Republic Glass Corp Vs Qua 144413

7/11/2015
RepublicGlassCorpvsQua:144413:July30,2004:J.Carpio:FirstDivision:Decision
FIRSTDIVISION
REPUBLICGLASSCORPORATIONG.R.No.144413
andGERVEL,INC.,
Petitioners,Present:
Davide,Jr.,C.J.,Chairman,
Quisumbing,
YnaresSantiago,versusCarpio,and
Azcuna,JJ.
Promulgated:
LAWRENCEC.QUA,
Respondent.July30,2004
xx
DECISION
CARPIO,J.:
TheCase
BeforetheCourtisapetitionforreview[1]assailingthe6March2000Decision[2] and
the 26 July 2000 Resolution of the Court of Appeals in CAG.R. CV No. 54737. The
Court of Appeals set aside the Order[3] of 3 May 1996 of the Regional Trial Court of
Makati, Branch 63 (RTCBranch 63), in Civil Case No. 882643 and reinstated the
Decision[4]of12January1996inrespondentsfavor.
http://sc.judiciary.gov.ph/jurisprudence/2004/jul2004/144413.htm
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TheFacts
Petitioners Republic Glass Corporation (RGC) and Gervel, Inc. (Gervel) together with
respondent Lawrence C. Qua (Qua) were stockholders of Ladtek, Inc. (Ladtek). Ladtek
obtained loans from Metropolitan Bank and Trust Company (Metrobank)[5]andPrivate
Development Corporation of the Philippines[6] (PDCP) with RGC, Gervel and Qua 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,GERVELandQUAeachcovenantthateachwillrespectivelyreimbursetheparty
made to pay the Lenders to the extent and subject to the limitations set forth herein, all
sumsofmoneywhichthepartymadetopaytheLendersshallpayorbecomeliabletopay
byreasonofanyoftheforegoing,andwillmakesuchpaymentswithinfive(5)daysfrom
thedatethatthepartymadetopaytheLendersgiveswrittennoticetothepartieshereto
thatitshallhavebecomeliablethereforandhasadvisedtheLendersofitswillingnessto
pay whether or not it shall have already paid out such sum or any part thereof to the
Lendersortothepersonsentitledthereto.(Emphasissupplied)
UnderthesameAgreements,Quapledged1,892,360commonsharesofstockofGeneral
Milling Corporation (GMC) in favor of RGC and Gervel. 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
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ofMakati,Branch149(RTCBranch149).DuringthependencyofCollectionCaseNo.
8364,RGCandGervelpaidMetrobankP7million.Later, Metrobank executed a waiver
andquitclaimdated7September1988infavorofRGCandGervel.Basedonthiswaiver
andquitclaim,[9]Metrobank,RGCandGervelfiledon16September1988ajointmotion
todismissCollectionCaseNo.8364againstRGCandGervel.Accordingly,RTCBranch
149dismissedthecaseagainstRGCandGervel,leavingLadtekandQuaasdefendants.
[10]
In a letter dated 7 November 1988, RGC and Gervels counsel, Atty. Antonio C.
Pastelero, demanded that Qua pay P3,860,646, or 42.22% of P8,730,543.55,[11] as
reimbursementofthetotalamountRGCandGervelpaidtoMetrobankandPDCP.Qua
refused to reimburse the amount to RGC and Gervel. Subsequently, RGC and Gervel
furnishedQuawithnoticesofforeclosureofQuaspledgedshares.
Quafiledacomplaintforinjunctionanddamageswithapplicationforatemporary
restraining order, docketed as Civil Case No. 882643 (Foreclosure Case No. 882643),
with RTCBranch 63 to prevent RGC and Gervel from foreclosing the pledged shares.
Although it issued a temporary restraining order on 9 December 1988, RTCBranch 63
denied on 2 January 1989 Quas Urgent Petition to Suspend Foreclosure Sale. RGC and
Gerveleventuallyforeclosedallthepledgedsharesofstockatpublicauction.Thus,Quas
applicationfortheissuanceofapreliminaryinjunctionbecamemoot.[12]
Trial in Foreclosure Case No. 882643 ensued. RGC and Gervel offered Quas
MotiontoDismiss[13]inCollectionCaseNo.8364asbasisfortheforeclosureofQuas
pledgedshares.QuasMotiontoDismissstates:
8. TheforegoingfactsshowthatthepaymentofdefendantsRepublicGlass
Corporation and Gervel, Inc. was for the entire obligation covered by the
Continuing Surety Agreements which were Annexes B and C of the Complaint,
andthatthesamenaturallyredound[ed]tothebenefitofdefendantQuaherein,as
providedforbylaw,specificallyArticle1217oftheCivilCode,whichstatesthat:
xxx
10.ItisveryclearthatthepaymentofdefendantsRepublicGlassCorporationandGervel,
Inc. was much more than the amount stipulated in the Continuing Surety
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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 be
consideredasfullypaidandextinguished.
RGCandGervellikewiseofferedasevidenceinForeclosureCaseNo.882643the
Order dismissing Collection Case No. 8364,[14] which RTCBranch 149 subsequently
reversed on Metrobanks motion for reconsideration. Thus, RTCBranch 149 reinstated
CollectionCaseNo.8364againstQua.
On12January1996,RTCBranch63renderedaDecisioninForeclosureCaseNo.
882643 (12 January 1996 Decision) ordering RGC and Gervel to return the foreclosed
sharesofstocktoQua.Thedispositiveportionofthe12January1996Decisionreads:
WHEREFORE,premisesconsidered,thisCourtherebyrendersjudgmentordering
defendants jointly and severally liable to return to plaintiff the 1,892,360 shares of
common stock of General Milling Corporation which they foreclosed on December 9,
1988,orshouldthereturnofthesesharesbenolongerpossiblethentopaytoplaintiffthe
amount of P3,860,646.00 with interest at 6% per annum from December 9, 1988 until
fullypaidandtopayplaintiffP100,000.00asandforattorneysfees.Thecostswillbefor
defendantsaccount.
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,theissuestoberesolvedboil
downtothefollowing:
1.Whetherornotthepartiesobligationtoreimburse,undertheIndemnity
Agreementswaspremisedonthepaymentbyanyofthemoftheentireobligation
2.Whetherornotthereisbasistoplaintiffsapprehensionthathewouldbe
madetopaytwiceforthesingleobligationand
3. Whether or not plaintiff was benefited by the payments made by

