RIZAL COMMERCIAL BANKING CORPORATION, PETITIONER, VS. COURT OF APPEALS, PHILIPPINE BLOOMING MILLS, INC. AND ALFREDO CHING, RESPONDENTS.

Will a Securities and Exchange Commission (SEC) Order suspending,
during the pendency of a rehabilitation proceeding, payment of all claims
against the principal debtor bar or preclude the creditor from recovering from
the surety? Respondents Philippine Blooming
Mills (PBM) and its Surety, Alfredo Ching, answer in the affirmative;
petitioner Bank in the negative.

The facts:

On 4 May 1979, Alfredo Ching signed a ‘Comprehensive Surety
Agreement’ with Rizal Commercial Banking Corporation (RCBC), binding himself to
jointly and severally guarantee the prompt payment of all PBM
obligations owing RCBC in the aggregate sum of Forty Million (P40,000,000.00)
Pesos.

Between 8 September to 30 October 1980, PBM filed several
applications for letters of credit with RCBC. Through said applications, PBM obligated itself, among other things, to
pay on demand for all draft(s) drawn under or purporting to be drawn under the
credits. Everything being in order,
RCBC opened the corresponding letters of credit and imported various goods for
PBM’s account. In due time the imported
goods arrived and were released, in trust, to PBM who acknowledged receipt
thereof through various trust receipts. All in all, PBM’s obligations stood at P7,982,649.08.

Less than a year later, or on 7 August 1981, RCBC filed a
Complaint for collection of said sum against respondents PBM and Alfredo Ching
with the then Court of First Instance of Pasig, docketed as CV-42333. Upon filing of a bond satisfactory to the
Court, a Writ of Preliminary Attachment was issued against the assets and
properties of respondents PBM and Ching on the same day. By way of special and affirmative defenses
they alleged that “although the trust receipts stipulate due dates, the true
intent and agreement of the parties was that the maturity dates of the trust
receipts were to be extended at the end of the stipulated dates, as had been
the customary practice of RCBC with PBM.”

On 23 September 1981, PBM and Ching moved to discharge the
attachment, which RCBC opposed. On 4
December 1981 the Court issued an Order lifting the attachment upon their
filing of a satisfactory counter-bond.

Meanwhile, on 1 April 1982, PBM filed a Petition for Suspension
of Payments with the Securities and Exchange Commission, docketed as SEC Case
No. 2250, seeking at the same time its rehabilitation.

In an injunctive Order, dated 6 July 1982, all actions for claims
against PBM pending before any Court or tribunal, in whatever stage the same
may have been, were ordered suspended by the SEC in order to give the
Commission the opportunity to pass upon the feasibility of any rehabilitation
plans. And on 26 April 1988, SEC
approved the revised rehabilitation plan and ordered its implementation.

On 14 October 1982, RCBC pursued its claims with the Trial Court and
filed, unopposed, a Motion for Summary Judgment in CV-42333, a motion for
extension to file said opposition having been earlier withdrawn. RCBC contended that respondents PBM and
Ching had not denied their indebtedness to RCBC and, therefore, no genuine
issue was raised in the pleadings.

On 25 November 1982, the CFI rendered such summary judgment* in
RCBC’s favor, declaring:

“WHEREFORE, judgment is hereby rendered against the defendants
(PBM and Ching) in favor of plaintiff (RCBC) ordering defendants to pay
plaintiff jointly and severally the following:

“a)   P7,982,649.08 inclusive of interest, service
charges and penalties as of August 7, 1981 on account of their liability in
solidum arising from the trust receipts and comprehensive surety
agreements plus such other additional amount by way of interest, service
charges and penalties from August 7, 1981 until fully paid; and

“b)  P10,000.00 as attorney’s fees.

“With costs against the defendants.

“SO ORDERED” (p. 192, Original Record).

On appeal, respondent Court of Appeals,* ruling that it was precipitate and
improper for the lower Court to have continued with the proceedings despite the
SEC Order of suspension, set aside the lower Court Decision and ordered it to
hold in abeyance the determination of the merits invoked in CV-42333 pending
the outcome of SEC Case No. 2250. On 6
October 1988, the Appellate Court denied RCBC’s Motion for Reconsideration.

Hence, this Petition for Review, to which we gave due course on
31 May 1989, and required the filing of Memoranda by the parties, the last of
which was submitted on 27 July 1989.

RCBC takes the position that the SEC injunctive Order pertains
and affects only PBM, the corporation under rehabilitation, and that its right,
as creditor, to proceed against respondent Ching, as Surety, is not affected by
said Order. In fine, RCBC avers that to
hold the injunctive Order applicable to both respondents PBM and Ching is to
deprive RCBC of its right to proceed against the Surety based on the latter’s
separate and independent undertaking.

