G.R. No. 85396 - Rizal Commercial Banking Corp. vs. Court of Appeals

Case Summary (G.R. No. 85396)

Factual Background

After Ching executed the Comprehensive Surety Agreement on 4 May 1979, PBM, between 8 September and 30 October 1980, filed several applications for letters of credit with RCBC. Under these applications, PBM obligated itself to pay on demand for all drafts drawn under or purporting to be drawn under the credits. RCBC opened the letters of credit and imported goods for PBM’s account. The goods arrived and were released, in trust, to PBM, which acknowledged receipt through trust receipts.

RCBC later claimed that PBM’s obligations totaled P7,982,649.08. Less than a year thereafter, on 7 August 1981, RCBC filed a Complaint for collection against PBM and Alfredo Ching with the Court of First Instance of Pasig, docketed as CV-42333. Upon filing of an appropriate bond, the trial court issued a writ of preliminary attachment on the same day against the assets and properties of both PBM and Ching.

PBM and Ching responded by asserting special and affirmative defenses. They did not dispute that the trust receipts contained stipulations on due dates, but they alleged that the true intent of the parties was to extend maturity dates at the end of the stipulated dates, citing what they described as RCBC’s customary practice with PBM. On 23 September 1981, they moved to discharge the attachment, which RCBC opposed. On 4 December 1981, the court lifted the attachment upon the filing of a satisfactory counter-bond.

SEC Proceedings and the Injunctive Suspension of Claims

On 1 April 1982, PBM filed with the SEC a Petition for Suspension of Payments, seeking at the same time rehabilitation, docketed as SEC Case No. 2250. In an injunctive order dated 6 July 1982, the SEC suspended “all actions for claims against PBM pending before any Court or tribunal,” in order to allow the SEC to determine the feasibility of rehabilitation plans.

Subsequently, on 26 April 1988, the SEC approved PBM’s revised rehabilitation plan and ordered its implementation. With these developments in place, RCBC pursued its collection case further despite the SEC’s earlier injunctive suspension.

Trial Court Proceedings and Summary Judgment

On 14 October 1982, RCBC proceeded in CV-42333 and filed, unopposed, a Motion for Summary Judgment. The record showed that RCBC’s opposition filings were tied to procedural developments in the trial court, including an earlier withdrawal of an extension request for filing opposition, and that RCBC’s position centered on the absence of any genuine issue of fact because defendants allegedly had not denied their indebtedness.

On 25 November 1982, the trial court rendered summary judgment in favor of RCBC. It ordered PBM and Ching to pay RCBC jointly and severally: (a) P7,982,649.08 inclusive of interest, service charges, and penalties as of August 7, 1981, plus additional interest, service charges, and penalties from that date until fully paid; and (b) P10,000.00 as attorney’s fees, with costs.

Proceedings Before the Court of Appeals

On appeal, the Court of Appeals ruled that it was precipitate and improper for the trial court to have continued with the proceedings notwithstanding the SEC Order of suspension. It thus set aside the summary judgment and directed the trial court to hold in abeyance the determination of the merits invoked in CV-42333 pending the outcome of SEC Case No. 2250. On 6 October 1988, it denied RCBC’s motion for reconsideration.

Contentions of the Parties in the Supreme Court

RCBC argued that the SEC injunctive order affected only PBM, the corporation undergoing rehabilitation. RCBC maintained that its right, as creditor, to proceed against Ching, as surety, was not covered by the SEC suspension because Ching’s undertaking was separate and independent from PBM’s corporate rehabilitation.

PBM and Ching, conversely, argued that PBM’s liabilities were corporate in character and that, as PBM’s corporate officer, Ching could not be held liable for them. They also contended that the pendency of SEC Case No. 2250 and the SEC’s implementation order of 26 April 1988 must necessarily benefit the surety because PBM’s obligations had to be paid pursuant to the rehabilitation plan. In addition, they asserted that the surety’s liability could not exceed what would remain after payment of all principal obligations. They further claimed that Ching’s action was essentially a corporate act and compared it to the customary practice of majority stockholders acting as co-signors with their corporations in transactions involving guaranty arrangements. They finally relied on the SEC injunctive order as a shield against enforcement against Ching.