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defendants.
Regarding the first issue, a closer scrutiny of the pertinent provisions of the
IndemnityAgreementsexecutedbythepartieswouldnotrevealanysignificantindication
thatthepartiesliabilitiesareindeedpremisedonthepaymentbyanyofthemoftheentire
obligation. These agreements clearly provide that the parties obligation to reimburse
accruesuponmereadvicethatoneofthemhaspaidorwillsopaytheobligation.Itisnot
specifiedwhetherthepaymentisfortheentireobligationornot.
Accordingly, the Court stands corrected in this regard. The obvious conclusion
thatcanbeseennowisthatpaymentoftheentireobligationisnotaconditionsine
quanon for the paying party to demand reimbursement. The parties have expressly
contracted that each will reimburse whoever is made to pay the obligation whether
entirelyorjustaportionthereof.
Onthesecondissue,plaintiffsapprehensionthathewouldbemadetopaytwice
for the single obligation is unfounded. Under the abovementioned Indemnity
Agreements,intheeventthatthecreditorsareabletocollectfromhim,hehastherightto
askdefendantstopaytheirproportionateshare,inthesamewaydefendantshadcollected
fromtheplaintiff,byforeclosinghispledgedsharesofstock,hisproportionateshare,after
they had made payments. From all indications, the provisions of the Indemnity
Agreementshaveremainedbindingbetweentheparties.
Onthethirdissue,thereismerittodefendantsassertionthatplaintiffhasbenefited
from the payments made by defendants. As alleged by defendants, and this has not
beendeniedbyplaintiff,inCivilCaseNo.8364filedbeforeBranch149ofthisCourt,
where the creditors were enforcing the parties liabilities as sureties, plaintiff
succeededinhavingthecasedismissedbyarguingthatdefendantspayments[were]
for the entire obligation, hence, the obligation should be considered fully paid and
extinguished.Withthedismissalofthecase,theindicationsarethatthecreditorsareno
longerrunningafterplaintifftoenforcehisliabilitiesassuretyofLadtek.
Whetherornotthesuretyagreementssignedbythepartiesandthecreditorswere
novated is not material in this controversy. The fact is that there was payment of the
obligation.Hence,theIndemnityAgreementsgovern.
In the final analysis, defendants payments gave rise to plaintiffs obligation to

