ATOK FINANCE CORPORATION, PETITIONER, VS. COURT OF APPEALS, SANYU CHEMICAL CORPORATION, DANILO E. ARRIETA, NENI­TA B. ARRIETA, PABLITO BERMUNDO AND LEOPOLDO HALILI, RESPONDENTS.

Atok Finance Corporation (“Atok Finance”) asks us to
review and set aside the Decision of the Court of Appeals which reversed a
decision of the trial court ordering private respondents to pay jointly and
severally to petitioner Atok Finance certain sums of money.

On 27 July 1979, private respondents Sanyu Chemical Corporation
(“Sanyu Chemical”) as principal and Sanyu Trading Corporation
(“Sanyu Trading”) along with individual private stockholders of Sanyu
Chemical, namely, private respondents spouses Danilo E. Arrieta and Nenita B.
Arrieta, Leopoldo G. Halili and Pablito Bermundo as sureties, executed a
Continuing Suretyship Agreement in favor of Atok Finance as creditor. Under this Agreement, Sanyu Trading and the
individual private respondents who were officers and stockholders of Sanyu
Chemical did:

“(1)    For Valuable and/or
other consideration x x x, jointly and severally unconditionally
guarantee to ATOK FINANCE CORPORATION (hereinafter called Creditor), the
full, faithful and prompt payment and discharge of any and all indebtedness of
[Sanyu Chemical] x x x (hereinafter called Principal) to the Creditor. The word ‘indebtedness’ is used
herein in its most comprehensive sense and includes any and all advances,
debts, obligations and liabilities of Principal or any one or more of them,
here [to] fore, now or hereafter made, incurred or created, whether
voluntary or involuntary and however arising, whether direct or acquired
by the Creditor by assignment or succession, whether due or not due,
absolute or contingent, liquidated or unliquidated, determined or
undetermined and whether the Principal may be liable individually or jointly
with others, or whether recovery upon such indebtedness may be or hereafter
become barred by any statute of limitations, or whether such indebtedness
may be or otherwise become unenforceable.”^[1]
(Underscoring supplied)

Other relevant provisions of the Continuing Suretyship Agreement
follow:

“(2) This is a continuing
suretyship relating to any indebtedness, including that arising under
successive transactions which shall either continue the indebtedness from time
to time or renew it after it has been satisfied. This suretyship is binding upon the heirs, successors, executors,
administrators and assigns of the surety, and the benefits hereof shall extend
to and include the successors and assigns of the Creditor.

(3) The obligations
hereunder are joint and several and independent of the obligations of the
Principal. A separate action or
actions may be brought and prosecuted against the Principal and whether or not
the Principal be joined in any such action or actions.

x x x              x x x                             x x x

(6)     In addition to all
liens upon, and rights of set-off against the moneys, securities or other
property of the Surety given to the Creditor by law, the Creditor shall have a
lien upon and a right of set-off against all moneys, securities, and other
property of the Surety now or hereafter in the possession of the Creditor; and
every such lien or right of set-off may be exercised without need of demand upon
or notice to the Surety. No lien or
right of set-off shall be deemed to have been waived by any act, omission or
conduct on the part of the Creditor, or by any neglect to exercise such right
of set-off or to enforce such lien, or by any delay in so doing, and every
right of set-off or lien shall continue in full force and effect until such
right of set-­off or lien is specifically waived or released by an instrument
in writing executed by the Creditor.

(7)     Any indebtedness of
the Principal now or hereafter held by the Surety is hereby subordinated to the
indebtedness of the Principal to the Creditor; and if the Creditor so requests,
such indebtedness of the Principal to the Surety shall be collected, enforced
and received by the Surety as trustee for the Creditor and shall be paid over
to the Creditor on account of the indebtedness of the Principal to the Creditor
but without reducing or affecting in any manner the liability of the Surety
under the other provisions of this suretyship.

x x x              x x x                             x x x.”^[2]

(Emphases supplied)

On 27 November 1981, Sanyu Chemical assigned its trade
receivables outstanding as of 27 November 1981 with a total face value of
P125,871.00 to Atok Finance in consideration of receipt from Atok Finance of
the amount of P105,000.00. The assigned
receivables carried a standard term of thirty (30) days; it appeared, however,
that the standard commercial practice was to grant an extension of up to one
hundred twenty (120) days without penalties. The relevant portions of this Deed of Assignment read as follows:

“1. FOR VALUE
RECEIVED, the ASSIGNOR does hereby SELL, TRANSFER and ASSIGN all his/its
rights, title and interest in the contracts, receivables, accounts, notes,
leases, deeds of sale with reservation of title, invoices, mortgages, checks,
negotiable instruments and evidences of indebtedness listed in the schedule
forming part hereinafter called ‘Contract’ or ‘Contracts.’

