in favor of the appellee.
In traversing this issue, suffice it to say that appellants Spouses failed to substantiate this defense. As found by the court a quo, appellee successfully proved its ownership over the leased equipments[9] as shown by a Deed of Sale[10] dated September 20, 1978, executed by the appellant Company through its President, Ramon Gonzales, in favor of the appellee. The said document casts no doubt that indeed, the appellant Company unconditionally conveyed, sold and transferred the ownership of the said equipments to the appellee. It therefore follows that the failure to pay the agreed rentals on the said equipments necessarily obligate the appellants Spouses to pay for the same at the agreed stipulated rate. If in reality, the appellant Company owned the said machineries, then there is no need for the appellant Company to sign and execute the Lease Agreement,[11] Addendum to the Lease Agreement[12] and Lease Schedule.[13] In the same manner that if the purchase-lease financing facility and the aforementioned contracts do not express their true intentions, as the transaction was a simple loan, then, as the court a quo found, the appellants should have asked for the reformation of the said instruments as early as possible to express their real agreements.
Equally worth stressing is the fact that appellants Spouses are astute businessmen who ought to be very familiar with the intricacies of business transactions, to the effect that they are responsible for the consequences of their acts. By voluntarily affixing their signatures to the Lease Agreement as well as in the Continuing Guaranty of the Lease Obligations[14], appellants consented and agreed to the terms and conditions embodied in the said documents, and therefore should be complied with in good faith.
Neither was the due execution of the said documents presented by the appellee contested by the appellants. Their admission that these documents were executed brings Us to no other conclusion than that there was a lease agreement, where the appellants bound themselves to be governed by the provisions of the lease contract.
Lastly, appellants’ view that the execution of the relevant contracts in this case was a mere formality which do not bind them, must fail. It cannot be denied that the execution of the said contracts was designed as a condition sine qua non before the approval of the financing facilities extended by the appellee in favor of the appellants. This is consistent with the principle in business transactions that a creditor, the appellee in this case, puts a higher degree of liability against its debtors in case the latter would breach their corresponding obligations as agreed upon. It is for this reason that We cannot agree with the appellants’ contention that the instruments and contract they voluntarily signed and executed in favor of the appellee were mere formalities and served no other purpose.
Coming now to the last issue, it is undisputed that from the facts and circumstances of this case, appellee has the legal right to enforce the payment and obligations of appellants pursuant to the financing facility and lease contract the latter availed from the former. The appellants’ adamant refusal and failure to pay their contractual and legal obligations prompting the appellee to initiate and protect their interest, warrants the award of attorney’s fees.
In fine, we find the appeal to be without merit as no reversible error was committed by the court a quo in issuing the assailed decision.
WHEREFORE, the decision of the Regional Trial Court of Makati City, Branch 138, dated September 29, 1995 in Civil Case No. 3900, is AFFIRMED in toto.
SO ORDERED.
Guevara-Salonga, (Chairman) and Pizarro, JJ., concur.
* Raffled to the Ponente on March 26, 2004.
[1] Rollo, pp. 101-114.
[2] Rollo, pp. 113-114.
[3] Rollo, p. 79.
[4] Records, Vol. 1, pp. 15-16.
[5] E. Zobel, Inc. vs. Court of Appeals, 290 SCRA 1, 10 (1998).
[6] “If a person binds himself solidarily with the principal debtor, the provision of Section 4, Chapter 3, Title I of this Book shall be observer. In such case the contract shall be called suretyship”. Note: Section 4, Chapter , Title I of the Civil Code, refers to “Joint and Solidary Obligations”.
[7] Article 2059 of the Civil Code.
[8] Komatsu (Phils.) Inc. vs. Court of Appeals, 249 SCRA 361 (1995).
[9] Records, Vol. II p. 84.
[10] Records, Vol. II p. 83.
[11] Records, Volume I, pp. 37-40.
[12] Records, Volume I, pp. 41-42.
[13] Records, Volume II pp 395-396.
[14] Records, Volume I, p. 43.