reimbursetheformer.Havingfailedtodoso,upondemand,defendantswerejustifiedin
foreclosingthepledgedsharesofstocks.
xxx
WHEREFORE, premises considered, the decision dated January 12, 1996 is

reconsidered and set aside. The aboveentitled complaint against defendants is
DISMISSED.
Likewise,defendantscounterclaimisalsodismissed.
SOORDERED.[16](Emphasissupplied)
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Quafiledamotionforreconsiderationofthe3May1996OrderwhichRTCBranch63
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%perannumandpenaltycharges
of 12% per annum from November 1, 1987 until the whole amount is fully paid, less
P7,000,000.00 paid by defendants RepublicGlass Corporation and Gervel, Inc., but the
liabilityofdefendantLawrenceC.QuashouldbelimitedonlytoP5,000,000.00and
P1,200,000.00,theamountstatedintheContinuingSuretyshipdatedJune15,1983,
Exh.DandContinuingSuretyshipdatedDecember14,1981,Exh.D1,respectively,
plusthestipulatedinterestandexpensesincurredbytheplaintiff.
2. Topay,jointlyandseverally,theplaintiffanamountequivalenttoten
(10%)percentofthetotalamountdueasandbywayofattorneysfees
3.Topaythecostofsuit.
The Counterclaims of the defendants Ladtek, Inc. and Lawrence C. Qua against
theplaintiffareherebydismissed.
Likewise,thecrossclaimsofthedefendantsaredismissed.
SOORDERED.[19](Emphasissupplied)
On6March2000,theCourtofAppealsrenderedthequestionedDecisionsettingasidethe
3 May 1996 Order of RTCBranch 63 and reinstating the 12 January 1996 Decision
orderingRGCandGerveltoreturntheforeclosedsharesofstocktoQua.[20]
Hence,thispetition.
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TheRulingoftheCourtofAppeals
In reversing the 3 May 1996 Order and reinstating the 12 January 1996 Decision, the
appellatecourtquotedtheRTCBranch63s12January1996Decision:
The liability of each party under the indemnity agreements therefore is premised on the
paymentbyanyofthemoftheentireobligation.Withoutsuchpayment,therewouldbe
nocorrespondingsharetoreimburse.Paymentoftheentireobligationnaturallyredounds
tothebenefitoftheothersolidarydebtorswhomustthenreimbursethepayingcodebtors
totheextentofhiscorrespondingshare.
Inthecaseatbar,RepublicGlassandGervelmadepartialpaymentsonly,andsotheydid
notextinguishtheentireobligation.ButRepublicGlassandGervelneverthelessobtained
quitclaims in their favor and so they ceased to be solidarily liable with plaintiff for the
balanceofthedebt(Exhs.D,E,andI).Plaintiffthusbecamesolelyliablefortheunpaid
portionofthedebtevenasheisbeingheldliableforreimbursementonthesaidportion.
Whathappenedtherefore,wasthatMetrobankandPDCPineffectenforcedtheSuretyship
Agreements jointly as against plaintiff and defendants. Consequently, the solidary
obligationundertheSuretyshipAgreementswasnovatedbythesubstantialmodification
of its principal conditions. xxx The resulting change was from one with three solidary
debtorstooneinwhichLawrenceQuabecamethesolesolidarycodebtorofLadtek.
Defendantscannotsimplypayoffaportionofthedebtandthenabsolvethemselvesfrom
anyfurtherliabilitywhentheobligationhasnotbeentotallyextinguished.
xxx
Inthefinalreckoning,thisCourtfindsthattheforeclosureandsaleofthesharespledged
byplaintiffwastotallyunjustifiedandwithoutbasisbecausetheobligationsecuredbythe
underlyingpledgehadbeenextinguishedbynovation.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
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mentioned the letter from PDCP confirming its willingness to release the joint and
solidaryobligationoftheRepublicandGervelsubjecttosometermsandconditions,one
ofwhichistheappellantsacceptablerepaymentplanofhisproratashareandtheletterof
PDCP to the Republic, Exhibit H, mentioning full payment of the pro rata share of the
Republic and Gervel, and the need of the appellant to submit an acceptable repayment
plan covering his prorata share, the release from solidary liability by PDCP, Exhibit J,
mentioningfullpaymentbytheRepublicandGerveloftheirproratashareintheloan,as
solidaryobligors,subjecthowevertothetermsandconditionsoftheholdoutagreement
and the nonpayment in full of the loan, subject of the May 10, 1984 Promissory Note,
exceptthe7millionpaymentbybothRepublicandGervel,asmentionedintheDecision
(CaseNo.8364,Metrobankvs.Ladtek,etal).Precisely,Ladtekandtheappellant,insaid
DecisionweredirectedtopayMetrobankthebalanceofP9,560,798,supposedlydueand
unpaid.
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 JUDICIAL
STATEMENTSTHATRGCANDGERVELPAIDTHEENTIREOBLIGATION.
II.
