G.R. No. L-33174. July 04, 1991
PHILIPPINE NATIONAL BANK, PETITIONER, VS. THE HONORABLE COURT OF APPEALS (SPECIAL FOURTH DIVISION), LUZON SURETY CO., INC., AND ESTANISLAO E. DEPUSOY, TRADING UNDER THE STYLE OF…
DAVIDE, JR., J.:
Before Us is a petition for the review on certiorari of
the decision of the Court of Appeals promulgated on 12 December 1970 in C.A.-G.R. No. 36615-R[1]
affirming, with modification, the decision of the then Court of First Instance
(now Regional Trial Court) of Manila, Branch VII, dated 30 September 1959 in Civil Case No. 35163,[2]
an action for collection of sum of money filed by petitioner against private
respondents. The dispositive
portion of the trial court’s decision reads:
“IN VIEW WHEREOF:
1. The case against Luzon Surety Co. is dismissed
but its counterclaim is also dismissed for lack of sufficient merit;
2. Defendant Estanislao
Depusoy is condemned to pay unto the Philippine
National Bank the respective sums as principal of P35,000.00, P30,000.00,
P10,000.00, and P25,000.00 together with the interests as outlined in the
statement of account set forth in the body of this decision. No pronouncements as to costs.
SO ORDERED.”[3]
The dispositive portion of the decision
of respondent Court of Appeals reads:
“WHEREFORE, with the modification that the defendant Depusoy shall pay 10% interest on the amount of the
judgment, the decision of the trial court is hereby affirmed in all other
respects. Without pronouncement as to
costs.”[4]
However, immediately preceding this is a
paragraph reading:
“We agree with the appellant that the trial court erred in not
sentencing Estanislao Depusoy
to pay attorney’s fees equivalent to 10% of the amount due. This is expressly provided for in the
promissory notes, and as it does not appear to be unreasonable, the
stipulations of the parties should be given effect.”
As carefully summarized by the Court of Appeals, the relevant
facts in this case are as follows:
“On August 6, 1955, Estanislao Depusoy, doing business under the name of E. E. Depusoy Construction, and the Republic of the Philippines, represented by the
Director of Public Works, entered into a building contract, Exhibit 2-Luzon,
for the construction of the GSIS building at Arroceros
Street, Manila, Depusoy to furnish all materials,
labor, plans, and supplies needed in the construction. Depusoy applied for
credit accommodation with the plaintiff.
This was approved by the Board of Directors in various resolutions
subject to the conditions that he would assign all payments to be received from
the Bureau of Public Works of the GSIS to the bank, furnish a surety bond, and
the surety to deposit P10,000.00 to the plaintiff. The total accommodation granted to Depusoy was P100,000.00.
This was later extended by another P10,000.00 and P25,000.00, but in no
case should the loan exceed P100,000.00, Exhibits K-1, K-2, K-3 and K-4. In compliance with these conditions, Depusoy executed a Deed of Assignment of all money to be
received by him from the GSIS as follows:
‘That I, Estanislao Depusoy,
of legal age, Filipino, married to Lourdes
G. Gonzales, doing business under the style of E. E. San Beda
Subdivision, Manila, for and in consideration of certain loans, overdrafts or
other credit accommodations to be granted by the PHILIPPINE NATIONAL BANK,
Manila, have assigned, transferred and conveyed and by these presents do hereby
assign, transfer and convey unto the said PHILIPPINE NATIONAL BANK, its
successors and assigns all payment to be received from my contract with the
Bureau of Public Works, Republic of the Philippines date (sic) August 6, 1955.
By virtue of this assignment it is hereby understood that the
assignor hereby acknowledges the monies, sums or payments due from the Bureau
of Public Works, Republic of the Philippines, and which are hereby assigned to
the PHILIPPINE NATIONAL BANK, as monies, sums and payments belonging to
the PHILIPPINE NATIONAL BANK, and that any act or misappropriation or
conversion which the assignor or the latter’s representatives may commit with
respect to the said sums, monies and payments will subject the assignor or the
latter’s representatives to the criminal liabilities imposed by the Penal Code
and such other damages which the Civil Code provides.
It is further understood that the PHILIPPINE NATIONAL BANK can
collect and receive any and all sums, monies and payments above-mentioned from
the Bureau of Public Works, Republic of the Philippines, and for that matter
said bank is hereby authorized to indorse for deposit or for encashment any and
all checks, treasury warrants, money orders, drafts and other kinds of
negotiable instruments that might be issued in connection with the payment
herein assigned.
This assignment shall be irrevocable subject to the terms and
conditions of the promissory notes, overdrafts and any other kind of documents
which the PHILIPPINE NATIONAL BANK have (sic) required or may require the
assignor to execute to evidence the above-mentioned obligation.’