2. To induce the
ASSIGNEE to purchase the above Contracts, the ASSIGNOR does hereby certify,
warrant and represent that:

(a)  
He/It is the sole owner of the assigned Contracts free and
clear of claims of any other party except the herein ASSIGNEE and has the right
to transfer absolute title thereto the ASSIGNEE;

(b)  
Each assigned Contract is bonafide and the amount owing and to
become due on each contract is correctly stated upon the schedule or other
evidences of the Contract delivered pursuant thereto;

(c)  
Each assigned Contract arises out of the sale of merchandise/s
which has been delivered and/or services which have been rendered and none of
the Contract is now, nor will at any time become, contingent upon the
fulfillment of any contract or condition whatsoever, or subject to any defense,
offset or counterclaim;

(d)  
No assigned Contract is represented by any note or other
evidence of indebtedness or other security document except such as may have
been endorsed, assigned and delivered by the ASSIGNOR to the ASSIGNEE
simultaneously with the assignment of such Contract;

(e)  
No agreement has been made, or will be made, with any debtor
for any deduction discount or return of merchandise, except as may be
specifically noted at the time of the assignment of the Contract;

(f)    
None of the terms or provisions of the assigned Contracts have
been amended, modified or waived;

(g)  
The debtor/s under the assigned Contract/s are solvent
and his/its/their failure to pay the assigned Contracts and/or any
installment thereon upon maturity thereof shall be conclusively
considered as a violation of this warranty; and

(h)  
Each assigned Contract is a valid obligation of the buyer of
the merchandise and/or service rendered under the Contract and that no Contract
is overdue.

The foregoing warranties and representations are in addition to
those provided for in the Negotiable Instruments Law and other applicable
laws. Any violation thereof shall
render the ASSIGNOR immediately and unconditionally liable to pay the ASSIGNEE
jointly and severally with the debtors under the assigned contracts, the
amounts due thereon.

x x x                          x
x x                             x x x

4. The ASSIGNOR shall
without compensation or cost, collect and receive in trust for the ASSIGNEE all
payments made upon the assigned contracts and shall remit to the ASSIGNEE all
collections on the said Contracts as follows:

P5,450.00 due on January 2, 1982 on every 15th day (semi-monthly)
until November 1, 1982

P110,550.00 balloon payment after 12 months.”^[3]
(Emphases supplied)

Later, additional trade receivables were
assigned by Sanyu Chemical to Atok Finance with a total face value of
P100,378.45.

On 13 January 1984, Atok Finance commenced action against Sanyu
Chemical, the Arrieta spouses, Pablito Bermundo and Leopoldo Halili before the
Regional Trial Court of Manila to collect the sum of P120,240.00 plus penalty
charges amounting to P0.03 for every peso due and payable for each month
starting from 1 September 1983. Atok
Finance alleged that Sanyu Chemical had failed to collect and remit the amounts
due under the trade receivables.

Sanyu Chemical and the individual private respondents sought
dismissal of Atok’s claim upon the ground that such claim had prescribed under
Article 1629 of the Civil Code and for lack of cause of action. The private respondents contended that the
Continuing Suretyship Agreement, being an accessory contract, was null and void
since, at the time of its execution, Sanyu Chemical had no pre-existing
obligation due to Atok Finance.