WHETHER PAYMENT OF THE ENTIRE OBLIGATION IS A CONDITION SINE
QUANONFORRGCANDGERVELTODEMANDREIMBURSEMENTFROMQUA
UNDER THE INDEMNITY AGREEMENTS EXECUTED BY THEM AFTER RGC
ANDGERVELPAIDMETROBANKUNDERTHESURETYAGREEMENT.
III.
ASSUMING ARGUENDO THAT THERE WAS NOVATION OF THE SURETY
AGREEMENTS SIGNED BY THE PARTIES AND THE CREDITORS, WHETHER
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THENOVATIONISMATERIALINTHISCASE.[23]
TheCourtsRuling
Wedenythepetition.
WhetherQuawasinestoppel
RGCandGervelcontendthatQuaisinestoppelformakingconflictingstatementsintwo
differentandseparatecases.QuacannotnowclaimthatthepaymentmadetoMetrobank
wasnotfortheentireobligationbecauseofhisMotiontoDismissCollectionCaseNo.
8364wherehestatedthatRGCandGervelspaymentwasfortheentireobligation.
Theessentialelementsofestoppelinpaisareconsideredinrelationtothe party 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 inconsistent with those which the party subsequently attempts to assert (2) has the
intent,oratleastexpectationthathisconductshallatleastinfluencetheotherpartyand
(3) has knowledge, actual or constructive, of the real facts. On the party claiming 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
statements as to change the position or status of the party claiming the estoppel, to his
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injury,detrimentorprejudice.[24]
Inthiscase,theessentialelementsofestoppelareinexistent.
WhileQuasstatementsinCollectionCaseNo.8364conflictwithhisstatementsin
Foreclosure Case No. 882643, RGC and Gervel miserably failed to show that Qua, in
makingthosestatements,intendedtofalselyrepresentorconcealthematerialfacts.Both
partiesundeniablyknowtherealfacts.
Nothing in the records shows that RGC and Gervel relied on Quas statements in
CollectionCaseNo.8364suchthattheychangedtheirpositionorstatus,totheirinjury,
detriment or prejudice. RGC and Gervel repeatedly point out that it was the presiding
judge[25]inCollectionCaseNo.8364whoreliedonQuasstatementsinCollectionCase
No.8364.RGCandGervelclaimthatQuadeliberatelyledthePresidingJudgetobelieve
thattheirpaymenttoMetrobankwasfortheentireobligation.As a result, the presiding
judgeorderedthedismissalofCollectionCaseNo.8364againstQua.[26]
RGC and Gervel further invoke Section 4 of Rule 129 of the Rules of Court to support
theirstance:
Sec.4.Judicialadmissions.Anadmission,verbalorwritten,madebyapartyinthecourse
of the proceedings in the same case, does not require proof. The admission may be
contradictedonlybyshowingthatitwasmadethroughpalpablemistakeorthatnosuch
admissionwasmade.
Apartymaymakejudicialadmissionsin(a)thepleadingsfiledbytheparties,(b)during
thetrialeitherbyverbalorwrittenmanifestationsorstipulations,or(c)inotherstagesof
thejudicialproceeding.[27]
Theelementsofjudicialadmissionsareabsentinthiscase.Quamadeconflicting
statementsinCollectionCaseNo.8364andinForeclosureCaseNo.882643,andnotin
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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 from Metrobank was only P6.2 million. 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.
Whetherpaymentoftheentireobligationisan
essentialconditionforreimbursement
RGCandGervelassailtheCourtofAppealsrulingthatthepartiesliabilitiesunder
theAgreementsdependonthefullpaymentoftheobligation.RGCandGervelinsistthat
itisnotanessentialconditionthattheentireobligationmustfirstbepaidbeforetheycan
seekreimbursementfromQua.RGCandGervelcontendthatQuashouldpay42.22%of
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anyamountwhichtheypaidorwouldpayMetrobankandPDCP.
RGCandGervelscontentionispartlymeritorious.
Paymentoftheentireobligationbyoneorsomeofthesolidarydebtorsresultsina
corresponding obligation of the other debtors to reimburse the paying debtor.[30]
However, we agree with RGC and Gervels contention that in this case payment of the
entire obligation is not an essential condition before they can seek reimbursement from
Qua.ThewordsoftheAgreementsareclear.
RGC,GERVELandQUAeachcovenantthateachwillrespectivelyreimbursethe
partymadetopaytheLenderstotheextentandsubjecttothelimitationssetforthherein,
all sums of money which the party made to pay the Lenders shall pay or become
liabletopaybyreasonofanyoftheforegoing,andwillmakesuchpaymentswithinfive
(5)daysfromthedatethatthepartymadetopaytheLendersgiveswrittennoticetothe
partiesheretothatitshallhavebecomeliablethereforandhasadvisedtheLendersofits
willingness to pay whether or not it shall have already paid out such sum or any part