Luzon thereafter executed two surety bonds, one for the sum of
P40,000.00, Exhibit D, and the other for P60,000.00, Exhibit E. Exhibits D and E, except for the amount, are
expressed in the same words as follows:
‘That we, E. E. DEPUSOY CONSTRUCTION CO., of 32 2nd Street, San Beda Subdv., Manila, as principal
and LUZON SURETY COMPANY, INC., a corporation duly organized and existing under
and by virtue of the laws of the Philippines, as surety, are held and firmly
bound unto the PHILIPPINE NATIONAL BANK of Manila in the sum of SIXTY THOUSAND
PESOS ONLY (P60,000.00), Philippine Currency, for the payment of which sum,
well and truly to be made, we bind ourselves, our heirs, executors,
administrators, successors, and assigns, jointly and severally, firmly by these
presents:
The conditions of the obligation are as follows:
WHEREAS, the above bounden principal, on the …… day of
September, 1956 in consideration of a certain loan of (P60,000.00) executed a
Deed of Assignment in favor of the Philippine National Bank on all payments to
be received by him from the Bureau of Public Works in connection with a
contract dated August 6, 1956.
WHEREAS, said PHILIPPINE NATIONAL BANK, requires said principal to
give a good and sufficient bond in the above stated sum to secure the full and
faithful performance on his part of said Agreement.
NOW, THEREFORE, if the principal shall well and truly perform and
fulfill all the undertakings,
covenants, terms, conditions and agreement stipulated in said Agreement then,
this obligation shall be null and void; otherwise, it shall remain in full force and effect.
The liability of LUZON
SURETY COMPANY, INC. under this bond will expire January 31,
1957. Furthermore, it is hereby agreed
and understood that the LUZON SURETY COMPANY, INC. will not be liable for
any claim not discovered and presented to the company within THREE (3) months
from the expiration of this bond and that the obligee
hereby waives his right to file any court action against the surety after the
termination of the period of the three months above mentioned.’
With the consent of Luzon, the bond was extended for another 6
months from January 31, 1957.
Under the credit accommodation granted by the plaintiff bank, Depusoy obtained several amounts from the bank. On January 14, 1957, Depusoy
received P50,000.00 from the bank which he promised to pay in installments on
the dates therein indicated, Exhibit A.
On January 17, 1957, he received another P50,000.00 under the same
conditions as the promissory note Exhibit A, except with respect to the time of
payment. Under this arrangement all
payments made by the GSIS were payable to the Philippine National Bank. The treasury warrants or checks, however,
were not sent directly to the plaintiff.
They were received by Depusoy, who in turn
delivered them to the plaintiff bank.
The plaintiff then applied the money thus received, first, to the
payment of the amount due on the promissory notes at the time of the receipt of
the treasury warrants or checks, and the balance was credited to the current
account of Depusoy with the plaintiff bank. A total of P1,309,461.89 were (sic) paid by
the GSIS to the plaintiff bank for the account of Estanislao
Depusoy, Exhibit 1-Luzon. Of this amount, P246,408.91 were (sic) paid
according to Exhibit 1 for the importation of construction materials, and
P1,063,408.91 were (sic) received by the Loans and Discounts Department of the
plaintiff bank. This amount was disposed
off by the plaintiff’s Loans & Discounts Department as follows:
a) P795,976.64 were (sic) credited to the current
account of Depusoy with the plaintiff;
b) P20,000.00
were (sic) credited to the plaintiff’s Foreign Department;
c) P2,552.94 were (sic) credited to the payment
of interest; and
d) P210,000.00 were (sic) applied to the
principal of indebtedness. (Exh. N-1).
Depusoy defaulted in his building
contract with the Bureau of Public Works, and sometime in September, 1957, the
Bureau of Public Works rescinded its contract with Depusoy. No further amounts were thereafter paid by
the GSIS to the plaintiff bank. The
amount of the loan of Depusoy which remains unpaid,
including interest, is over P100,000.00. Demands for payment were made upon Depusoy and Luzon, and as no payment was made, x x x.”[5]
herein petitioner filed with the trial court a complaint (Civil Case
No. 35163) against Estanislao Depusoy
and private respondent Luzon Surety Co. Inc. (LSCI).
After trial on the merits, the trial court rendered a decision
the dispositive portion of which is above adverted
to.