PBM and Ching counter that the liabilities incurred by PBM were
corporate in character and, hence, as a corporate officer, Alfredo Ching cannot
be held liable therefor; that the pendency of SEC Case No. 2250 and the
rendition of an Order therein on 26 April 1988 implementing respondent PBM’s
rehabilitation plan must necessarily benefit the Surety, inasmuch as payment of
PBM obligations must be made pursuant to that plan; and that the liability of
the Surety can not be more than what would remain after payment of all the
obligations of the principal. Moreover,
they continue, it is usual for majority stockholders to act as co-signors with
their respective corporations where promisory notes, collaterals or guaranty or
security agreements are involved. Respondent Ching’s action may, it is claimed, be classified as a
corporate act.

Under the attendant facts and circumstances, we answer the
question earlier posed in the negative.

Where an obligation expressly states a solidary liability, the concurrence
of two or more creditors or two or more debtors in one and the same obligation
implies 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 (Article
1207, Civil Code). The creditor may
proceed against any one of the solidary debtors or some or all of them
simultaneously (Article 1216, Civil Code).

That there exists a Comprehensive Surety Agreement between RCBC
and respondent Ching is admitted. There
is no escaping the attendant liability that binds respondent Ching, as
Surety. He is charged as an original
promissor by virtue of his primary obligation under the Suretyship
Agreement. That Agreement is bare of
words imputing to respondent Ching any liability other than that of a Surety
who binds himself to insure a debt in his personal capacity, lacking
consideration therefor notwithstanding (p. 94, Original Record). That respondent Ching acted for and on
behalf of respondent PBM as part of its usual corporate procedure is not
supported by the evidence nor the pleadings on record, nor the Agreement
itself. We can not give any additional
meaning to the plain language of the subject agreement. It is basic that the parties are bound by
the terms of their contract, which is the law between them. As held in Zenith Insurance Corporation vs
Court of Appeals (No. L-57957, 29 December 1982, 119 SCRA 485), the extent of a
surety’s liability is determined only by the clause of the contract of
suretyship. It cannot be extended by
implication, beyond the terms of the contract. Conversely, liability therefor may not be restricted unless expressly so
stated.

Neither can respondent Ching seek refuge behind the SEC
injunctive Order. Under Section 3 of P.D.
902-A, as amended by P.D. 1758, the Commission is given absolute jurisdiction,
supervision and control only over corporations or associations, which are
grantees of a primary franchise and/or a license or permit issued by the
government to operate in the Philippines. The SEC injunctive Order can not effect a suspension of payment of
respondent Surety’s due and demandable obligation, it being clear therefrom
that the rehabilitation receivers were limited “to tak(ing) custody and
control over all the existing assets and property of PBM.” Nothing in said
Order puts respondent Ching within its scope.

To further avoid payment of their obligation, PBM and Ching
allege a customary extension given by petitioner in PBM’s favor, which, it is
averred, must necessarily benefit the Surety. Suffice it to say that the summary judgment made by the lower Court
offers an acceptable explanation finding respondents’ obligation as matured and
demandable. Thus:

“The trust receipts from No. 2042 to 2100 in the schedule (pages
2 and 3, complaint) shows that the maturity dates thereof vary from May 12,
1981 at the latest and February 19, 1981 at the earliest. The alleged agreement to extend, granting
its existence, obviously would have had a much earlier date than the maturity
dates of the trust receipts and considering that the instant case was brought
on August 7, 1981, there should have been, to say the least, representation
made prior to the maturity dates or at least on the dates of maturity thereof. But it has not even been alleged by
defendants that such representations were made by defendants. It is too far fetched to rule that the Court
will grant an extension of time to pay, when no such extension has ever been
requested by defendants. The
obligation, therefore, is covered by Article 1193 of the Civil Code and hence,
demandable when the day comes” (pp. 199-200, Original Record).

The lower Court correctly found the case to be without any
genuine issue of fact and ripe for summary judgment. Respondents’ bare allegation of customary extensions is not
corroborated by any documentary evidence but remains plain self-serving
assertions.

In fine, the SEC injunctive Order is of no effect as far as the
respondent Surety, Alfredo Ching, is concerned. He can be sued separately to enforce his liability as Surety for
PBM (Traders Royal Bank vs. Court of Appeals, et al. G.R. No. 78412, September
26, 1989).

WHEREFORE, the
Decision of the Court of Appeals, dated 30 June 1988, and its Resolution
denying reconsideration thereof, dated 6 October 1988, are SET ASIDE. The judgment of the lower Court is hereby
REINSTATED and made executory as far as respondent, Alfredo Ching, is
concerned.

Costs against private respondents, Philippine Blooming Mills and
Alfredo Ching.

SO ORDERED.

Paras, Padilla, Sarmiento, and
Regalado, JJ., concur.

*
Penned by Judge Floreliana Castro-Bartolome.

*
Composed of Justices Rodolfo A. Nocon (Chairman), Ricardo L. Pronove, Jr. and
Bonifacio A. Cacdac, Jr. (ponente).