At the trial, Sanyu Chemical and the individual private
respondents failed to present any evidence on their own behalf, although the
individual private respondents submitted a memorandum in support of their
argument. After trial, on 1 April 1985,
the trial court rendered a decision in favor of Atok Finance. The dispositive portion of this decision
reads as follows:

“ACCORDINGLY, judgment is hereby rendered in favor of the
plaintiff ATOK FINANCE CORPORATION; and against the defendants SANYU CHEMICAL
CORPORATION, DANILO E. ARRIETA, NENITA B. ARRIETA, PABLITO BERMUNDO and
LEOPOLDO HALILI, ordering the said defendants, jointly and severally, to pay
the plaintiff:

(1)   
P120,240.00 plus P0.03 for each peso for each month from
September 1, 1983 until the whole amount is fully paid;

(2)   
P5,000.00 as attorney’s fees; and

(3)   
To pay the costs.

SO ORDERED.”^[4]

Private respondents went on appeal before the then Intermediate
Appellate Court (“IAC”), and the appeal was there docketed as AC-G.R.
No. 07005-CV. The case was raffled to
the Third Civil Cases Division of the IAC. In a resolution dated 21 March 1986, that Division dismissed the appeal
upon the ground of abandonment, since the private respondents had failed to
file their appeal brief notwithstanding receipt of the notice to do so. On 4 June 1986, entry of judgment was made
by the Clerk of Court of the IAC. Accordingly, Atok Finance went before the trial court and sought a writ
of execution to enforce the decision of the trial court of 1 April 1985. The trial court issued a writ of execution
on 23 July 1986.^[5]
Petitioner alleged that the writ of execution was served on private
respondents.^[6]

However, on 27 August 1986, private respondents filed a Petition
for Relief from Judgment before the Court of Appeals. This Petition was raffled off to the 15th Division of the Court
of Appeals. In that Petition, private
respondents claimed that their failure to file their appeal brief was due to
excusable negligence, that is, that their previous counsel had entrusted the
preparation and filing of the brief to one of his associates, which associate,
however, had unexpectedly resigned from the law firm without returning the
records of cases he had been handling, including the appeal of private
respondents. Atok Finance opposed the
Petition for Relief arguing that no valid ground existed for setting aside the
resolution of the Third Division of the then IAC.

The 15th Division of the Court of Appeals nonetheless granted the
Petition for Relief from Judgment “in the paramount interest of
justice,”^[7]
set aside the resolution of the Third Civil Cases Division of the then IAC, and
gave private respondents a non-extendible period of fifteen (15) days within
which to file their appeal brief. Private respondents did file their appeal brief.

The 15th Division, on 18 August 1987, rendered a Decision on the
merits of the appeal, and reversed and set aside the decision of the trial
court and entered a new judgment dismissing the complaint of Atok Finance,
ordering it to pay private respondents P3,000.00 as attorney’s fees and to pay
the costs.

Atok Finance moved to set aside the decision of the 15th Division
of the Court of Appeals, inviting attention to the resolution of the IAC’s
Third Civil Cases Division of 21 March 1986 originally dismissing private
respondents’ appeal for abandonment thereof. In a resolution dated 18 August 1987, the 15th Division denied Atok
Finance’s motion stating that it had granted the Petition for Relief from
Judgment and given private respondents herein fifteen (15) days within which to
file an appeal brief, while Atok Finance did not file an appellee’s brief, and
that its decision was arrived at “on the basis of appellant’s brief and
the original records of the appeal case.”

In the present Petition for Review, Atok Finance assigns the
following as errors on the part of the Court of Appeals in rendering its decision
of 18 August 1987:

“(1) that it had erred in ruling that a
continuing suretyship agreement cannot be effected to secure future debts;

(2)       that
it had erred in ruling that the continuing suretyship agreement was null and
void for lack of consideration without any evidence whatsoever [being]
adduced by private respondents;

(3)      
that it had erred in granting the Petition for Relief from
Judgment while execution proceedings [were] on-going in the trial court.”^[8]
(Underscoring in the original)

As a preliminary matter, we note that a Division of the Court of
Appeals is co-equal with any other Division of the same court. Accordingly, a Division of the Court of
Appeals has no authority to consider and grant a petition for relief from a
judgment rendered by another Division of the same court. In the case at bar, however, we must note
that an intervening event had occurred between the resolution of 21 March 1986
of the Third Civil Cases Division of the IAC dismissing private respondents’
appeal and the 30 September 1986 order of the 15th Division of the Court of
Appeals granting the Petition for Relief from Judgment. On 28 July 1986, the old Intermediate
Appellate Court went out of existence and a new court, the Court of Appeals,
came into being, was organized and commenced functioning.^[9]
This event, and the probability that some confusion may have accompanied the
period of transition from the IAC to the Court of Appeals, lead us to believe
that the defect here involved should be disregarded as being of secondary importance. At the same time, nothing in this decision
should be read as impliedly holding
that a petition for relief from judgment is available in respect of a decision
rendered by the Court of Appeals; this issue is best reserved for determination
in some future case where it shall have been adequately argued by the parties.