In dismissing the case as against LSCI, the trial court ruled
that the surety bonds it issued, Exhs. “D”
and “E”:
“x x x
guaranteed only the faithful performance of the deed of assignments, Exhibit C,
and nothing else. That the bonds were
extended by the letters Exhs. E and I did not change
their conditions, x x x.”[6]
Petitioner appealed from said decision to the Court of Appeals,
(C.A.-G.R. No. 36615-R) relying on the following assigned errors:
“I
The trial court erred in holding that defendant-appellee
Luzon Surety Company, Inc. ‘guaranteed only the faithful performance of the
deed of assignment, Exh. ‘C’, and nothing else’; in
holding the defense of the appellee Luzon Surety
Company, Inc. that there has been no breach of the terms and conditions of the
bonds Exhs. ‘D’ and ‘E’; in finding that the ‘bonds’
can only be therefore understood to guarantee that the payment due from the
GSIS to Depusoy would be delivered unto the bank’.
II
The trial court erred in not finding that the bonds (Exhs. ‘D’ and ‘E’) should be read jointly with the
resolutions approving the loan (Exhs. ‘K’ to ‘K-5’),
the promissory notes and the deed of assignment in the determination of the
true intent of the parties in the execution of the bonds which are the basis of
the liability of the defendant-appellee Luzon Surety
Company, Inc., in not considering resolutions Exhs.
‘K’ to ‘K-5’; promissory notes Exhs. ‘B’, ‘G’, and
‘H’ and the deed of assignment, Exh. ‘C’ as integral
parts of the surety bonds Exhs. ‘D’ and ‘E’ as
therein incorporated by reference in said surety bonds as such necessarily
bound the appellee Luzon Surety Company to their
terms.
III
The trial court erred in not construing the terms of the bonds in
favor of the plaintiff-appellant PNB and against the defendant-appellee Luzon Surety Company, Inc.
IV
The lower court erred in not holding that the bonds Exhs. ‘D’ and ‘E’ and letters of extension Exhs. ‘F’ and ‘I’ were compensated surety agreements
executed as required by PNB board resolutions Exhs.
‘K’ to ‘K-5’ for the purpose of securing the payment to the PNB of the amount
advanced by the said bank to the appellee Estanislao Depusoy to finance the
construction of the GSIS building subject to the construction contract Exh. ‘2-Luzon’ or Exh. ‘O-PNB’;
in not finding that Exhs. ‘F’ and ‘I’ are indubitable
proofs that defendant-appellee Luzon Surety Company,
Inc., is liable for the repayment of the P100,000.00 loan and the additional
accommodations granted to the defendant-appellee Estanislao Depusoy; and in not
finding and holding that Exhs. ‘D’ and ‘E’ in the
sense that they have been extended so as to secure new accommodations aside
from the original obligation mentioned in said bonds.
V
The trial court erred in finding that all payments due from the
GSIS construction to Depusoy were actually delivered
unto the bank; and in not finding that Depusoy made
diversions from these amounts for which the surety should be bound to answer
under the terms of its bonds.
VI
The trial court erred in not finding that when appellee
Depusoy incurred breach (sic) in his construction
contract with the Bureau of Public Works said default on the part of the
principal in his contract resulted in a consequent breach of his undertaking
under the deed of assignment; and that consequently any breach in the undertaking
of the principal in said deed of assignment communicated liability to the
surety; in not finding likewise that breach on the part of the appellee Depusoy in his
undertaking under the promissory notes meant breach of the terms of the deed of
assignment which incorporated said promissory notes and that this breach in the
deed of assignment communicated liability to the surety under the terms of the
bonds; and that trial court (sic) erred in not finding that there was a breach
of the bonds due to the failure of the appellee Luzon
Surety Company, Inc. to see to it that the full amount of P1,309,461.89
remitted by the GSIS to the PNB was actually received by the PNB; in not
finding that the PNB did not receive all the amounts still due to the said
institutions as remitted by the GSIS under the terms of the deed of assignment.
VII
The trial court erred in not sentencing defendant-appellee Estanislao Depusoy to pay the attorney’s fees equivalent to 10% of the
amounts due and the costs of the suit.
VIII
The trial court erred in not admitting in the evidence proof of the
amount actually received by the foreign department of the PNB and the letter of
the GSIS to the PNB as part of the rebuttal evidence of the defendant-appellee (see evidences (sic) offered as part of the record
on appeal for purposes of review).
IX
The trial court erred in relying exclusively for its decision on
the relation of facts presented by the appellee-Luzon
Surety Company; disregarding evidences (sic) presented by the PNB consisting of
documentary evidences (sic) disclosing patent facts appearing on the face of
said documents and that consequently the decision is not based on the real
facts and law of the case; and consequently dismissing the case against the
Luzon Surety.”[7]
In due course the Court of Appeals rendered the decision adverted
to above. In disposing of the assigned
errors, it patiently examined and analyzed the facts and made an extensive,
exhaustive and well-reasoned disquisition thereon which We deem necessary to
quote:
“The assignment of error maybe (sic) reduced into one single
question, – what is the obligation of Luzon under the surety bonds, or, stated
otherwise, what obligation had been guaranteed by Luzon under the terms of the
surety bonds? It is the contention of
the plaintiff that the surety bonds, Exhibits D and E, guaranteed the payment
of the loans or the debt of Depusoy to the plaintiff
to the extent of P100,000.00. Luzon, however, contends that what it
guaranteed was the performance of Depusoy of his obligation under the Deed of
Assignment, Exhibit C, and not other agreements between Depusoy
and the bank. This contention was upheld
by the lower court. This, we believe is
the correct construction of the surety bonds.
