SUBIC BAY YACHT CLUB, INC., PETITIONER, VS. GOMECO METAL CORPORATION, RESPONDENT.

Subic Bay Yacht Club versus Gomeco Metal Corporation

The Case

This is a petition for review on certiorari under Rule 45 brought by Subic Bay Yacht Club, Inc. against Gomeco Metal Corporation. Gomeco sued to collect an unpaid balance for food service equipment it supplied and installed for the hotel, impleading both the yacht club and its real estate developer, Subic Bay Waterfront Development Corporation. The case matters because the Supreme Court draws a sharp line between two things that lower courts had conflated: the mere fact that two principals act through one common agent, and the existence of a solidary obligation. It is a compact review of Articles 1207, 1208, and 1915 of the Civil Code, and of how prescription runs when solidarity is wrongly assumed.

Procedural History

Gomeco filed a complaint for collection of a sum of money before the Regional Trial Court of Valenzuela City. In its decision dated June 3, 2019, the trial court ruled in favor of Gomeco but held only Subic Bay Waterfront liable, ordering it to pay the principal obligation of 1,823,019 pesos with penalty at 12 percent per annum from December 15, 1997 until full payment, 100,000 pesos as attorney's fees, and costs. The trial court found that Gomeco's cause of action against the yacht club had prescribed, because the amended complaint impleading it was filed beyond the ten-year period.

Gomeco appealed to the Court of Appeals. In its decision dated August 23, 2022, the Court of Appeals granted the appeal, affirmed the trial court with modifications, and ordered both the yacht club and the waterfront corporation to pay Gomeco, finding them solidarily liable. The yacht club moved for reconsideration, which was denied in a resolution dated February 1, 2023. Hence the present petition for review on certiorari before the Supreme Court.

Facts

Gomeco manufactures and installs metal products and kitchen equipment. Subic Bay Yacht Club operates in the hotel and hospitality industry, while Subic Bay Waterfront Development Corporation was its contractor and real estate developer. Gomeco undertook to supply and install food service equipment for the hotel. The installation began on October 2, 1996 and was completed on December 15, 1997. The parties agreed that the hotel would make partial payments as the project progressed, with the remaining 50 percent to be paid upon completion.

Upon completion, the remaining balance was not paid. Gomeco sent demand letters to the hotel and to the developer, but these were unheeded, so Gomeco filed a collection suit against both. During pre-trial, the parties stipulated that the two corporations are distinct; that in the course of the project they interchangeably represented themselves; that they acted through the same agent; and that they dealt with Gomeco as one entity.

The trial court found the two entities jointly liable for the unpaid balance, but held that Gomeco's action against the yacht club had prescribed. Gomeco's demand letters of February 21, 2002 and August 25, 2002 were addressed to the waterfront corporation. The yacht club received a copy of the August 25, 2002 letter on September 16, 2002, yet the amended complaint impleading it was filed only on December 18, 2012, three months beyond the ten-year period. The Court of Appeals reversed on this point, holding the yacht club solidarily liable and ruling that the demand on the waterfront corporation tolled prescription as to both.

Issues

• Whether or not the Court of Appeals erred in finding Subic Bay Yacht Club solidarily liable with Subic Bay Waterfront Development Corporation to Gomeco.
• Whether or not the collection action against Subic Bay Yacht Club had prescribed.

Applicable Provisions

Article 1207 of the Civil Code provides:

Article 1207. The concurrence of two or more creditors or of two or more debtors in one and the same obligation does not imply that each one of the former has a right to demand, or that each one of the latter is bound to render, entire compliance with the prestation. There is a solidary liability only when the obligation expressly so states, or when the law or the nature of the obligation requires solidarity.

This is the controlling rule: solidarity is never presumed, and exists only in the three instances the article names.

Article 1208 of the Civil Code provides:

Article 1208. If from the law, or the nature or the wording of the obligations to which the preceding article refers the contrary does not appear, the credit or debt shall be presumed to be divided into as many equal shares as there are creditors or debtors, the credits or debts being considered distinct from one another, subject to the Rules of Court governing the multiplicity of suits.

This supplies the presumption of a joint, divided obligation whenever solidarity does not appear.

Article 1915 of the Civil Code provides:

Article 1915. If two or more persons have appointed an agent for a common transaction or undertaking, they shall be solidarily liable to the agent for all the consequences of the agency.

This is the provision the Court of Appeals relied on, and which the Supreme Court holds inapplicable because it governs the principals' liability to their agent, not to the third party with whom the agent dealt.

Ruling

On the first issue, the Court ruled in favor of the yacht club. Article 1915 is unambiguous: it contemplates two or more principals appointing an agent for a common transaction, and makes them solidarily liable to the agent for the consequences of the agency. It does not provide that the appointment of a common agent, by itself, creates solidary liability of the principals to the party with whom the agent transacted. The Court of Appeals therefore misapplied it.

The Court also rejected the argument that the nature of the obligation required solidarity. Solidary obligations cannot be inferred lightly; they must be positively and clearly expressed. The Court clarified its earlier ruling in AFP Retirement and Separation Benefits System versus Sanvictores: although that decision spoke of the nature of the obligation, the contract there expressly referred to two entities singularly as the seller, so it was really an instance of solidarity expressly stated. Here, each quotation contract named only one entity as addressee, and no quotation bore both entities or any wording imposing solidarity. The pre-trial stipulations described only the manner by which the transaction was undertaken, not a nature requiring solidarity. Gomeco prepared the quotations and, if solidarity was intended, should have expressed it.

On the second issue, since no solidarity exists, the Court of Appeals' ruling that the demand on the waterfront corporation tolled prescription as to the yacht club cannot stand. The demand letter was received by the yacht club on September 16, 2002, and the amended complaint impleading it was filed only on December 18, 2012, beyond the ten-year period under Article 1144 of the Civil Code. The action had prescribed.

Doctrine

• Under Article 1207, solidarity exists only when the obligation expressly so states, when the law requires it, or when the nature of the obligation requires it; otherwise Article 1208 presumes a joint and divided obligation.
• Solidary obligations cannot be inferred lightly; they must be positively and clearly expressed, though the word "solidary" need not be used if the agreement plainly binds each debtor for the whole.
• Article 1915 makes co-principals solidarily liable to their common agent; it does not, by itself, make them solidarily liable to the third person with whom the agent contracted.
• The "nature of the obligation" exception is narrow, illustrated by criminal offenses and torts, and must be clearly required by the transaction itself.
• Absent solidarity, a demand on one debtor does not interrupt prescription as to another.

Disposition

The Court granted the petition, set aside the Court of Appeals' finding of solidary liability, and held that Gomeco's action against Subic Bay Yacht Club had prescribed, leaving only Subic Bay Waterfront Development Corporation liable.

Remember This

Memorize the line: solidary obligations cannot be inferred lightly; they must be positively and clearly expressed. Examiners use this case to test Article 1915, the three exceptions under Article 1207, and whether a demand on one alleged debtor tolls prescription against another.