We turn, therefore, to a consideration of the first substantive
issue addressed by the Court of Appeals in rendering its Decision on the merits
of the appeal: whether the individual
private respondents may be held solidarily liable with Sanyu Chemical under the
provisions of the Continuing Suretyship Agreement, or whether that Agreement
must be held null and void as having been executed without consideration and
without a pre­existing principal obligation to sustain it.

The Court of Appeals held on this first issue as follows:

“It is the contention of private appellants that the
suretyship agreement is null and void because it is not in consonance with the
laws on guaranty and security. The said
agreement was entered into by the parties two years before the Deed of
Assignment was executed. Thus,
allegedly, it ran counter to the provision that guaranty cannot exist
independently because by nature it is merely an accessory contract. The law on guaranty is applicable to surety
to some extent Manila Surety and Fidelity Co. v. Baxter Construction &
Co., 53 O.G. 8836; and, Arran v. Manila Fidelity & Surety Co.,
53 O.G. 7247.

We find merit in this contention.

Although obligations arising from contracts have the force of law
between the contracting parties, (Article 1159 of the Civil Code) this does not
mean that the law is inferior to it; the terms of the contract could not be
enforced if not valid. So, even if, as
in this case, the agreement was for a continuing suretyship to include
obligations enumerated in paragraph 2 of the agreement, the same could not
be enforced. First, because this
contract, just like guaranty, cannot exist without a valid obligation (Art.
2052, Civil Code); and, second, although it may be given as security for
future debt (Art. 2053, C.C.), the obligation contemplated in the case
at bar cannot be considered ‘future debt’ as envisioned by this law.

There is no proof that when the suretyship agreement was entered
into, there was a pre-­existing obligation which served as the principal
obligation between the parties. Furthermore, the ‘future debts’ alluded to in Article 2053 refer to
debts already existing at the time of the constitution of the agreement but the
amount thereof is unknown, unlike in the case at bar where the obligation was
acquired two years after the agreement.”^[10]
(Underscoring supplied)

We consider that the Court of Appeals here was in serious
error. It is true that a guaranty or a
suretyship agreement is an accessory contract in the sense that it is entered
into for the purpose of securing the performance of another obligation which is
denominated as the principal obligation. It is also true that Article 2052 of the Civil Code states that “a
guarantee cannot exist without a valid obligation.” This legal proposition
is not, however, like most legal principles, to be read in an absolute and
literal manner and carried to the limit of its logic. This is clear from Article 2052 of the Civil Code itself:

“Art. 2052. A guaranty
cannot exist without a valid obligation.

Nevertheless, a guaranty may be constituted to guarantee the
performance of a voidable or an unenforceable contract. It may also guarantee a natural
obligation.” (Emphases supplied)

Moreover, Article 2053 of the Civil Code
states:

“Art. 2053. A
guaranty may also be given as security for future debts, the amount of
which is not yet known; there can be no claim against the guarantor until the
debt is liquidated. A conditional obligation
may also be secured.” (Underscoring supplied)

The Court of Appeals apparently overlooked our caselaw
interpreting Articles 2052 and 2053 of the Civil Code. In National Rice and Corn Corporation
(NARIC) v. Jose A. Fojas and Alto Surety Co., Inc.,^[11]
the private respondents assailed the decision of the trial court holding them
liable under certain surety bonds filed by private respondent Fojas and issued
by private respondent Alto Surety Co. in favor of petitioner NARIC, upon the
ground that those surety bonds were null and void “there being no
principal obligation to be secured by said bonds.” In affirming the
decision of the trial court, this Court, speaking through Mr. Justice J.B.L.
Reyes, made short shrift of the private respondents’ doctrinaire argument:

