republic glass corp vs qua 144413

7/11/2015 RepublicGlassCorpvsQua:144413:July30,2004:J.Carpio:FirstDivision:Decision

http://sc.judiciary.gov.ph/jurisprudence/2004/jul2004/144413.htm 1/19

FIRSTDIVISIONREPUBLICGLASSCORPORATIONG.R.No.144413andGERVEL,INC.,Petitioners,Present:

Davide,Jr.,C.J.,Chairman,Quisumbing,

YnaresSantiago,versusCarpio,andAzcuna,JJ.

Promulgated:LAWRENCEC.QUA,Respondent.July30,2004xx

DECISION

CARPIO,J.:

TheCase

Before theCourt isapetitionforreview[1]assailing the6March2000Decision[2]and

the 26 July 2000Resolution of the Court ofAppeals in CAG.R. CVNo. 54737. The

Court ofAppeals set aside theOrder[3] of 3May 1996 of theRegionalTrialCourt of

Makati, Branch 63 (RTCBranch 63), in Civil Case No. 882643 and reinstated the

Decision[4]of12January1996inrespondentsfavor.



TheFacts

Petitioners Republic Glass Corporation (RGC) and Gervel, Inc. (Gervel) together with

respondentLawrenceC.Qua (Qua)were stockholders ofLadtek, Inc. (Ladtek).Ladtek

obtained loansfromMetropolitanBankandTrustCompany(Metrobank)[5]andPrivate

DevelopmentCorporation of the Philippines[6] (PDCP)with RGC,Gervel andQua as

sureties. Among themselves, RGC, Gervel and Qua executed Agreements for

Contribution,IndemnityandPledgeofSharesofStocks(Agreements).[7]

The Agreements all state that in case of default in the payment of Ladteks loans, the

partieswouldreimburseeachothertheproportionateshareofanysumthatanymightpay

tothecreditors.[8]Thus,acommonprovisionappearsintheAgreements:

RGC,GERVELandQUAeachcovenantthateachwillrespectivelyreimbursethepartymade topay theLenders to theextentandsubject to the limitationsset forthherein,allsumsofmoneywhichthepartymadetopaytheLendersshallpayorbecomeliabletopaybyreasonofanyoftheforegoing,andwillmakesuchpaymentswithinfive(5)daysfromthedatethatthepartymadetopaytheLendersgiveswrittennoticetothepartiesheretothatitshallhavebecomeliablethereforandhasadvisedtheLendersofitswillingnesstopaywhether or not it shall have already paid out such sumoranypart thereof to theLendersortothepersonsentitledthereto.(Emphasissupplied)

UnderthesameAgreements,Quapledged1,892,360commonsharesofstockofGeneral

MillingCorporation (GMC) in favor ofRGC andGervel. The pledged shares of stock

servedassecurityforthepaymentofanysumwhichRGCandGervelmaybeheldliable

undertheAgreements.

Ladtek defaulted on its loan obligations to Metrobank and PDCP. Hence,

MetrobankfiledacollectioncaseagainstLadtek,RGC,GervelandQuadocketedasCivil

CaseNo.8364(CollectionCaseNo.8364)whichwasraffledtotheRegionalTrialCourt



ofMakati,Branch149(RTCBranch149).During thependencyofCollectionCaseNo.

8364,RGCandGervelpaidMetrobankP7million.Later,Metrobankexecutedawaiver

andquitclaimdated7September1988infavorofRGCandGervel.Basedonthiswaiver

andquitclaim,[9]Metrobank,RGCandGervelfiledon16September1988ajointmotion

todismissCollectionCaseNo.8364againstRGCandGervel.Accordingly,RTCBranch

149dismissedthecaseagainstRGCandGervel,leavingLadtekandQuaasdefendants.

[10]In a letter dated 7November 1988,RGC andGervels counsel,Atty.AntonioC.

Pastelero, demanded that Qua pay P3,860,646, or 42.22% of P8,730,543.55,[11] as

reimbursementof thetotalamountRGCandGervelpaidtoMetrobankandPDCP.Qua

refused to reimburse the amount to RGC and Gervel. Subsequently, RGC and Gervel

furnishedQuawithnoticesofforeclosureofQuaspledgedshares.Quafiledacomplaintforinjunctionanddamageswithapplicationforatemporary

restrainingorder,docketedasCivilCaseNo.882643 (ForeclosureCaseNo.882643),withRTCBranch 63 to preventRGC andGervel from foreclosing the pledged shares.Although it issued a temporary restrainingorderon9December1988,RTCBranch63deniedon2January1989QuasUrgentPetition toSuspendForeclosureSale.RGC andGerveleventuallyforeclosedallthepledgedsharesofstockatpublicauction.Thus,Quas

applicationfortheissuanceofapreliminaryinjunctionbecamemoot.[12]

Trial in Foreclosure Case No. 882643 ensued. RGC and Gervel offered Quas

MotiontoDismiss[13]inCollectionCaseNo.8364asbasisfortheforeclosureofQuaspledgedshares.QuasMotiontoDismissstates:

8. TheforegoingfactsshowthatthepaymentofdefendantsRepublicGlass

Corporation and Gervel, Inc. was for the entire obligation covered by theContinuingSuretyAgreementswhichwereAnnexesB andCof theComplaint,andthatthesamenaturallyredound[ed]tothebenefitofdefendantQuaherein,asprovidedforbylaw,specificallyArticle1217oftheCivilCode,whichstatesthat:

xxx

10.ItisveryclearthatthepaymentofdefendantsRepublicGlassCorporationandGervel,

Inc. was much more than the amount stipulated in the Continuing Surety



Agreement which is the basis for the action against them and defendant Qua,which was just SIX MILLION TWO HUNDRED [THOUSAND] PESOS(P6,200,000.00), hence, logically the said alleged obligation must now beconsideredasfullypaidandextinguished.

RGCandGervellikewiseofferedasevidenceinForeclosureCaseNo.882643the

Order dismissing Collection Case No. 8364,[14] which RTCBranch 149 subsequentlyreversed onMetrobanks motion for reconsideration. Thus, RTCBranch 149 reinstatedCollectionCaseNo.8364againstQua.

On12January1996,RTCBranch63renderedaDecisioninForeclosureCaseNo.

882643 (12 January1996Decision)orderingRGCandGervel to return the foreclosed

sharesofstocktoQua.Thedispositiveportionofthe12January1996Decisionreads:WHEREFORE,premisesconsidered,thisCourtherebyrendersjudgmentordering

defendants jointly and severally liable to return to plaintiff the 1,892,360 shares ofcommon stock of GeneralMilling Corporation which they foreclosed on December 9,1988,orshouldthereturnofthesesharesbenolongerpossiblethentopaytoplaintifftheamount ofP3,860,646.00with interest at 6% per annum fromDecember 9, 1988 untilfullypaidandtopayplaintiffP100,000.00asandforattorneysfees.Thecostswillbefordefendantsaccount.

SOORDERED.[15]

However,onRGCandGervelsMotionforReconsideration,RTCBranch63issued

its Order of 3 May 1996 (3 May 1996 Order) reconsidering and setting aside the 12

January1996Decision.The3May1996Orderstates:After a thorough review of the records of the case, and an evaluation of the

evidenceadducedbythepartiesaswellastheircontentions,theissuestoberesolvedboildowntothefollowing:

1.Whetherornotthepartiesobligationtoreimburse,undertheIndemnity

Agreementswaspremisedonthepaymentbyanyofthemoftheentireobligation2.Whetherornotthereisbasistoplaintiffsapprehensionthathewouldbe

madetopaytwiceforthesingleobligationand3. Whether or not plaintiff was benefited by the payments made by



defendants.Regarding the first issue, a closer scrutiny of the pertinent provisions of the

IndemnityAgreementsexecutedbythepartieswouldnotrevealanysignificantindicationthatthepartiesliabilitiesareindeedpremisedonthepaymentbyanyofthemoftheentireobligation. These agreements clearly provide that the parties obligation to reimburseaccruesuponmereadvicethatoneofthemhaspaidorwillsopaytheobligation.Itisnotspecifiedwhetherthepaymentisfortheentireobligationornot.

Accordingly, theCourt stands corrected in this regard.Theobvious conclusion

thatcanbeseennowisthatpaymentoftheentireobligationisnotaconditionsinequanon for thepayingparty todemandreimbursement.Theparties have expresslycontracted that each will reimburse whoever is made to pay the obligation whetherentirelyorjustaportionthereof.

Onthesecondissue,plaintiffsapprehensionthathewouldbemadetopaytwice

for the single obligation is unfounded. Under the abovementioned IndemnityAgreements,intheeventthatthecreditorsareabletocollectfromhim,hehastherighttoaskdefendantstopaytheirproportionateshare,inthesamewaydefendantshadcollectedfromtheplaintiff,byforeclosinghispledgedsharesofstock,hisproportionateshare,afterthey had made payments. From all indications, the provisions of the IndemnityAgreementshaveremainedbindingbetweentheparties.

Onthethirdissue,thereismerittodefendantsassertionthatplaintiffhasbenefited

from the paymentsmade by defendants.As alleged by defendants, and this has notbeendeniedbyplaintiff,inCivilCaseNo.8364filedbeforeBranch149ofthisCourt,where the creditors were enforcing the parties liabilities as sureties, plaintiffsucceededinhavingthecasedismissedbyarguingthatdefendantspayments[were]for the entireobligation,hence, theobligation shouldbe considered fullypaidandextinguished.Withthedismissalofthecase,theindicationsarethatthecreditorsarenolongerrunningafterplaintifftoenforcehisliabilitiesassuretyofLadtek.

Whetherornotthesuretyagreementssignedbythepartiesandthecreditorswere

novated is not material in this controversy. The fact is that there was payment of theobligation.Hence,theIndemnityAgreementsgovern.