Under the surety bonds, Depusoy and Luzon
bound themselves to the plaintiff in the sum of P100,000.00. It recited that the principal, Depusoy, and Luzon bound themselves jointly and severally
to the PNB under the following conditions:
that ‘in consideration of a certain loan, Depusoy
executed a Deed of Assignment in favor of the PNB on all payments to be
received by him from the Bureau of Public Works in connection with a contract
of August 6, 1956’; that the PNB required the principal to give a good and
sufficient bond to secure the full and faithful performance on his part of said
agreement; and that, ‘if the principal shall well and truly perform and fulfill
all the undertakings, covenants, terms and conditions, and agreements
stipulated in said agreement, this obligation shall be null and void’. Now, what are the undertakings, covenants,
terms, conditions, and agreements stipulated in the said agreement or Deed of
Assignment? The undertakings of the
principal Depusoy, under the Deed of Assignment,
Exhibit C, were to assign, transfer, and convey to the plaintiff bank all
payments to be received by Depusoy from the Bureau of
Public Works; that Depusoy acknowledged that such sums assigned and received by the
plaintiff would belong to the PNB, and if any conversion should be made by the
assignor or his representative, he would be criminally liable; that the PNB
could collect and receive all sums and monies, and payments, and the bank was
authorized to endorse for deposit or for encashment all checks or money orders,
or negotiable instruments that it might receive in connection with the
assignment. Nowhere in the Deed of
Assignment nor in the bonds did Luzon guarantee that Depusoy
would pay his indebtedness to the plaintiff and that upon Depusoy’s
default, Luzon would be liable. When the
terms of the agreement are clear, there can be no room for construction. If the intention of the parties, and
particularly of Luzon, was to guarantee the payment of the debt of Depusoy to the plaintiff, the bonds would have recited in
its preamble that the principal was indebted to the PNB and that the PNB
required the principal to give a good and sufficient bond to secure the
faithful performance on his part of the terms of the promissory notes. Instead of doing so, it recited that in
consideration of a certain loan, the principal had executed a Deed of
Assignment. The recital of the loan in
the amount of P40,000.00, Exhibit D and P60,000.00, Exhibit E, is merely a
statement of the cause or consideration of the Deed of Assignment and not a
statement of the obligation. The Deed of
Assignment necessarily was executed for a consideration, otherwise, it would be
null and void. The obligation recited in
the surety bonds, Exhibits D and E, is not the loan, but the Deed of
Assignment; and that precisely was what was guaranteed by Luzon
in the bonds, Exhibits D and E, as shown by the following:
1) Contrary to the usual practice of the
plaintiff, Luzon did not sign the promissory notes, Exhibits A and B;
2) Although the resolutions of the Board of
Directors required that the surety should make a deposit of P10,000.00, Luzon did not make such a deposit,
the verbal testimony of Delfin Santiago, Manager of
the Loans and Discounts Department, to the
contrary notwithstanding. The
documentary evidence was submitted to prove that was the fact;
3) Delfin Santiago
finally admitted that what was guaranteed was not the loan but the Deed of
Assignment.
Delfin Santiago testified as follows:
Q Did you inform the Luzon Surety
company, Inc. of your actuation on this fact, that is in your giving Mr. Depusoy portions of the payments made by the GSIS to the
Philippine National Bank pursuant to the Deed of Assignment?
A No,
because I understand that the Luzon Surety Company, Inc. stands as surety on
that assignment on which the full payment of the contract is assigned to the
payments. (TSN, p. 54)
x x
x
Q Usually, Mr. Santiago, it is the
practice of the Philippine National Bank in cases where a surety company
guarantees the account of the borrower, the Philippine National Bank requires
the surety company to sign the promissory note as a co-maker, is it not?
A In
case the condition is approved, the surety I remember very well, the last
accommodation given to Mr. Depusoy . . . that was the
condition, but the Luzon Surety Company, Inc. did not want to sign, so at the
request of the Luzon Surety Company, Inc. and Mr. Depusoy,
the approved accommodation was modified in such a way as only to the surety
bond.
ATTY. NERI: If Your Honor please. We object
to the question, it was not covered by the direct examination.
COURT:
Answer.