“Under his third assignment of error, appellant Fojas
questions the validity of the additional bonds (Exhs. D and D-1) on the
theory that when they were executed, the principal obligation referred to in
said bonds had not yet been entered into, as no copy thereof was attached
to the deeds of suretyship. This
defense is untenable, because in its complaint the NARIC averred, and the
appellant did not deny that these bonds were posted to secure the additional
credit that Fojas has applied for, and the credit increase over his original
contract was sufficient consideration for the bonds. That the latter were signed and filed before the additional
credit was extended by the NARIC is no ground for complaint. Article 1825 of the Civil Code of 1889,
in force in 1948, expressly recognized that ‘a guaranty may also be given as
security for future debts the amount of which is not yet known.'”
(Underscoring supplied)

In Rizal Commercial Banking Corporation v. Arro,^[12]
the Court was confronted again with the same issue, that is, whether private
respondent was liable to pay a promissory note dated 29 April 1977 executed by
the principal debtor in the light of the provisions of a comprehensive surety
agreement which petitioner bank and the private respondent had earlier entered
into on 19 October 1976. Under the
comprehensive surety agreement, the private respondents had bound themselves as
solidary debtors of the Diacor Corporation not only in respect of existing
obligations but also in respect of future ones. In holding private respondent surety (Residoro Chua) liable under
the comprehensive surety agreement, the Court said:

“The surety agreement which was earlier signed by Enrique Go,
Sr. and private respondent, is an accessory obligation, it being dependent upon
a principal one which, in this case is the loan obtained by Daicor as evidenced
by a promissory note. What obviously
induced petitioner bank to grant the loan was the surety agreement whereby Go
and Chua bound themselves solidarily to guaranty the punctual payment of the
loan at maturity. By terms that are
unequivocal, it can be clearly seen that the surety agreement was executed
to guarantee future debts which Daicor may incur with petitioner, as is legally
allowable under the Civil Code. Thus-?

‘Article 2053.- A guarantee may also be given as security for
future debts, the amount of which is not yet known; there can be no claim
against the guarantor until the debt is liquidated. A conditional obligation may also be secured.’ “^[13]
(Underscoring supplied)

It is clear to us that the Rizal Commercial Banking
Corporation and the NARIC cases rejected the distinction which the
Court of Appeals in the case at bar sought to make with respect to Article
2053, that is, that the “future debts” referred to in that Article
relate to “debts already existing at the time of the constitution of the
agreement but the amount [of which] is unknown,” and not to debts not yet
incurred and existing at that time. Of
course, a surety is not bound under any particular principal obligation until
that principal obligation is born. But
there is no theoretical or doctrinal difficulty inherent in saying that the
suretyship agreement itself is valid and binding even before the principal obligation
intended to be secured thereby is born, any more than there would be in saying
that obligations which are subject to a condition precedent are valid and
binding before the occurrence of the condition precedent.^[14]

Comprehensive or continuing surety agreements are in fact quite
commonplace in present day financial and commercial practice. A bank or a financing company which
anticipates entering into a series of credit transactions with a particular
company, commonly requires the projected principal debtor to execute a
continuing surety agreement along with its sureties. By executing such an agreement, the principal places itself in a
position to enter into the projected series of transactions with its creditor;
with such suretyship agreement, there would be no need to execute a separate
surety contract or bond for each financing or credit accommodation extended to
the principal debtor. As we understand
it, this is precisely what happened in the case at bar.

We turn to the second substantive issue, that is, whether private
respondents are liable under the Deed of Assignment which they, along with the
principal debtor Sanyu Chemical, executed in favor of petitioner, on the
receivables thereby assigned.

The contention of Sanyu Chemical was that Atok Finance had no
cause of action under the Deed of Assignment for the reason that Sanyu
Chemical’s warranty of the debtors’ solvency had ceased. In submitting this contention, Sanyu
Chemical relied on Article 1629 of the Civil Code which reads as follows:

“Art. 1629. In case
the assignor in good faith should have made himself responsible for the
solvency of the debtor, and the contracting parties should not have agreed upon
the duration of the liability, it shall last for one year only, from the time
of the assignment if the period had already expired.