In the final analysis, defendants payments gave rise to plaintiffs obligation to

reimbursetheformer.Havingfailedtodoso,upondemand,defendantswerejustifiedinforeclosingthepledgedsharesofstocks.

xxx

WHEREFORE, premises considered, the decision dated January 12, 1996 isreconsidered and set aside. The aboveentitled complaint against defendants isDISMISSED.

Likewise,defendantscounterclaimisalsodismissed.SOORDERED.[16](Emphasissupplied)



Quafiledamotionforreconsiderationof the3May1996OrderwhichRTCBranch63

denied.Aggrieved, Qua appealed to the Court of Appeals. During the pendency of the

appeal, Qua filed a Manifestation[17] with the Court of Appeals attaching the

Decision[18]of21November1996renderedinCollectionCaseNo.8364.Thedispositive

portionofthedecisionreads:WHEREFORE, premises considered, judgment is hereby rendered ordering

defendantsLadtek,Inc.andLawrenceC.Qua:1.Topay,jointlyandseverally,theplaintifftheamountofP44,552,738.34as

ofOctober31,1987plusthestipulatedinterestof30.73%perannumandpenaltychargesof 12% per annum fromNovember 1, 1987 until the whole amount is fully paid, lessP7,000,000.00paidbydefendantsRepublicGlassCorporationandGervel, Inc.,but theliabilityofdefendantLawrenceC.QuashouldbelimitedonlytoP5,000,000.00andP1,200,000.00,theamountstatedintheContinuingSuretyshipdatedJune15,1983,Exh.DandContinuingSuretyshipdatedDecember14,1981,Exh.D1,respectively,plusthestipulatedinterestandexpensesincurredbytheplaintiff.

2. Topay,jointlyandseverally,theplaintiffanamountequivalenttoten

(10%)percentofthetotalamountdueasandbywayofattorneysfees

3.Topaythecostofsuit.TheCounterclaimsof thedefendantsLadtek, Inc. andLawrenceC.Qua against

theplaintiffareherebydismissed.Likewise,thecrossclaimsofthedefendantsaredismissed.SOORDERED.[19](Emphasissupplied)

On6March2000,theCourtofAppealsrenderedthequestionedDecisionsettingasidethe3 May 1996 Order of RTCBranch 63 and reinstating the 12 January 1996 Decision

orderingRGCandGerveltoreturntheforeclosedsharesofstocktoQua.[20]

Hence,thispetition.



TheRulingoftheCourtofAppeals

In reversing the 3May 1996 Order and reinstating the 12 January 1996 Decision, the

appellatecourtquotedtheRTCBranch63s12January1996Decision:The liabilityofeachpartyunder the indemnityagreements therefore ispremisedon thepaymentbyanyofthemoftheentireobligation.Withoutsuchpayment, therewouldbenocorrespondingsharetoreimburse.Paymentoftheentireobligationnaturallyredoundstothebenefitoftheothersolidarydebtorswhomustthenreimbursethepayingcodebtorstotheextentofhiscorrespondingshare.Inthecaseatbar,RepublicGlassandGervelmadepartialpaymentsonly,andsotheydidnotextinguishtheentireobligation.ButRepublicGlassandGervelneverthelessobtainedquitclaims in their favor and so they ceased tobe solidarily liablewithplaintiff for thebalanceofthedebt(Exhs.D,E,andI).Plaintiffthusbecamesolelyliablefortheunpaidportionofthedebtevenasheisbeingheldliableforreimbursementonthesaidportion.Whathappenedtherefore,wasthatMetrobankandPDCPineffectenforcedtheSuretyshipAgreements jointly as against plaintiff and defendants. Consequently, the solidaryobligationundertheSuretyshipAgreementswasnovatedbythesubstantialmodificationof its principal conditions. xxx The resulting changewas from onewith three solidarydebtorstooneinwhichLawrenceQuabecamethesolesolidarycodebtorofLadtek.Defendantscannotsimplypayoffaportionofthedebtandthenabsolvethemselvesfromanyfurtherliabilitywhentheobligationhasnotbeentotallyextinguished.xxxInthefinalreckoning,thisCourtfindsthattheforeclosureandsaleofthesharespledgedbyplaintiffwastotallyunjustifiedandwithoutbasisbecausetheobligationsecuredbytheunderlyingpledgehadbeenextinguishedbynovation.xxx[21]

The Court of Appeals further held that there was an implied novation or substantial

incompatibility in the suretys mode or manner of payment from one for the entire

obligationtoonemerelyofproportionateshare.TheappellatecourtruledthatRGCand

Gervels payment to the creditors only amounted to their proportionate shares of the

obligation,consideringthefollowingevidence:The letter of the Republic to the appellant, Exhibit G, dated June 25, 1987, which



mentioned the letter from PDCP confirming its willingness to release the joint andsolidaryobligationoftheRepublicandGervelsubjecttosometermsandconditions,oneofwhichistheappellantsacceptablerepaymentplanofhisproratashareandtheletterofPDCP to theRepublic,ExhibitH,mentioning full paymentof thepro rata shareof theRepublic andGervel, and the need of the appellant to submit an acceptable repaymentplancoveringhisprorata share, the release fromsolidary liabilitybyPDCP,Exhibit J,mentioningfullpaymentbytheRepublicandGerveloftheirproratashareintheloan,assolidaryobligors,subjecthowevertothetermsandconditionsoftheholdoutagreementand thenonpayment in fullof the loan, subjectof theMay10,1984PromissoryNote,exceptthe7millionpaymentbybothRepublicandGervel,asmentionedintheDecision(CaseNo.8364,Metrobankvs.Ladtek,etal).Precisely,Ladtekandtheappellant,insaidDecisionweredirectedtopayMetrobankthebalanceofP9,560,798,supposedlydueandunpaid.