thereoftotheLendersortothepersonsentitledthereto.(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] we
distinguished between a contract of indemnity against loss and a contract of indemnity
againstliability,thus:[32]
Theagreementheresueduponisnotonlyoneofindemnityagainstlossbutofindemnity
againstliability.Whilethefirstdoesnotrendertheindemnitorliableuntilthepersontobe
indemnifiedmakespaymentorsustainsloss,thesecondbecomesoperativeassoonas
the liability of the person indemnified arises irrespective of whether or not he has
sufferedactualloss.(Emphasissupplied)
Therefore, whether the solidary debtor has paid the creditor, the other solidary debtors
shouldindemnifytheformeroncehisliabilitybecomesabsolute.However,inthiscase,
the liability of RGC, Gervel and Qua became absolute simultaneously when Ladtek
defaultedinitsloanpayment.Asaresult,RGC,GervelandQuaallbecamedirectlyliable
atthesametimetoMetrobankandPDCP.Thus, RGC and Gervel cannot automatically
claim for indemnity from Qua because Qua himself is liable directly to Metrobank and
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PDCP.
IfweallowRGCandGerveltocollectfromQuahisproportionateshare,thenQua
would pay much more than his stipulated liability under the Agreements. In addition to
theP3,860,646claimedbyRGCandGervel,QuawouldhavetopayhisliabilityofP6.2
milliontoMetrobankandmorethanP1milliontoPDCP.SinceQuawouldsurelyexceed
hisproportionateshare,hewouldthenrecoverfromRGCandGerveltheexcesspayment.
Thissituationisabsurdandcircuitous.
ContrarytoRGCandGervelsclaim,paymentofanyamountwillnotautomatically
result in reimbursement. If a solidary debtor pays the obligation in part, he can recover
reimbursementfromthecodebtorsonlyinsofarashispaymentexceededhisshareinthe
obligation.[33]Thisispreciselybecauseifasolidarydebtorpaysanamountequaltohis
proportionateshareintheobligation,thenheineffectpaysonlywhatisduefromhim.If
the debtor pays less than his share in the obligation, he cannot demand reimbursement
becausehispaymentislessthanhisactualdebt.
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 becomes
necessarytoconsiderthedecisioninCollectionCaseNo.8364onthepartiesobligationto
Metrobank.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.8364on21November1996whileQuafiled
his Notice of Appeal of the 3 May 1996 Order on 19 June 1996. Qua could not have
possibly offered in evidence the decision in Collection Case No. 8364 because RTC
Branch62renderedthedecisiononlyafterQuaelevatedthepresentcasetotheCourtof
Appeals. Hence, Qua submitted the decision in Collection Case No. 8364 during the
pendencyoftheappealofForeclosureCaseNo.882643intheCourtofAppeals.
As found by RTCBranch 62, RGC, Gervel and Quas total obligation was
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P14,200,854.37asof31October1987.[36]DuringthependencyofCollectionCaseNo.
8364,RGCandGervelpaidMetrobankP7million.Becauseofthepayment,Metrobank
executedaquitclaim[37]infavorofRGCandGervel.ByvirtueofMetrobanksquitclaim,
RTCBranch 62 dismissed Collection Case No. 8364 against RGC and Gervel, leaving
LadtekandQuaasdefendants.ConsideringthatRGCandGervelpaidonlyP7millionout
ofthetotalobligationofP14,200,854.37,whichpaymentwaslessthanRGCandGervels
combinedsharesintheobligation,[38]itwasclearlypartialpayment.Moreover,ifitwere
fullpayment,thentheobligationwouldhavebeenextinguished.Metrobankwouldhave
alsoreleasedQuafromhisobligation.
RGCandGervelalsomadepartialpaymenttoPDCP.ProofofthisistheRelease
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 their
proportionate shares in the obligations before they can seek reimbursement from Qua.
This RGC and Gervel failed to do. RGC and Gervel, in fact, never claimed that their
paymentsexceededtheirsharesintheobligations.Consequently,RGCandGervelcannot
validlyseekreimbursementfromQua.
WhethertherewasnovationoftheAgreements
RGCandGervelcontendthattherewasnonovationoftheAgreements.RGCandGervel
furthercontendthatanynovationoftheAgreementsisimmaterialtothiscase.RGC and
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GerveldisagreedwiththeCourtofAppealsontheeffectoftheimpliednovationwhich
supposedlytranspiredinthiscase.TheCourtofAppealsfoundthattherewasanimplied
novationorsubstantialincompatibilityinthemodeormannerofpaymentbythesurety
fromtheentireobligation,toonemerelyofproportionateshare.RGCandGervelclaim
that if it is true that an implied novation occurred, then the effect would 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 principal