If the credit should be payable within a term or period which has
not yet expired, the liability shall cease one year after the maturity.”

Once more, the Court of Appeals upheld the contention of private
respondents and held that Sanyu Chemical was free from liability under the Deed
of Assignment. The Court of Appeals
said:

“x x x Article 1629 provides for the duration of assignor’s
warranty of debtor’s solvency depending on whether there was a period agreed
upon for the existence of such warranty, analizing the law thus:

(1)   
if there is a period (or length of time) agreed upon, then,
for such period;

(2)   
if no period (or length of time) was agreed upon, then:

(a) one year from
assignment – if debt was due at the time of the assignment

(b) one year from
maturity – if debt was not yet due at the time of the assignment.

The debt referred to in this law is the debt under the assigned
contract or the original debts in favor of the assignor which were later
assigned to the assignee. The debt
alluded to in the law, is not the debt incurred by the assignor to the assignee
as contended by the appellant.

Applying the said law to the case at bar, the records disclose that
none of the assigned receivables had matured on November 27, 1981 when the Deed
of Assignment was executed. The oldest
debt then existing was that contracted on November 3, 1981 and the latest was
contracted on December 4, 1981.

Each of the invoices assigned to the assignee contained a term of
30 days (Exhibits B-3-A to 5 and extended by the notation which appeared in the
‘Schedule of Assigned Receivables’ which states that the ‘x x x the terms
stated on our invoices were normally extended up to a period of 120 days x x
x.’ (Exhibit B-2). Considering the
terms in the invoices plus the ordinary practice of the company, thus, the
assigned debts matured between April 3,1982 to May 4, 1982. The assignor’s warranty for debtor’s
warranty, in this case, would then be from the maturity period up to April 3,
1983 or May 4, 1983 to cover all of the receivables in the invoices.

The letter of demand executed by appellee was dated August 29, 1983
(Exhibit D) and the complaint was filed on January 13, 1984. Both dates were beyond the warranty
period.

In effect, therefore, company-appellant was right when it claimed
that appellee had no cause of action against it or had lost its cause of
action.”^[15]
(Underscoring supplied)

Once again, however, we consider that the Court of Appeals was in
reversible error in so concluding. The
relevant provision of the Deed of Assignment may be quoted again in this
connection:

“2. To induce the
ASSIGNEE [Atok Finance] to purchase the above contracts, the ASSIGNOR [Sanyu
Chemical] does hereby certify, warrant and represent that x x x

(g) the debtor/s under the
assigned contract/s are solvent and his/its/their failure to pay the
assigned contract/s and/or any installment thereon upon maturity thereof shall
be conclusively considered as a violation of this warranty; and x x x

The foregoing warranties and representations are in addition to those
provided for in the Negotiable Instruments Law and other applicable laws. Any violation thereof shall render the
ASSIGNOR immediately and unconditionally liable to pay the ASSIGNEE jointly and
severally with the debtors under the assigned contracts, the amounts due
thereon.

x x x x x x x x x.”

(Emphases supplied)

It may be stressed as a preliminary matter that the Deed of
Assignment was valid and binding upon Sanyu Chemical. Assignment of receivables is a commonplace commercial transaction
today. It is an activity or operation
that permits the assignee to monetize or realize the value of the receivables
before the maturity thereof. In other
words, Sanyu Chemical received from Atok Finance the value of its trade
receivables it had assigned; Sanyu Chemical obviously benefitted from the
assignment. The payments due in the
first instance from the trade debtors of Sanyu Chemical would represent the
return of the investment which Atok Finance had made when it paid Sanyu
Chemical the transfer value of such receivables.