Thus, the payment did not extinguish the entire obligation and did not benefit Qua.

Accordingly,RGCandGervelcannotdemandreimbursement.TheCourtofAppealsalso

heldthatQuaevenbecamesolelyanswerablefortheunpaidbalanceoftheobligationsby

virtueofthequitclaimsexecutedbyMetrobankandPDCPinfavorofRGCandGervel.

RGCandGervelceasedtobesolidarilyliableforLadteksloanobligations.[22]

TheIssues

RGCandGervelraisethefollowingissuesforresolution:I.

WHETHER THE PRINCIPLE OF ESTOPPEL APPLIES TO QUAS JUDICIALSTATEMENTSTHATRGCANDGERVELPAIDTHEENTIREOBLIGATION.

II.WHETHER PAYMENT OF THE ENTIRE OBLIGATION IS A CONDITION SINEQUANONFORRGCANDGERVELTODEMANDREIMBURSEMENTFROMQUAUNDER THE INDEMNITY AGREEMENTS EXECUTED BY THEM AFTER RGCANDGERVELPAIDMETROBANKUNDERTHESURETYAGREEMENT.

III.ASSUMING ARGUENDO THAT THERE WAS NOVATION OF THE SURETYAGREEMENTS SIGNED BY THE PARTIES AND THE CREDITORS, WHETHER



THENOVATIONISMATERIALINTHISCASE.[23]

TheCourtsRulingWedenythepetition.

WhetherQuawasinestoppelRGCandGervelcontendthatQuaisinestoppelformakingconflictingstatementsintwo

differentandseparatecases.QuacannotnowclaimthatthepaymentmadetoMetrobank

wasnotfortheentireobligationbecauseofhisMotiontoDismissCollectionCaseNo.

8364wherehestatedthatRGCandGervelspaymentwasfortheentireobligation.Theessentialelementsofestoppelinpaisareconsideredinrelationtotheparty to

be estopped, and to the party invoking the estoppel in his favor. On the party to be

estopped, such party (1) commits conduct amounting to false representation or

concealmentofmaterialfactsoratleastcalculatedtoconveytheimpressionthatthefacts

are inconsistentwith thosewhich the party subsequently attempts to assert (2) has the

intent,oratleastexpectationthathisconductshallatleastinfluencetheotherpartyand

(3) has knowledge, actual or constructive, of the real facts.On thepartyclaiming the

estoppel,suchparty(1)haslackofknowledgeandofthemeansofknowledgeofthetruth

onthefactsinquestion(2)hasrelied,ingoodfaith,ontheconductorstatementsofthe

party to be estopped (3) has acted or refrained from acting based on such conduct or

statementsas to change thepositionor statusof theparty claiming theestoppel, to his



injury,detrimentorprejudice.[24]

Inthiscase,theessentialelementsofestoppelareinexistent.WhileQuasstatementsinCollectionCaseNo.8364conflictwithhisstatementsin

ForeclosureCaseNo. 882643,RGC andGervelmiserably failed to show thatQua, inmakingthosestatements,intendedtofalselyrepresentorconcealthematerialfacts.Bothpartiesundeniablyknowtherealfacts.

Nothing in the records shows thatRGCandGervel relied onQuas statements in

CollectionCaseNo.8364suchthattheychangedtheirpositionorstatus,totheirinjury,

detriment or prejudice. RGC andGervel repeatedly point out that it was the presiding

judge[25]inCollectionCaseNo.8364whoreliedonQuasstatementsinCollectionCase

No.8364.RGCandGervelclaimthatQuadeliberatelyledthePresidingJudgetobelieve

that theirpayment toMetrobankwasfor theentireobligation.Asa result, thepresiding

judgeorderedthedismissalofCollectionCaseNo.8364againstQua.[26]

RGCandGervel further invokeSection4ofRule129of theRulesofCourt tosupport

theirstance:Sec.4.Judicialadmissions.Anadmission,verbalorwritten,madebyapartyinthecourseof the proceedings in the same case, does not require proof. The admission may becontradictedonlybyshowingthatitwasmadethroughpalpablemistakeorthatnosuchadmissionwasmade.

