Title
Goldenrod, Inc. vs. Court of Appeals
Case
G.R. No. 127232
Decision Date
Sep 28, 2001
Goldenrod, Inc. and Sonia G. Mathay held solidarily liable for unpaid P10M promissory notes from a P76M loan, with 10% attorney's fees affirmed by the Supreme Court.
liability
loan
promissory note
A

Case Summary (G.R. No. 252079)

Loan Transaction and Initial Security

On June 30, 1988, Pathfinder Holdings (Phils.), Inc. loaned P76,000,000.00 to Goldenrod, Inc. To evidence the loan, Goldenrod, Inc. executed a promissory note with a maturity date on September 28, 1988. The promissory note provided that if the loan remained unpaid on maturity, interest would be charged on the outstanding balance at a rate described as “your cost of funds plus 1.75% per annum,” where “your cost of funds” was defined by reference to the borrowing cost of the funds inclusive of interests and all fees and charges.

To secure payment, Goldenrod, Inc. executed, together with the promissory note, a document denominated as “Joint and Several Guarantee” by co-petitioner Mathay, acting as surety, in favor of Pathfinder Holdings.

Default and the Offered Settlement

Goldenrod, Inc. failed to pay its debt when the September 28, 1988 maturity date arrived. Approximately seven months later, on April 27, 1989, Goldenrod, Inc. offered to settle its account. Pathfinder prepared a statement of account reflecting total indebtedness, including interest and charges, in the amount of P95,069,609.00. Goldenrod, Inc. paid P85,000,000.00 on that occasion through two checks: one for P80,000,000.00 and another for P5,000,000.00, supported by two vouchers duly received by the respondent.

On the same day as the payment of P85,000,000.00, Goldenrod, Inc. executed two new promissory notes in favor of Pathfinder Holdings: Promissory Note No. G1-89-100 for P5,000,000.00 with maturity on July 26, 1989, and Promissory Note No. G1-89-101 for P5,000,000.00 with maturity on October 24, 1989. To secure these promissory notes, Goldenrod, Inc., through Mathay, executed a real estate mortgage contract covering parcels of land covered by Transfer Certificate of Title Nos. T-5138, T-5139, T-5140, and T-5141; however, the real estate mortgage contract was not notarized.

Non-Payment of the Promissory Notes and Demand

When the maturity dates on the two promissory notes arrived, Goldenrod, Inc. failed to pay the P10,000,000.00 principal corresponding to those notes despite follow-ups and written demand. The demand letter dated April 1, 1991 stated that, as of March 31, 1991, the obligation together with accrued interest and liquidated damages amounted to P30,667,833.33.

Civil Case and RTC Decision

On April 1, 1991, Pathfinder Holdings filed Civil Case No. 91-1050, seeking judicial foreclosure of the real estate mortgage based on petitioners’ failure to pay the principal amount of P10,000,000.00 plus accrued interest and liquidated damages upon the maturity of the promissory notes.

On March 18, 1993, the RTC rendered judgment in favor of Pathfinder Holdings. The RTC ordered the defendants to pay jointly and severally: (1) P30,667,833.33, (2) 5% of the total amount due as attorney’s fees, and (3) the costs of suit. However, the RTC denied the prayer for judicial foreclosure on the ground that the mortgage contract was not perfected.

Both parties appealed. Petitioners challenged their liability under the promissory notes and the accompanying interest and charges. Meanwhile, Pathfinder Holdings appealed the RTC ruling denying foreclosure and the attorney’s fees award of 5%, seeking instead a higher amount corresponding to its prayer.

Court of Appeals Ruling

On July 29, 1996, the Court of Appeals affirmed the RTC Decision but modified the attorney’s fees award to 10% of the total amount due, and imposed costs against the defendants-appellants. The appellate court’s modification sustained petitioners’ liability as ordered by the RTC, subject only to the adjustment on attorney’s fees.

Issues Raised in the Supreme Court

The petition presented two issues. First, whether Goldenrod, Inc. could be held liable for the amounts stated in the promissory notes in controversy. To resolve that issue, the Court needed to determine whether the earlier P76,000,000.00 loan, together with its interest and charges, had been fully paid when Pathfinder Holdings accepted P85,000,000.00 from Goldenrod, Inc. Second, if Goldenrod, Inc. was liable, the Court had to determine whether Mathay could be held solidarily liable with the principal debtor.

Petitioners’ Theory on Extinguishment of the Loan (First Issue)

Petitioners disclaimed liability based on the contention that the promissory notes of P10,000,000.00 were issued only in contemplation of a new and separate loan that did not materialize. They asserted that the original P76,000,000.00 loan, including interest and charges, had already been paid when Goldenrod, Inc. tendered P85,000,000.00 and that the checks were intended as full settlement of the entire debt.