A Well,
apparently that was the intention because you decided to sign jointly and
severally the promissory note.
Q And
because that was our intention the Philippine National Bank agreed to that
desire of Luzon Surety Company, Inc. by issuing only a similar surety bond and
not signing as co-maker, and jointly and severally on the promissory note?
ATTY. NERI: Objection Your Honor, the contract is the best evidence.
COURT: Answer.
A As
usual, as at the beginning, we
take it that your bonding the Deed of Assignment is the understanding that all
payments for the whole contract will go to
us. (TSN, pp. 55-57, July 21, 1958)
x x
x
Q Did you read the terms of the bond?
A Yes,
sir, that’s right.
Q And
you further noted in the bond it merely guaranteed the deed of assignment, is
that correct? of Mr. Depusoy?
A Yes,
sir.
ATTY. CRUZ: And not this particular loan, is it not?
ATTY. NERI: We refer
to the document, Your Honor.
COURT: Sustained.
(TSN, pp.
9-10 June 26, 1959)
x x
x
ATTY. NERI: Now, Mr. Depusoy in
his testimony stated that when you received these amounts from the GSIS and
issued credit memos . . . in favor of Mr. Depusoy,
you did not notify the Luzon Surety Company, Inc. of the fact of the issuance
of this (sic) credit memos in favor of Mr. Depusoy
will you state to this Honorable Court the reason why is that you did not give
notice to the Luzon Surety Company, Inc.?
A I
did not notify the Luzon Surety Company, Inc. of this transaction because the
bond filed by the Luzon Surety Company, Inc., but the terms of the bond filed
by Luzon Surety Company is that they understand the transaction of Mr. Depusoy with the Philippine National Bank.
COURT:
They understand the transaction to be . . .
WITNESS: . . . The nature of the transaction with Mr. Depusoy in the sense that as we . . . as appearing in this
bond Exhibit D . . . all payments to be received by him from the Bureau of
Public Works in connection with the contract to secure the full and faithful
performance on his part of the said agreement, the agreement referred to is the
assignment of payment in connection with the contract of Mr. Depusoy with the GSIS.
(TSN, pp.
27-29 June 1, 1959)
In support of his contention that the surety bond was intended to
guarantee the loan, the appellant gave the following grounds or reasons:
1) The resolution of the Board of Directors of
the plaintiff approving the loan or credit accommodation to Depusoy
required that Depusoy should put up a bond executed
by the Luzon Surety Company, Inc., Exhibits K-3, K-4 and K-5. The resolutions of the Board of Directors
were unilateral acts of the plaintiff and were conditions imposed upon the
debtor, Depusoy.
Luzon was not a party to these resolutions and under the rule of res inter alios acta, they cannot bind or prejudice Luzon in the absence of
evidence that the terms of the resolutions had been brought to the attention of
Luzon and that it had acceded thereto.
All that the bond stated is that the PNB required the principal to give
a good and sufficient bond. There can be
no other consideration for the execution of the bonds other than stated thereon
in the absence of allegation that they did not express the true intention of the parties.
2) Appellant contends that the promissory notes
and the building contract mentioned in the Deed of Assignment became part and
parcel of the Deed of Assignment under the principle of incorporation by
reference. We agree that the Deed of
Assignment became part and parcel of the bond, but to say that all promissory
notes, overdrafts, and any other kind of documents which the PNB might require
the assignor to execute to evidence the aforementioned obligation were also
incorporated by reference to the surety bond and became obligation of Luzon is
to include in the assignment, covenants and obligations beyond the
contemplation of the parties. The
appellant relies on the last paragraph of the Deed of Assignment which
reads: ‘This assignment shall be
irrevocable and subject to the terms and conditions of the promissory notes,
overdrafts, and any other kind of document which the PNB can require or may
require the assignor to execute to evidence the above-mentioned obligation’.
It is argued that under this stipulation, Luzon guaranteed the
payment of the promissory notes which are the subject of this action and also
the building contract between Depusoy, its principal,
and the Bureau of Public Works. This is
a very far-fetched construction. This
paragraph does not impose any obligation upon Depusoy. All that was required of Depusoy
was to execute such documents which might be required by the PNB to evidence
the Deed of Assignment. The words of the
phrase ‘subject to’ are words of qualification and not of contract (Cox vs. Vat
149, 110 pp. 96-148 CCH 147) and means subject to, meaning under the control,
power or dominion or subordinate to and not being words of contract imposing
upon defendant no contractual obligation (40 Words & Phrases 386-389). What was evidently intended is the Deed of
Assignment when it stated ‘subject to the terms and conditions of the
promissory notes and overdrafts’ was that any amount received by the PNB would
be applied to the payment of the promissory notes and overdrafts in accordance
with their terms and conditions as they fell due because the Deed of Assignment
was executed not for the purpose of making the PNB the owner of all the monies
received from the GSIS, but as a security for the payment of the debt of Depusoy
arising from the credit accommodation granted to him by the appellant. And that this was the intention is evident
from the fact that upon receipt of the treasury warrants and checks from the
GSIS, the appellant applied the same to the payment of the debt of Depusoy which was due with interest and the remainder was
credited to Depusoy’s current account. This balance was subject to the free disposal
of Depusoy.