Apartymaymakejudicialadmissionsin(a)thepleadingsfiledbytheparties,(b)duringthetrialeitherbyverbalorwrittenmanifestationsorstipulations,or(c)inotherstagesof

thejudicialproceeding.[27]

Theelementsof judicialadmissionsareabsent in thiscase.Quamadeconflicting

statementsinCollectionCaseNo.8364andinForeclosureCaseNo.882643,andnotin



thesamecaseasrequiredinSection4ofRule129.Toconstitutejudicialadmission,the

admissionmustbemadeinthesamecaseinwhichitisoffered.Ifmadeinanothercase

orinanothercourt,thefactofsuchadmissionmustbeprovedasinthecaseofanyother

fact,althoughifmadeinajudicialproceedingitisentitledtogreaterweight.[28]

RGC and Gervel introduced Quas Motion to Dismiss and the Order dismissing

Collection Case No. 8364 to prove Quas claim that the payment was for the entire

obligation. Qua does not deny making such statement but explained that he honestly

believedandpleadedinthelowercourtandinCAG.R.CVNo.58550thattheentiredebt

wasfullyextinguishedwhenthepetitionerspaidP7milliontoMetrobank.[29]

WefindQuasexplanationsubstantiatedbytheevidenceonrecord.Asstatedinthe

Agreements, Ladteks original loan fromMetrobank was only P6.2million. Therefore,

Qua reasonably believed that RGC and Gervels P7 million payment to Metrobank

pertainedtotheentireobligation.However,subsequentfactsindisputablyshowthatRGC

and Gervels payment was not for the entire obligation. RTCBranch 149 reinstated

CollectionCaseNo.8364againstQuaandruledinMetrobanksfavor,orderingQuatopay

P6.2million.

Whetherpaymentoftheentireobligationisanessentialconditionforreimbursement

RGCandGervelassailtheCourtofAppealsrulingthatthepartiesliabilitiesundertheAgreementsdependonthefullpaymentoftheobligation.RGCandGervelinsistthatitisnotanessentialconditionthattheentireobligationmustfirstbepaidbeforetheycanseekreimbursementfromQua.RGCandGervelcontendthatQuashouldpay42.22%of



anyamountwhichtheypaidorwouldpayMetrobankandPDCP.RGCandGervelscontentionispartlymeritorious.Paymentoftheentireobligationbyoneorsomeofthesolidarydebtorsresultsina

corresponding obligation of the other debtors to reimburse the paying debtor.[30]

However,we agreewithRGC andGervels contention that in this case payment of theentireobligation is not an essential conditionbefore they can seek reimbursement fromQua.ThewordsoftheAgreementsareclear.

RGC,GERVELandQUAeachcovenantthateachwillrespectivelyreimbursethepartymadetopaytheLenderstotheextentandsubjecttothelimitationssetforthherein,all sums ofmoneywhich the partymade to pay theLenders shall pay or becomeliabletopaybyreasonofanyoftheforegoing,andwillmakesuchpaymentswithinfive(5)daysfromthedatethatthepartymadetopaytheLendersgiveswrittennoticetothepartiesheretothatitshallhavebecomeliablethereforandhasadvisedtheLendersofitswillingness topaywhetherornot it shall have alreadypaidout such sum oranypartthereoftotheLendersortothepersonsentitledthereto.(Emphasissupplied)

The Agreements are contracts of indemnity not only against actual loss but against

liability as well. In Associated Insurance & Surety Co., Inc. v. Chua,[31] wedistinguished between a contract of indemnity against loss and a contract of indemnity

againstliability,thus:[32]

Theagreementheresueduponisnotonlyoneofindemnityagainstlossbutofindemnityagainstliability.Whilethefirstdoesnotrendertheindemnitorliableuntilthepersontobeindemnifiedmakespaymentorsustainsloss,thesecondbecomesoperativeassoonasthe liability of theperson indemnified arises irrespective ofwhether ornothehassufferedactualloss.(Emphasissupplied)

Therefore,whether the solidary debtor has paid the creditor, the other solidary debtorsshould indemnify theformeroncehis liabilitybecomesabsolute.However, in thiscase,the liability of RGC, Gervel and Qua became absolute simultaneously when Ladtekdefaultedinitsloanpayment.Asaresult,RGC,GervelandQuaallbecamedirectlyliableat thesame time toMetrobankandPDCP.Thus,RGCandGervelcannotautomaticallyclaim for indemnity fromQuabecauseQuahimself is liabledirectly toMetrobankand



PDCP.

IfweallowRGCandGerveltocollectfromQuahisproportionateshare,thenQuawouldpaymuchmore thanhis stipulated liabilityunder theAgreements. In addition totheP3,860,646claimedbyRGCandGervel,QuawouldhavetopayhisliabilityofP6.2milliontoMetrobankandmorethanP1milliontoPDCP.SinceQuawouldsurelyexceedhisproportionateshare,hewouldthenrecoverfromRGCandGerveltheexcesspayment.Thissituationisabsurdandcircuitous.