conditions(2)substitutingthepersonofthedebtorand(3)subrogatingathirdpersonin
therightsofthecreditor.Article1292oftheCivilCodeclearlyprovidesthatinorderthat
an obligation may be extinguished by another which substitutes the same, it should be
declared 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 new
obligation that takes the place of the former. Novation is merely modificatory when the
oldobligationsubsiststotheextentitremainscompatiblewiththeamendatoryagreement.
[42]
We find that there was no novation of the Agreements. The parties did not
constituteanewobligationtosubstitutetheAgreements.Thetermsandconditionsofthe
Agreementsremainthesame.Therewasalsonoshowingofcompleteincompatibilityin
themannerofpaymentofthepartiesobligations.ContrarytotheCourtofAppealsruling,
the mode or manner of payment by the parties did not change from one for the entire
obligation to one merely of proportionate share. The creditors, namely Metrobank and
PDCP,merelyproceededagainstRGCandGervelfortheirproportionatesharesonly.[43]
This preference is within the creditors discretion which did not necessarily affect the
natureoftheobligationsaswellasthetermsandconditionsoftheAgreements.Acreditor
maychoosetoproceedonlyagainstsomeandnotallofthesolidarydebtors.Thecreditor
may also choose to collect part of the debt from some of the solidary debtors, and the
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remainingdebtfromtheothersolidarydebtors.
In sum, RGC and Gervel have no legal basis to seek reimbursement from Qua.
Consequently,RGCandGervelcannotvalidlyforeclosethepledgeofQuasGMCshares
ofstockwhichsecuredhisobligationtoreimburse.[44]Therefore,theforeclosureofthe
pledgedsharesofstockhasnolegtostandon.
WHEREFORE,weDENYthepetition.TheDecisiondated6March2000oftheCourt
ofAppealsinCAG.R.CVNo.54737isAFFIRMED.Costsagainstpetitioners.
SOORDERED.
ANTONIOT.CARPIO
AssociateJustice
WECONCUR:
HILARIOG.DAVIDE,JR.
ChiefJustice
Chairman
LEONARDOA.QUISUMBINGCONSUELOYNARESSANTIAGO
AssociateJusticeAssociateJustice
ADOLFOS.AZCUNA
AssociateJustice
CERTIFICATION
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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.Contribution
Should the Company be in default under the Credit Agreements, and one party to the Suretyship Agreements is
requiredtopaytotheLendersundertheSuretyshipAgreements,theotherpartiesshallcontributeanamountequivalent
tothepercentagesetforthaftertheirrespectivenamesbelowofeachamountofprincipal,interestandallothersums,
liability,lossandexpense,includingattorneysfees,thatthepartymadetopaytheLendersmayincurbyreasonofits
executingtheSuretyshipAgreements,orindefendingorprosecutinganysuit,actionorotherproceedingbroughtin
connectiontherewith,orinobtainingorattemptingtoobtainareleasefromanyliabilityinrespectthereof:
RGC35.557%
Gervel22.223%
Qua42.220%
Itistheintentionthatasbetweenthepartieshereto,eachpartywouldbeliableforanydefaultbytheCompanyunder
theCreditAgreementsonlytotheextentofthepercentagethatthestockholdingsofeachintheCompanybearsto
theaggregatestockholdingsintheCompanyofallthepartieshereto.(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.
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[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.Iftwoormoresolidarydebtorsofferto
pay,thecreditormaychoosewhichoffertoaccept.
Hewhomadethepaymentmayclaimfromhiscodebtorsonlythesharewhichcorrespondstoeach,withinterestfor