Hence, out of the over P1 million received by the Loans & Discounts
Department of the appellant, almost P800,000.00 were credited to the current account
of Depusoy and only a little over P200,000.00 was
applied to his debt. Appellant contends
that since in the Deed of Assignment, Depusoy
undertook to assign, transfer, and convey to PNB all payments to be received by
him from his contract with the Bureau of Public Works, Luzon had thereby
guaranteed the faithful performance by Depusoy of his
building contract with the Bureau of Public Works, and Depusoy
having defaulted in his building contract by reason of which the Bureau of
Public Works rescinded the building contract, the PNB did not receive from the
GSIS the full contract price of over P2 million. This indeed is a very far-fetched
construction of the contract. What was
transferred or assigned by Depusoy to the PNB were
all payments to be received by him under the contract with the Bureau of Public
Works. Necessarily, what was to be
received by Depusoy depends upon his performance
under the contract. As long as he
faithfully performed the contract, he would receive from the GSIS the amount
due him. From the moment he defaulted
and failed to comply with the terms of the contract, he would receive nothing
and he could not assign what he did not have.
To argue that under the terms of the Deed of Assignment, Luzon also
guaranteed the faithful performance of the building contract of Depusoy with the Bureau of Public Works is fanciful and
wishful thinking.
3) Appellant also
contends that under Exhibits F and I, it can be seen that what was really
intended to be guaranteed by the surety agreement was the payment of the
loan. We quote Exhibits F and I.
‘Relative to our above-captioned bonds in the amount of P40,000.00
dated May 28, 1956 and September 24, 1956, respectively, please be advised that
same is hereby extended for a further period of six (6) months from January 31,
1957. All other terms and conditions of
our above-mentioned bonds shall remain the same except the period of expiration
hereinabove mentioned. These bonds also
cover the new accommodation given our Principal.
Relative to the above numbered bonds, in the amount of P40,000.00
and P60,000.00 dated May 28, 1956 and September 24, 1956, respectively, the
account secured thereby having been reduced by virtue of payments made by our
principal, which, according to him, has but a balance of P75,000.00 we have the
honor to inform you that we are agreeable to the extension of further credit to
our principal to the extent of the amount of the said bonds, under the same
terms and conditions thereof.’
At first glance, from the statement in Exhibit F, which reads: ‘This bond also covers the new accommodation
given our principal’, and in Exhibit I, that ‘we are agreeable to the extension
of further credit to or principal to the extent of the amount of the said
bond’, it would appear that Luzon was referring to the obligation of Depusoy to pay the loan.
But particular attention must be paid to the statement in Exhibit F that
‘all of the terms and conditions of our above-mentioned bonds shall remain the
same except the period of expiration hereinbelow
mentioned’. What was really agreed by
Luzon was the extension of the duration of the surety bond, for under the terms
of the bonds they expired six months from their respective dates. Any statement in Exhibit I that may be
construed as referring to the debt of Depusoy was
made only by an Asst. Manager who evidently was not familiar with the terms of
the surety bond. It must be noted that
the surety bond was executed by CS Rodriguez, General Manager. Moreover, it cannot prevail over the
testimony of Delfin Santiago, Manager of the Loans
& Discounts Department, that what was guaranteed by the surety bond was the
Deed of Assignment.
It is also contended that if what was intended to be guaranteed by
Luzon is the Deed of Assignment, the surety bond guaranteed nothing, because
with the execution of the Deed of Assignment, nothing thereafter remained to be
done. This is not true, for the terms of
the Deed of Assignment, Depusoy authorized the PNB to
receive all monies due from the Bureau of Public Works and to endorse for
deposit all instruments of credit that might be issued in connection with the
payments therein assigned. Under this
stipulation, Luzon guaranteed that all the monies due Depusoy
under his building contract with the Bureau of Public Works should be paid to the PNB. It is true that all the checks and warrants
issued by the GSIS were to be made payable to the PNB. But under the arrangement between the PNB,
GSIS, and the Bureau of Public Works, and Depusoy, it
was Depusoy who received the warrants or
checks either from the Bureau of Public Works or from the GSIS, and Depusoy delivered the same to the PNB. The PNB did not take the trouble of going to
the GSIS or the Bureau of Public Works to get the checks. One reason because the PNB did not know when
any amount would be due. There is
nothing then that could prevent an arrangement thereafter between Depusoy and the GSIS, or the Bureau of Public Works to make
the checks payable to Depusoy, and Depusoy from forging the signature of the PNB and appropriating
the money. This would be a violation of
the Deed of Assignment for which Luzon would be liable.