ContrarytoRGCandGervelsclaim,paymentofanyamountwillnotautomaticallyresult in reimbursement. If a solidarydebtorpays theobligation inpart, he can recoverreimbursementfromthecodebtorsonlyinsofarashispaymentexceededhisshareinthe

obligation.[33]Thisispreciselybecauseifasolidarydebtorpaysanamountequaltohisproportionateshareintheobligation,thenheineffectpaysonlywhatisduefromhim.Ifthe debtor pays less than his share in the obligation, he cannot demand reimbursementbecausehispaymentislessthanhisactualdebt.

To determine whether RGC and Gervel have a right to reimbursement, it is

indispensable to ascertain the total obligation of the parties. At this point, it becomesnecessarytoconsiderthedecisioninCollectionCaseNo.8364onthepartiesobligationtoMetrobank.Torepeat,MetrobankfiledCollectionCaseNo.8364againstLadtek,RGC,GervelandQuatocollectLadteksunpaidloan.

RGC and Gervel assail the Court of Appeals consideration of the decision in

CollectionCaseNo.8364[34]becauseQuadidnotofferthedecisioninevidenceduring

the trial in Foreclosure Case No. 882643 subject of this petition. RTCBranch 62[35]

renderedthedecisioninCollectionCaseNo.8364on21November1996whileQuafiledhisNotice ofAppeal of the 3May 1996Order on 19 June 1996.Qua could not havepossibly offered in evidence the decision in Collection Case No. 8364 because RTCBranch62renderedthedecisiononlyafterQuaelevatedthepresentcasetotheCourtofAppeals. Hence, Qua submitted the decision in Collection Case No. 8364 during thependencyoftheappealofForeclosureCaseNo.882643intheCourtofAppeals.

As found by RTCBranch 62, RGC, Gervel and Quas total obligation was



P14,200,854.37asof31October1987.[36]DuringthependencyofCollectionCaseNo.8364,RGCandGervelpaidMetrobankP7million.Becauseof thepayment,Metrobank

executedaquitclaim[37]infavorofRGCandGervel.ByvirtueofMetrobanksquitclaim,RTCBranch 62 dismissedCollectionCaseNo. 8364 againstRGC andGervel, leavingLadtekandQuaasdefendants.ConsideringthatRGCandGervelpaidonlyP7millionoutofthetotalobligationofP14,200,854.37,whichpaymentwaslessthanRGCandGervels

combinedsharesintheobligation,[38]itwasclearlypartialpayment.Moreover,ifitwerefullpayment, thentheobligationwouldhavebeenextinguished.MetrobankwouldhavealsoreleasedQuafromhisobligation.

RGCandGervelalsomadepartialpaymenttoPDCP.Proofof this is theRelease

fromSolidaryLiabilitythatPDCPexecutedinRGCandGervelsfavorwhichstatedthat

their payment of P1,730,543.55 served as full payment of their corresponding

proportionate share in Ladteks foreign currency loan.[39] Moreover, PDCP filed a

collectioncaseagainstQuaalone,docketedasCivilCaseNo.2259,intheRegionalTrial

CourtofMakati,Branch150.[40]

Since they only made partial payments, RGC and Gervel should clearly and

convincingly show that their payments to Metrobank and PDCP exceeded theirproportionate shares in the obligations before they can seek reimbursement fromQua.This RGC andGervel failed to do. RGC and Gervel, in fact, never claimed that theirpaymentsexceededtheirsharesintheobligations.Consequently,RGCandGervelcannotvalidlyseekreimbursementfromQua.

WhethertherewasnovationoftheAgreements

RGCandGervelcontendthattherewasnonovationoftheAgreements.RGCandGervel

furthercontendthatanynovationoftheAgreementsisimmaterialtothiscase.RGCand



GerveldisagreedwiththeCourtofAppealsontheeffectof theimpliednovationwhich

supposedlytranspiredinthiscase.TheCourtofAppealsfoundthattherewasanimplied

novationorsubstantial incompatibility in themodeormannerofpaymentby thesurety

fromtheentireobligation, toonemerelyofproportionateshare.RGCandGervelclaim

that if it is true that an implied novation occurred, then the effectwould be to release

respondent(Qua)astheentireobligationisconsideredextinguishedbyoperationoflaw.

Thus, Qua should now reimburse RGC and Gervel his proportionate share under the

suretyagreements.

Novation extinguishes an obligation by (1) changing its object or principalconditions(2)substitutingthepersonofthedebtorand(3)subrogatingathirdpersonintherightsofthecreditor.Article1292oftheCivilCodeclearlyprovidesthatinorderthatan obligationmay be extinguished by anotherwhich substitutes the same, it should bedeclared in unequivocal terms, or that the old and new obligations be on every point

incompatible with each other.[41] Novation may either be extinctive or modificatory.Novation is extinctive when an old obligation is terminated by the creation of a newobligation that takes theplaceof the former.Novation ismerelymodificatorywhen theoldobligationsubsiststotheextentitremainscompatiblewiththeamendatoryagreement.[42]