Petitioners relied on the voucher for the P80,000,000.00 payment, which stated that it was “(F)ull payment of the loan granted.” They invoked Article 1235 of the New Civil Code, arguing that because Pathfinder Holdings accepted the payment despite its purported incompleteness, and without protest or objection, the obligation should be deemed fully complied with.

Court’s Treatment of the Factual Question and Its Deference to the Lower Courts

The Court rejected petitioners’ position on the first issue. It held that the petition before it raised questions of law only, in accordance with Section 1 of Rule 45 of the 1997 Rules of Civil Procedure, and that factual findings of the Court of Appeals were conclusive, especially where the appellate court affirmed the RTC’s factual determination. The Court declined to reweigh the evidence, finding sufficient factual basis in the courts below.

The Court noted that the lower courts had found that the P10,000,000.00 promissory notes were issued to cover the balance of the original debt. It gave weight to testimony by Atty. Cezar Sunaz, Pathfinder Holdings’ former vice-president for corporate affairs, who testified that the statement of account reflected total indebtedness of P95,069,609.00, that Goldenrod, Inc. paid P85,000,000.00 through two checks and executed promissory notes worth P10,000,000.00 on the same day. Under that computation, the total of the checks and the promissory notes approximated the total debt of P95,000,000.00, while the remaining P69,609.00 was deemed condoned.

The Court also sustained the clarification of the check-voucher statement describing P80,000,000.00 as “full payment.” It accepted Sunaz’s explanation that “full payment” referred to Pathfinder’s receipt of the two checks totaling P85,000,000.00 and the two promissory notes totaling P10,000,000.00—together constituting payment of the amount reflected in the statement of account, with the minor remaining balance treated as condoned. In contrast, the Court found no persuasive basis to accept Mathay’s testimony that the P10,000,000.00 notes were for a separate and distinct loan that did not come into being due to encumbrances on the proposed mortgage properties.

Because both the RTC and the Court of Appeals treated the issuance of the promissory notes as part of the same settlement occurring on the same day as the P85,000,000.00 payment, the Court held that the promissory notes in the amount of P10,000,000.00 were in fact meant to cover the balance of the original loan, and not a separate new debt.

Mathay’s Liability and the Nature of the “Joint and Several Guarantee” (Second Issue)

On the second issue, Mathay contested her solidary liability. She argued that she agreed only to be a guarantor when she executed the “Joint and Several Guarantee.” As a guarantor, she invoked the benefit of excussion under Article 2058, contending that the solidary liability clause related only to her and her husband, and not to her relationship with the principal debtor, Goldenrod, Inc. She further contended that her role should therefore prevent the creditor from compelling her to pay without first exhausting the debtor’s properties.

The Court referred to Article 2047 and Article 2058 of the New Civil Code. It explained that Article 2047 defines a guaranty as an undertaking by the guarantor to fulfill the principal debtor’s obligation in case of non-performance, and that if the guarantor binds himself solidarily with the principal debtor, the relationship is treated as suretyship. It likewise recognized that under Article 2058, the guarantor cannot be compelled to pay unless the creditor has exhausted the debtor’s properties and pursued all legal remedies.

The Court then examined the “Joint and Several Guarantee” text, focusing on its provisions governing solidary undertaking and contractual limits. The agreement, in consideration of Pathfinder Holdings granting a loan of P76,000,000.00 to Goldenrod, Inc., stated that the undersigned “jointly and severally” agreed to pay and satisfy, on demand, all sums remaining due and unpaid, including interest, discount, commission, other charges, legal charges, and charges incident to enforcement of securities. It further provided that the total enforceable liability under the guarantee would not exceed P76,000,000.00, and in case of default, penalty at the rate of “your cost of funds plus 1.75% p.a.” It also declared that, although the present guarantee could not exceed the stated limit on ultimate enforceability, it would “take effect as a guarantee of the whole and every part” of the principal moneys and interest owing and to become owing. Additionally, it provided that any security held or offered by the principal would be held in trust as security for the signatory’s joint and several liability.

Although the contract contained spaces for two signatures—Ismael A. Mathay, Jr. and Sonia G. Mathay—only Sonia G. Mathay signed. The Court treated the agreement as a security contract establishing her as the lone surety for Goldenrod, Inc.’s debt. It reasoned that this contractual undertaking, despite the descriptive label “Joint and Several Guarantee,” was the best evidence that Mathay had bound herself solidarily with the principal debtor, Goldenrod, Inc.

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