It is not disputed that no payment was made directly to Depusoy after the Deed of Assignment. All amounts due to Depusoy
were paid to the PNB for the account of Depusoy. It is true that in accordance with Exhibit M,
only P1,063,408.91 were received by the Loans and Discounts Department of the
plaintiff bank, and that of the total amount of P1,309,461.89 paid by the GSIS,
P246,062.98 were paid for the importation of construction materials. As to the so-called 10% retention fund, there
is no evidence that the Bureau of Public Works had retained any amount. In any case what was assigned was ‘all
payments to be received’ under the building contract, and the 10% retention was
not to be received by Depusoy until certain
conditions had been met.
In its eight assignment of error, the appellant contends that the
lower court in not admitting proof of the amount actually received by the PNB
and the letter of the GSIS, Exhibit Q (sic).
Aside from the purely technical reason for their rejection, their
admission cannot affect the result.
Exhibit Q is a letter of the General Manager of the GSIS to plaintiff
advising plaintiff of the rescission of the building contract. Exhibits Q, P, P-1 and P-2 are statements of
the amounts received by plaintiff’s foreign department. There is no evidence that the GSIS had paid
any amount to Depusoy in violation of the Deed of
Assignment. Not a single cent had been
received directly by Depusoy from the GSIS or the
Bureau of Public Works.
x x x
We agree with the appellant that the trial court erred in not sentencing Estanislao Depusoy to pay
attorney’s fees equivalent to 10% of the amount due. This is expressly provided for in the
promissory notes, and as it does not appear to be unreasonable, the stipulation
of the parties should be given effect.”[8]
Its motion for reconsideration[9]
having been denied by the respondent Court of Appeals in its resolution of 1 February 1971,[10]
petitioner filed the instant petition on 3
March 1971 asserting therein that:
“x x x the
Decision and the Resolution of respondent COURT (Annexes A and B) are both not
in accord with the evidence, the law, and jurisprudence on the matter.
I. THE
SURETY BONDS COVER THE PRINCIPAL LOANS, THE SURETY THEREBY BECOMING LIABLE UPON
DEFAULT OF THE LATTER.
II. EVEN ASSUMING ARGUENDO THAT THE BONDS SECURE ONLY THE DEED OF
ASSIGNMENT, STILL THE SURETY IS LIABLE FOR FAILURE OF THE PRINCIPAL TO COMPLY
WITH THE TERMS OF SUCH DEED.
III. THE DISPOSITIVE PORTION OF THE DECISION SHOULD BE AMENDED TO THE END
THAT PRIVATE RESPONDENTS BE ADJUDGED LIABLE FOR ATTORNEY’S FEES.”[11]
In support of its petition, petitioner practically summoned the
same arguments which it relied upon before the Court of Appeals.
On 3 March 1971 private respondent filed a motion to dismiss the
petition[12]
on the following grounds:
1. That the petition is without merit;
2. That the questions raised therein are too
unsubstantial to require consideration; and
3. That the questions raised are factual.
In the resolution of 8 March 1971 this Court dismissed the
petition for being factual and for lack of merit;[13]
however, upon motion for reconsideration,[14]
this Court reconsidered the resolution and gave due course to the petition.[15]
The petitioner was then required to submit its Brief,[16]
which it complied with on 12 July 1971.[17]
Private respondent LSCI filed its brief on 10 August 1971.[18]
Private respondent Depusoy did not file any.
Except for the third assigned error, We find no merit in this
petition. The issues raised are factual.
The findings of facts of the Court of Appeals can withstand the
most incisive scrutiny. They are
sufficiently supported by the evidence on record and the conclusions drawn therefrom do not justify a departure from the deeply rooted
and well settled doctrine that findings of facts of the Court of Appeals are
conclusive on this Court,[19]
considering that the recognized exceptions thereto[20]
do not come to the rescue of petitioner.
We are in full accord with the conclusion of the trial court and
the Court of Appeals that the bonds executed by private respondent LSCI were to
guarantee the faithful performance of Depusoy of his
obligation under the Deed of Assignment and not to guarantee the payment of the
loans or the debt of Depusoy to petitioner to the
extent of P100,000.00. The language of the bonds is clear,
explicit and unequivocal. It leaves no
room for interpretation. Article 1370 of
the Civil Code provides:
“If the terms of a contract are clear and leave no doubt upon
the intention of the contracting parties, the literal meaning of its
stipulations shall control.”