We find that there was no novation of the Agreements. The parties did notconstituteanewobligationtosubstitutetheAgreements.ThetermsandconditionsoftheAgreementsremainthesame.Therewasalsonoshowingofcompleteincompatibilityinthemannerofpaymentofthepartiesobligations.ContrarytotheCourtofAppealsruling,themode ormanner of payment by the parties did not change from one for the entireobligation to onemerely of proportionate share. The creditors, namelyMetrobank and

PDCP,merelyproceededagainstRGCandGervelfortheirproportionatesharesonly.[43]

This preference is within the creditors discretion which did not necessarily affect thenatureoftheobligationsaswellasthetermsandconditionsoftheAgreements.Acreditormaychoosetoproceedonlyagainstsomeandnotallofthesolidarydebtors.Thecreditormay also choose to collect part of the debt from some of the solidary debtors, and the



remainingdebtfromtheothersolidarydebtors.In sum, RGC and Gervel have no legal basis to seek reimbursement fromQua.

Consequently,RGCandGervelcannotvalidlyforeclosethepledgeofQuasGMCshares

ofstockwhichsecuredhisobligationtoreimburse.[44]Therefore,theforeclosureofthepledgedsharesofstockhasnolegtostandon.

WHEREFORE,weDENYthepetition.TheDecisiondated6March2000oftheCourtofAppealsinCAG.R.CVNo.54737isAFFIRMED.Costsagainstpetitioners.SOORDERED.ANTONIOT.CARPIOAssociateJusticeWECONCUR:

HILARIOG.DAVIDE,JR.ChiefJusticeChairman

LEONARDOA.QUISUMBINGCONSUELOYNARESSANTIAGOAssociateJusticeAssociateJustice

ADOLFOS.AZCUNAAssociateJustice

CERTIFICATION



Pursuant to Section 13, Article VIII of the Constitution, it is hereby certified that the

conclusions in the above Decision were reached in consultation before the case was

assignedtothewriteroftheopinionoftheCourtsDivision.

HILARIOG.DAVIDE,JR.ChiefJustice

[1]UnderRule45oftheRulesofCourt.[2]PennedbyAssociateJusticeBernardoLL.SalaswithAssociateJusticesSalomeA.MontoyaandPresbiteroJ.Velasco,Jr.

concurring.[3]PennedbyJudgeAmadoA.Amador,Jr.[4]PennedbyJudgeRubenA.Mendiola.[5]InitsDecisiondated21November1996,theRegionalTrialCourtofMakati,Branch62,foundthatLadteksloanfrom

MetrobankamountedtoP44,552,738.34asof31October1987.[6]PDCPgrantedLadtekaforeigncurrencyloanintheamountofUS$110,000.00on20January1982.[7]TheAgreementswereexecutedon9December1981,November1982and19September1983.[8]TheAgreementsprovidethefollowing:

1.ContributionShould theCompanybe indefaultunder theCreditAgreements,andoneparty to theSuretyshipAgreements is

requiredtopaytotheLendersundertheSuretyshipAgreements,theotherpartiesshallcontributeanamountequivalenttothepercentagesetforthaftertheirrespectivenamesbelowofeachamountofprincipal,interestandallothersums,liability,lossandexpense,includingattorneysfees,thatthepartymadetopaytheLendersmayincurbyreasonofitsexecutingtheSuretyshipAgreements,or indefendingorprosecutinganysuit,actionorotherproceedingbrought inconnectiontherewith,orinobtainingorattemptingtoobtainareleasefromanyliabilityinrespectthereof:

RGC35.557%Gervel22.223%Qua42.220%

Itistheintentionthatasbetweenthepartieshereto,eachpartywouldbeliableforanydefaultbytheCompanyundertheCreditAgreementsonlytotheextentofthepercentagethatthestockholdingsofeachintheCompanybearstotheaggregatestockholdingsintheCompanyofallthepartieshereto.(Emphasissupplied)

[9]ExhibitD,Records,p.316.[10]ExhibitF,Records,p.319.[11]RGCandGervelpaidMetrobankP7millionandPDCPP1,730,543.55.[12]Records,p.50.[13]Exhibit6to6D,Records,pp.392396.



[14]Exhibit7to7C1,Records,pp.397400.[15]Rollo,p.69.[16]Rollo,pp.7173.[17]Ibid.,pp.126128.[18]PennedbyJudgeRobertoC.Diokno.[19]Rollo,pp.129151.[20]Ibid.,p.56.[21]Ibid.,pp.5356.[22]Ibid.,pp.5152.[23]Ibid.,p.287.[24]PhilippineNationalBankv.CourtofAppeals,G.R.No.121739,14June1999,308SCRA229Kalalov.Luz,No.L

27782,31July1970,34SCRA337.SeealsoPhilippineBankofCommunicationsv.CourtofAppeals,G.R.No.109803,20April1998,289SCRA178.

[25]NowAssociateJusticeofthisCourt,ConsueloYnaresSantiago.[26] As earlier stated, Case No. 8364 was reinstated against Qua upon Metrobanks motion for reconsideration of the

dismissalofthecase.[27]FLORENZD.REGALADO,REMEDIALLAWCOMPENDIUM,VOLUMETWO,SEVENTHREVISEDEDITION,

650.[28]Ibid.[29]Rollo,p.239.[30]ThisisinaccordancewithArt.1217oftheCivilCodewhichexpresslyprovides:

Paymentmadebyoneofthesolidarydebtorsextinguishestheobligation.Iftwoormoresolidarydebtorsoffertopay,thecreditormaychoosewhichoffertoaccept.