thepaymentalreadymade.Ifthepaymentismadebeforethedebtisdue,nointerestfortheinterveningperiodmaybe
demanded.
xxx
SeealsoMalayanInsuranceCo.,Inc.v.CourtofAppeals,No.L36413,26September1988,165SCRA536Camusv.Hon.
CourtofAppeals,etal.,107Phil.4(1960).
[31]L15656,31January1963,7SCRA52.InAssociatedInsurance, the insurance company put up a bail bond for the
provisionallibertyoftheaccused.Anindemnityagreementinfavoroftheinsurancecompanywasinturnsignedby
appellant, solidarily with accused. Accused failed to appear in court for trial, thus, the bail bond was ordered
confiscated.Afterjudgmentonthebondwasrendered,theinsurancecompanyfiledanactionagainstappellantonthe
indemnityagreement.TheCourtruledthatthestipulationintheindemnityagreementallowingtheinsurancecompany
toproceedagainstappellantforindemnificationevenpriortoactualsatisfactionofthejudgmentonthebondisvalid
andnotcontrarytopublicpolicy.
[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
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Makati,Branch62.
[35]CaseNo.8364waslaterassignedtoRTCBranch62.
[36]AsstatedinthedecisioninCaseNo.8364,whichwasaffirmedbytheCourtofAppeals.
[37]Thequitclaimprovides:
xxxinconsiderationofthepaymentofSEVENMILLIONPESOS(P7,000,000.00)PhilippineCurrency,madeby
Republic Glass Corporation and Gervel, Inc., receipt of which is hereby acknowledged, does hereby WAIVE,
QUITCLAIM,TERMINATEANDRELINQUISHanyandallrights,claimsorcausesofactionthatMetrobank
mayhaveagainstRepublicGlassCorp.andGervel,Inc.xxx,inCivilCaseNo.8364, xxx, thereby releasing and
dischargingforeversaidRepublicGlassCorp.andGervel,Inc.,aswellasitsofficersanddirectors,fromanyandall
liabilities of whatsoever kind or nature related to the above case, or related to any account of Ladtek, Inc. and/or
LawrenceC.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,inconsiderationoftheirfullpaymentoftheircorrespondingproportionate
shareintheLoanoftheBORROWER,haverequestedtobereleasedfromtheirobligationassolidaryobligorunder
andbyvirtueoftheabovementionedAssumptionofSolidaryLiabilityandtheLENDERhaveconsentedandagreedto
releasethesaidsolidaryobligors,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.The creditor may proceed against any one of the solidary debtors or some or all of them simultaneously. The
demand made against one of them shall not be an obstacle to those which may subsequently be directed against the
others,solongasthedebthasnotbeenfullycollected.
SeealsoGuerrerov.CourtofAppeals,No.L22366,30October1969,29SCRA791.
[44]Art.2087oftheCivilCodeprovides:
Art.2087. It is also the essence of these contracts (pledge, mortgage and antichresis) that when the principal obligation
becomesdue,thethingsinwhichthepledgeormortgageconsistsmaybealienatedforthepaymenttothecreditor.
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Republic Glass Corp Vs Qua 144413

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Republic Glass Corp Vs Qua 144413

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

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

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

WHEREFORE, premises considered, the decision dated January 12, 1996 is

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

Novation extinguishes an obligation by (1) changing its object or principal

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