Article 1629 of the Civil Code invoked by private respondents and
accepted by the Court of Appeals is not, in the case at bar, material. The liability of Sanyu Chemical to Atok Finance
rests not on the breach of the warranty of solvency; the liability of
Sanyu Chemical was not ex lege (ex Article 1629) but rather ex
contractu. Under the Deed of
Assignment, the effect of non-payment by the original trade debtors was a
breach of warranty of solvency by Sanyu Chemical, resulting in turn in the
assumption of solidary liability by the assignor under the receivables assigned. In other words, the assignor Sanyu
Chemical becomes a solidary debtor under the terms of the receivables
covered and transferred by virtue of the Deed of Assignment. And because assignor Sanyu Chemical became,
under the terms of the Deed of Assignment, solidary obligor under each of the
assigned receivables, the other private respondents (the Arrieta spouses,
Pablito Bermundo and Leopoldo Halili), became solidarily liable for that
obligation of Sanyu Chemical, by virtue of the operation of the Continuing
Suretyship Agreement. Put a little
differently, the obligations of individual private respondent officers and stockholders
of Sanyu Chemical under the Continuing Suretyship Agreement, were activated by
the resulting obligations of Sanyu Chemical as solidary obligor under each of
the assigned receivables by virtue of the operation of the Deed of Assignment. That solidary liability of Sanyu Chemical is
not subject to the limiting period set out in Article 1629 of the Civil Code.

It follows that at the time the original complaint was filed by
Atok Finance in the trial court, it had a valid and enforceable cause of action
against Sanyu Chemical and the other private respondents. We also agree with the Court of Appeals that
the original obligors under the receivables assigned to Atok Finance remain
liable under the terms of such receivables.

WHEREFORE, for all the foregoing, the Petition for Review
is hereby GRANTED DUE COURSE, and the Decision of the Court of Appeals dated 18
August 1987 and its Resolution dated 30 September 1987 are hereby REVERSED and
SET ASIDE. A new judgment is hereby
entered REINSTATING the Decision of the trial court in Civil Case No. 84-22198
dated 1 April 1985, except only that, in the exercise of this Court’s
discretionary authority equitably to mitigate the penalty clause attached to
the Deed of Assignment, that penalty is hereby reduced to eighteen percent
(18%) per annum (instead of P0.03 for every peso monthly [or 36% per
annum]). As so modified, the Decision
of the trial court is hereby AFFIRMED. Costs against private respondents.

SO ORDERED.

Bidin, Davide, Jr., Romero, and
Melo, JJ., concur.

^[1]
Exhibit “A,” Records, p. 60.

^[2]
Id.

^[3]
Records, p. 63.

^[4]
Record, p. 136.

^[5]
Annex “F” of Petition, Rollo, p. 37.

^[6]
Rollo, p. 12.

^[7]
See Annex “J” of Petition, Rollo, p. 56.

^[8]
Rollo, pp. 13-14.

^[9]
Letter of Associate Justice Reynato S. Puno, Court of Appeals, dated 14
November 1990, A.M. No. 90-11-2697-CA, 29 June 1992; 210 SCRA 589 (1992).

^[10]
Court of Appeals’ Decision, pp. 10-11; Rollo, pp. 52-53.

^[11]
103 Phil. 1131 (1958).

^[12]
115 SCRA 777 (1982).

^[13]
115 SCRA at 781-782.

^[14]
Please see 12 Manresa, Comentarios al Codigo Civil Español (5th Revised
Edition, 1951), pp. 221-222. Scaevola
offers the following terse comment on this point:

“Se reduce a admitir la
constitucion de fianza precediendo al nacimiento de la obligacion afianzada.
Fidejussor et praecedere obligationem et sequi potest.

Ello es de lo mas natural,
porque a la manera que puede contraerse una deuda para lo futuro, deudas
sujetas a condicion suspensiva, es logico que se admita la fianza de ahora bajo
el supuesto o condicion misma de que la deuda u obligacion principal lleque a
constituirse o producirse efectivamente.

Despues de todo, aun en
las obligaciones condicionales, que pueden llegar a tener efectividad o no,
segun el evento puesto en condicion, existe ya, desde luego, una obligacion,
la de estar a las resultas del evento mismo, e igual, identicamente, ocurrira
con la fianza ofrecida en garantia de la obligacion futura.

Donde podria haber duda, si la
ley no lo previese cumplidamente, seria en el segundo inciso, en lo de poder
prestarse fianza por deudas de cuantia desconocida de momento.

x x x                             x x x                                         x
x x”

(Vol. 28, Codiqo Civil, pp.
540-541 [1953]; emphases supplied)

^[15]
Court of Appeals’ Decision, pp. 7-8; Rollo, pp. 49-­50.