Hewhomadethepaymentmayclaimfromhiscodebtorsonlythesharewhichcorrespondstoeach,withinterestfor

thepaymentalreadymade.Ifthepaymentismadebeforethedebtisdue,nointerestfortheinterveningperiodmaybedemanded.

xxx

SeealsoMalayanInsuranceCo.,Inc.v.CourtofAppeals,No.L36413,26September1988,165SCRA536Camusv.Hon.CourtofAppeals,etal.,107Phil.4(1960).

[31]L15656,31January1963,7SCRA52.InAssociatedInsurance, the insurancecompanyputupabail bond for theprovisionallibertyoftheaccused.Anindemnityagreementinfavoroftheinsurancecompanywasinturnsignedbyappellant, solidarily with accused. Accused failed to appear in court for trial, thus, the bail bond was orderedconfiscated.Afterjudgmentonthebondwasrendered,theinsurancecompanyfiledanactionagainstappellantontheindemnityagreement.TheCourtruledthatthestipulationintheindemnityagreementallowingtheinsurancecompanytoproceedagainstappellantforindemnificationevenpriortoactualsatisfactionofthejudgmentonthebondisvalidandnotcontrarytopublicpolicy.

[32]Guerrerov.CourtofAppeals,No.L22366,30October1969,29SCRA791.[33] ARTURO M. TOLENTINO, COMMENTARIES AND JURISPRUDENCE ON THE CIVIL CODE OF THE

PHILIPPINES,VOLUMEIV,1997,244.[34]ThedecisioninCaseNo.8364becamefinalon15March2004.TheCourtdeniedQuaspetitionforreviewandthe

motion for reconsideration of the Court of Appeals decision affirming the decision of the Regional Trial Court of



Makati,Branch62.[35]CaseNo.8364waslaterassignedtoRTCBranch62.[36]AsstatedinthedecisioninCaseNo.8364,whichwasaffirmedbytheCourtofAppeals.[37]Thequitclaimprovides:

xxxinconsiderationofthepaymentofSEVENMILLIONPESOS(P7,000,000.00)PhilippineCurrency,madebyRepublic Glass Corporation and Gervel, Inc., receipt of which is hereby acknowledged, does hereby WAIVE,QUITCLAIM,TERMINATEANDRELINQUISHanyandallrights,claimsorcausesofactionthatMetrobankmayhaveagainstRepublicGlassCorp.andGervel,Inc.xxx, inCivilCaseNo.8364,xxx, thereby releasinganddischargingforeversaidRepublicGlassCorp.andGervel, Inc.,aswellas itsofficersanddirectors, fromanyandallliabilities of whatsoever kind or nature related to the above case, or related to any account of Ladtek, Inc. and/orLawrenceC.Qua.

[38]RGCsshareis35.557%whileGervelsshareis22.223%oftheobligation.RGC35.557%+Gervel22.223%Total57.780%

57.780%ofP14,200,854.37(totalobligation)isequaltoP8,205,253.655.[39]Thereleaseprovides:

WHEREAS,RGCandGERVEL,inconsiderationoftheirfullpaymentoftheircorrespondingproportionateshareintheLoanoftheBORROWER,haverequestedtobereleasedfromtheirobligationassolidaryobligorunderandbyvirtueoftheabovementionedAssumptionofSolidaryLiabilityandtheLENDERhaveconsentedandagreedtoreleasethesaidsolidaryobligors,subjecttothetermsandconditionsofthatHoldoutAgreement,datedDecember17,1987,betweentheLENDER,RGCandGERVELxxx(Emphasissupplied)

[40]Records,pp.192199.[41]TropicalHomes,Inc.v.CourtofAppeals,G.R.No.111858,14May1997,272SCRA428.[42]Quintov.People,G.R.No.126712,14April1999,305SCRA708.SeealsoBautistav.PilarDevelopmentCorporation,

G.R.No.135046,17August1999,312SCRA611.[43]Art.1216oftheCivilCodestates:Art.1216.Thecreditormayproceedagainst anyoneof the solidarydebtorsor someor allof themsimultaneously.The

demandmadeagainstoneof themshallnotbe anobstacle to thosewhichmay subsequentlybedirectedagainst theothers,solongasthedebthasnotbeenfullycollected.

SeealsoGuerrerov.CourtofAppeals,No.L22366,30October1969,29SCRA791.[44]Art.2087oftheCivilCodeprovides:Art.2087. It is also the essenceof these contracts (pledge,mortgage and antichresis) thatwhen theprincipal obligation

becomesdue,thethingsinwhichthepledgeormortgageconsistsmaybealienatedforthepaymenttothecreditor.

republic glass corp vs qua 144413

Documents