Besides, even if there had been any doubt on the terms and
conditions of the surety agreement, the doubt should be resolved in favor of
the surety. As concretely put in Article
2055 of the Civil Code, “A guaranty is not presumed, it must be expressed
and cannot extend to more than what is stipulated therein.”
In the recent case of Umali, et al. vs. Court of Appeals,
et al.,[21] We reiterated the unrippled
rule that the liability of the surety is measured by the terms of the contract,
and, while he is liable to the full extent thereof, such liability is strictly
limited to that assumed by its terms.[22]
In La Insular vs. Machuca Go Tanco, et al., supra.,
this Court held:
“It is undoubtedly true that the law looks upon the contract
of suretyship with a jealous eye, and the rule is
settled that the obligations of the surety cannot be extended by implication
beyond its specified limits.
Article 1827 of the Civil Code so discloses (Uy
Aloc vs. Cho Jan Ling, 27
Phil. Rep., 427); and with this doctrine the common law is accordant. As was said by Justice Story in Miller vs.
Stewart (9 Wheat, 680; 6 L. ed., 189):
‘Nothing can be clearer,
both upon principles and authority, than the doctrine that the liability of a
surety is not to be extended, by implication, beyond the terms of his
contract. To the extent and in the
manner, and under the circumstances pointed out in his obligation, he is bound,
and no farther.”
As earlier adverted to, there is merit in the third assigned
error. The paragraph immediately
preceding the decretal portion of the decision of
respondent Court of Appeals reads as follows:
“We agree with the appellant that the trial court erred in not
sentencing Estanislao Depusoy
to pay attorney’s fees equivalent to 10% of the amount due. This is expressly provided for in the
promissory notes, and as it does not appear to be unreasonable, the stipulation
of the parties should be given effect.”
The dispositive portion of the
questioned decision should then be modified in the sense that the “10%
interest” indicated therein should be considered and understood as and for
attorney’s fees.
WHEREFORE, with the above modification, the Decision of
the Court of Appeals of 12
December 1970 in C.A.-G.R. No. 36615-R is AFFIRMED, with costs against
petitioner.
SO ORDERED.
Fernan, C.J., Gutierrez, Jr.,
Feliciano, and Bidin,
JJ., concur.
[1]
Annex “A” of Petition; Rollo, 63-82;
per Associate Justice Jose N. Leuterio, concurred in
by Associate Justices Antonio G. Lucero and Edilberto
Soriano.
[2]
Per then Judge Magno S. Gatmaitan;
Record on Appeal, 42-54.
[3]
Record on Appeal, 54.
[4]
Rollo, 84.
[5]
Rollo, 66-69.
[6]
Record on Appeal, 49-50.
[7]
Rollo, 63-65.
[8]
Rollo, 70-82.
[9]
Id., 91-105.
[10]
Id., 84.
[11]
Id., 22-23.
[12]
Rollo, 6-11.
[13]
Id., 130.
[14]
Id., 139.
[15]
Resolution of 13 April 1971.
[16]
Id., 159.
[17]
Id., 164.
[18]
Id., 167.
[19]
Chan vs. Court of Appeals, 33 SCRA 737; Manlapaz
vs. Court of Appeals, 147 SCRA 236; Chua Giok Ong vs. Court of Appeals, 149 SCRA 119; Francisco vs.
Mandi, 152 SCRA 711; Dihiansan
vs. Court of Appeals, 153 SCRA 712; Remalante vs.
Tibe, et al., 158 SCRA 138.
[20]
Summarized in Remalante vs. Tibe et al.; supra, as enunciated in Joaquin vs.
Navarro, 93 Phil. 257; Luna vs. Linatok, 74
Phil. 15; Buyco vs. People, 95 Phil. 253; De
la Cruz vs. Sosing, 94 Phil. 26; Castillo vs.
Court of Appeals, 124 SCRA 808; Casica vs. Villaseca, 101 Phil. 1205; Evangelista vs. Alto Surety
and Ins. Co. Inc., 103 Phil. 401; Sacay vs. Sandiganbayan, 142 SCRA 593; Salazar vs. Gutierrez, 33 SCRA 242.
[21]
G.R. No. 89561, 13 September 1990.
[22]
Government vs. Herrero, 38 Phil. 410; La Insular vs. Machuca Go-Tanco, et al.,
39 Phil. 571; Luzon Surety Co., Inc. vs. Teodoro,
101 Phil. 684; Magdalena Estates Inc. vs. Rodriguez et al., 125 Phil.
115; Zenith Insurance Corporation vs. Court of Appeals, et al., 119 SCRA
485; and Philippine Commercial and Industrial Bank vs. Court of Appeals, et al., 159 SCRA 24.