CREDIT Guaranty - Escano Vs Ortigas

GUARANTY AND SURETYSHIP case #7
Salvador Escano and Mario Silos vs. Rafael Ortigas Jr.

Private Development Corporation of the Phils. (PDCP) entered into a loan agreement
with Falcon Minerals (FALCON) where the former agreed to lend to the latter $320,000.
3 stockholders-officers of FALCON, respondent Ortigas, George A. Scholey and George
T. Scholey (ORTIGAS ET AL.) executed an Assumption of Solidary Liability where
they agreed to assume in their individual capacity, solidary liability with FALCON for
due and punctual payment of the loan.
2 separate guaranties were executed to guarantee the payment of loan by other
stockholders and officers of FALCON: one was executed by petitioner Escano and the
other by petitioner Silos.
Two years later, contracts were executed wherein Ortigas et al. assigned their shares of
stock in FALCON to petitioners Escano, Silos and one Joseph Matti. Their Undertaking
provided the following:
Escano, Silos and Matti identified as SURETIES
Ortigas and the Scholeys identified as OBLIGORS
3. That whether or not SURETIES are able to immediately cause PDCP to
release OBLIGORS from their said guarantees, SURETIES hereby irrevocably
agree and undertake to assume all of OBLIGORS said guarantees to PDCP
under the following terms and conditions:
a. Upon receipt by any OBLIGOR of demand from PDCP for the payment
of FALCONs obligations with it, any OBLIGOR shall immediately inform
SURETIES thereof so that the latter can timely take appropriate
measures;
b. Should suit be impleaded by PDCP against any or all OBLIGORS for
collection of said loans and/or credit facilities, SURETIES agree to defend
OBLIGORS at their own expense, without prejudice to any and/or all
OBLIGORS impleading SURETIES therein for contribution, indemnity,
subrogation or other relief in respect to any of the claims of PDCP; and
c. In the event that any of the OBLIGORS is for any reason made to pay
any amount to PDCP, SURETIES shall reimburse OBLIGORS for said
amount/s within 7 calendar days;
4. OBLIGORS hereby waive in favor of SURETIES any and all fees which may be
due from FALCON arising out of, or in connection with, their said guarantees.
FALCON eventually availed of the sum of $178,655.59 from the credit line extended by
PDCP. It would also execute a Deed of Chattel Mortgage over its personal properties to
further secure the loan. However, FALCON defaulted in its payments. After PDCP
foreclosed on the mortgage, there remained a subsisting deficiency of P5,031,004.07,
which FALCON did not satisfy despite demand.
PDCP filed a complaint for sum of money against FALCON, respondent Ortigas and
petitioners Escano and Silos. Compromise agreements were entered into with PDCP:
1. Petitioner Escano agreeing to pay the bank P1 million in exchange for PDCP
dropping its case against him.
2. Respondent Ortigas entered into his own compromise agreement with PDCP,
allegedly without the knowledge of Escano, Silos and Matti. He agreed to pay
PDCP P1.3 million as full satisfaction of PDCPs claim against Ortigas.
3. Petitioner Silos entered into a Partial Compromise Agreement whereby he
agreed to pay P500,000 in exchange for PDCPs waiver of its claims against him.
After having settled with PDCP, respondent Ortigas pursued his claims against Escano,
Silos and Matti on the basis of the Undertaking. The RTC issued the Summary
Judgment, ordering Escano, Silos and Matti to pay Ortigas, jointly and severally, the
P1.3 million paid to PDCP. The court ruled that none of the parties disputed the
Undertaking. The Court of Appeals affirmed the Summary Judgment under the same
rationale.
ISSUES:
1. Whether petitioners Escano and Silos were correctly held liable to
Ortigas YES, LIABLE.
The Undertaking was clearly brought forth by the desire of respondent
Ortigas and the Scholeys to be released from their liability under the loan
agreement.
Petitioners contend that contrary to paragraph 3(c) of the Undertaking,
Ortigas was not made to pay PDCP the amount now sought to be
reimbursed because he voluntarily paid PDCP as an amicable settlement.
However, Ortigas correctly argued that the phrase for any reason
reasonably includes any extra-judicial settlement of obligation, such as what
he had undertaken to pay to PDCP, as it is indeed obvious that the phrase
was incorporated in the clause to render the eventual payment adverted to
therein unlimited and unqualified.
Petitioners also argue that Ortigas voluntary payment is tantamount to
admitting his liability. This contention is wrong because the Compromise
Agreement between PDCP and Ortigas expressly stated that Ortigas offer to
pay was conditioned without his admitting liability to plaintiff PDCP Banks
complaint, and to terminate the said case as against Ortigas solely.
2. Whether this obligation to repay is solidary (as contended by the
respondent) or joint (as contended by the petitioners) ESCANO, SILOS
AND MATTI ARE JOINTLY LIABLE.
Art. 1207 of the Civil Code establish that in case of concurrence of two or
more creditors or of two or more debtors in one and the same obligation,
and in the absence of express and indubitable terms characterizing the
obligation as solidary, the presumption is that the obligation is only joint. It
thus becomes incumbent upon the party alleging that the obligation is
indeed solidary in character to prove such fact with a preponderance of
evidence.
The Undertaking does not contain any express stipulation that the
petitioners agreed "to bind themselves jointly and severally" in their
obligations to Ortigas and the Scholeys, or any such terms to that effect.
Hence, such obligation established in the Undertaking is presumed only to
be joint. Ortigas, as the party alleging that the obligation is in fact solidary,
bears the burden to overcome the presumption of jointness of obligations.
We rule and so hold that he failed to discharge such burden.
Ortigas places primary reliance on the fact that petitioners and Matti
identified themselves in the Undertaking as "SURETIES" and that such
manner of identification sufficiently establishes that the obligation of
petitioners to him was joint and solidary in nature.
Art. 2047 of the Civil Code provides a specific meaning for surety. In a
surety agreement, the surety undertakes to be bound solidarily with the
principal debtor. Thus, a surety agreement is an ancillary contract as it
presupposes the existence of a principal contract.
THE UNDERTAKING DO NOT PARTAKE OF THE NATURE OF A
SURETYSHIP, NOTWITHSTANDING THE USE OF SURETIES.
o It is not impossible that as between Escao, Silos and Matti, there
was an agreement whereby in the event that Ortigas were to seek
reimbursement from them per the terms of the Undertaking, one of
them was to act as surety and to pay Ortigas in full, subject to his
right to full reimbursement from the other two obligors. In such case,
there would have been, in fact, a surety agreement which evinces a
solidary obligation in favor of Ortigas. Yet if there was such an
agreement, it does not appear on the record. More consequentially,
no such intention is reflected in the Undertaking itself, the very

document that creates the conditional obligation that petitioners and
Matti reimburse Ortigas should he be made to pay PDCP. The mere
utilization of the term "SURETIES" could not work to such effect,
especially as it does not appear who exactly is the principal debtor
whose obligation is "assured" or "guaranteed" by the surety. If the
Court were to give full fruition to the use of the term "sureties" as
conclusive indication of the existence of a surety agreement that in
turn gives rise to a solidary obligation to pay Ortigas, the necessary
implication would be to lay down a corresponding set of rights and
obligations as between the "SURETIES" which petitioners and Matti
did not clearly intend.

CREDIT Guaranty - Escano Vs Ortigas

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GUARANTY AND SURETYSHIP case #7

Salvador Escano and Mario Silos vs. Rafael Ortigas Jr.

no such intention is reflected in the Undertaking itself, the very

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