Case Summary (G.R. No. 172041)
Trial Court Proceedings
Asianbank sued Gateway, Geronimo, and Andrew in RTC Makati. Defendants alleged lack of spousal consent (Geronimo), absence of consent to subsequent extensions, and non-inclusion of PN FCD-0599-2749 in the surety deeds. RTC rendered judgment (October 7, 2003) holding all three jointly and severally liable for:
a) US$2,235,452.17 plus interest (LIBOR + 5.5358% spread) from November 23, 1999;
b) 2% monthly penalty;
c) 20% attorney’s fees;
d) costs.
CA Decision and Subsequent Insolvency Petition
On appeal, Gateway and Geronimo argued insolvency of Gateway required dismissal of the action against it, evidentiary defects in admitting surety deeds, discharge of surety for extensions without consent, deviation from banking practice, and invocation of equity. Meanwhile, Gateway filed a voluntary insolvency petition in RTC Imus (December 2, 2004 order). CA affirmed RTC Makati decision (October 28, 2005) and denied reconsideration (March 17, 2006).
Issues before the Supreme Court
- Effect of voluntary insolvency order on pending suit against Gateway and its sureties
- Admissibility of photocopied surety deeds without presenting originals
- Scope of suretyship: whether PN No. FCD-0599-2749 falls within continuing guarantee
- Discharge of surety by extensions without his consent or by bank’s alleged malpractice
- Invocation of equity jurisdiction for “complete justice”
Insolvency Stay of Action Against Gateway
Under Sec. 18 and Sec. 60 of Act No. 1956, issuance of an insolvency order stays all civil proceedings against the insolvent’s property and bars pursuing actions to final judgment, except for ascertaining the amount due with stay of execution. The SC held that after December 2, 2004, proceedings against Gateway’s estate should have been suspended and any execution against Gateway’s obligation can only be pursued before the insolvency court (RTC Imus, Branch 22).
Liability of Surety Independent of Insolvent Principal
The Court reaffirmed that a surety’s obligation is solidary and independent of the principal debtor’s liability (Civil Code Arts. 2047; Palmares v. CA). Insolvency of the principal does not discharge the surety or divest the creditor of the right to proceed against the surety. Insolvency and rehabilitation proceedings do not stay actions against sureties (Commercial Banking Corp. v. CA).
Admissibility of Deed of Suretyship
By attaching photocopies of the executed surety deeds to its complaint and pleading genuineness and due execution, Asianbank complied with Rules 8. Geronimo’s general denial was insufficient to specifically contest their authenticity under Rule 8, Sec. 10. His failure to deny execution meant the deeds were judicially admitted (Rules 129, Sec. 4), negating any requirement for presenting originals.
Continuing Suretyship and Coverage of PN No. FCD-0599-2749
The express terms of the July 1996 deeds provided for a continuing suretyship covering all notes, drafts, overdrafts and other credit obligations “now or hereafter” incurred under the stated credit lines. The Court held that export packing loans under PN No. FCD-0599-2749 fell within the description of the Omnibus Credit Line. Continuing guaranties expressly contemplate future transactions (Fortune Motors; DiAo v. CA). The absence of limiting language or specific loan documents in the deed distinguishes this case from Garcia v. CA.
Waiver of Notice and Extensions
The surety deeds contained an explicit waiver of demand and notice for default and future obligations. This wai
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Facts
- Gateway Electronics Corporation (“Gateway”) was engaged in the semiconductor business, with Geronimo B. de los Reyes, Jr. as president and Andrew S. de los Reyes as executive vice-president.
- On July 23, 1996, Geronimo and Andrew each executed a Deed of Suretyship in favor of Asianbank Corporation (“Asianbank”), in which they warranted punctual payment by Gateway of:
- PHP 10,000,000.00 under a Domestic Bills Purchased Line; and
- USD 3,000,000.00 under an Omnibus Credit Line.
- The surety deeds provided that liability was “solidary, direct and immediate,” and that the sureties waived demand and notice of maturity or extensions.
- Asianbank later extended export packing loans aggregating USD 1,700,883.48 to Gateway, consolidated in PN No. FCD-0599-2749 and secured by a chattel mortgage over Gateway’s equipment.
- Gateway defaulted; its officers, including Andrew, signed extensions of maturity dates. Two checks for USD 40,000 and USD 20,000 were dishonored.
- As of November 23, 1999, Gateway’s indebtedness totaled USD 2,235,452.17.
Procedural History
- December 15, 1999: Asianbank filed a complaint for sum of money against Gateway, Geronimo, and Andrew before the Makati RTC (Civil Case No. 99-2102).
- October 7, 2003: RTC rendered judgment holding all three jointly and severally liable for USD 2,235,452.17 plus interest, penalties, attorney’s fees (20%), and costs.
- Appeal to the Court of Appeals (CA-G.R. CV No. 80734) by Gateway and Geronimo; motion for voluntary insolvency filed in Imus RTC on November 10, 2004 (SEC Case No. 037-04).
- December 2, 2004: Imus RTC declared Gateway insolvent and stayed actions against its properties. Asianbank (later Metrobank as successor) participated in insolvency proceedings.
- October 28, 2005: Court of Appeals affirmed the Makati RTC decision; March 17, 2006: CA denied motion for reconsideration.
- December 18, 2008: Supreme Court resolves the petition for review under Rule 45 (G.R. No. 172041).
Issues Presented
- Whether the insolvency order stayed or discharged the suit against Gateway and its sureties.
- Whether Geronimo’s liability as surety was extinguished by extensions of maturity dat