Legal Basis and Reasoning of the Supreme Court

The Supreme Court addressed the posed question—whether the SEC order suspending payment of claims against the principal debtor bars recovery from the surety—and answered it in the negative. The Court treated the parties’ obligations in terms of the Civil Code’s rules on solidary liability and suretyship.

The Court held that where an obligation expressly states solidary liability, the concurrence of multiple creditors or multiple debtors binds each debtor to render the entire prestation, subject to legal rules on solidary obligations. Under Article 1207 of the Civil Code, each solidary debtor is bound to render entire compliance. Under Article 1216, the creditor may proceed against any one of the solidary debtors or against some or all simultaneously. The Court considered the Comprehensive Surety Agreement as admitted and enforceable as to Ching’s solidary character.

The Court then focused on the nature and extent of Ching’s obligation as surety. It ruled that Ching could not escape liability simply because PBM was undergoing rehabilitation. It found that Ching was charged as an original promissor by virtue of his primary obligation under the suretyship agreement. The Court emphasized that the Comprehensive Surety Agreement’s terms were plain and did not assign any other or different liability to Ching. The Court also observed that Ching’s attempt to attribute a broader or different legal meaning to the contract was unsupported by evidence and not reflected in the agreement itself.

On the enforceability of suretyship terms, the Court invoked Zenith Insurance Corporation vs Court of Appeals (No. L-57957, 29 December 1982, 119 SCRA 485), holding that the extent of a surety’s liability is determined only by the clauses of the contract of suretyship. Liability cannot be extended by implication beyond the suretyship contract. Conversely, liability may not be restricted unless the contract expressly so provides. Applying this rule, the Court concluded that the surety’s liability could not be limited or extinguished by implication from PBM’s rehabilitation posture.

The Court further rejected the surety’s reliance on the SEC injunctive order. It cited Section 3 of P.D. 902-A, as amended by P.D. 1758, which grants the SEC absolute jurisdiction, supervision, and control only over corporations or associations granted a primary franchise and/or a license or permit issued by the government to operate in the Philippines. The Court ruled that the SEC injunctive order could not suspend payments due and demandable from a surety, particularly because the rehabilitation receivers were limited to taking custody and control over the existing assets and property of PBM. The Court noted that nothing in the injunctive order placed Ching within its coverage.

The Court also addressed the defense of customary extensions of maturity dates. It held that the lower court’s summary judgment offered an acceptable explanation that the trust receipts showed varying maturity dates, with the latest being May 12, 1981 and the earliest being February 19, 1981, and that the case was filed on August 7, 1981. According to the trial court’s reasoning, an alleged agreement to extend would have required earlier representations prior to the maturity dates or on those dates, yet the defendants did not allege that such representations were made. The Court further held that defendants’ bare allegations of customary extensions were not corroborated by documentary evidence and remained self-serving. The Court thus treated the obligation as demandable when the day came, consistent with Article 1193 of the Civil Code as the trial court had found.

Finally, the Court fo

Case Syllabus (G.R. No. 85396)

The dispute centered on whether a Securities and Exchange Commission (SEC) injunctive order issued during the rehabilitation of a corporation bars a creditor from proceeding against the corporation’s surety.
The Court held that the SEC injunctive order did not preclude the creditor from enforcing the surety’s due and demandable solidary liability.
The Court reinstated the trial court’s summary judgment in favor of Rizal Commercial Banking Corporation (RCBC) insofar as it ordered payment against Alfredo Ching.

Parties and Procedural Posture

Petitioner was Rizal Commercial Banking Corporation (RCBC), the creditor-bank that sued to collect PBM’s obligations and to enforce the surety’s undertaking.
Respondents were Philippine Blooming Mills, Inc. (PBM) and Alfredo Ching, who signed a Comprehensive Surety Agreement with RCBC.
RCBC filed a Complaint for collection against PBM and Ching in the then Court of First Instance of Pasig, docketed as CV-42333.
PBM and Ching opposed the attachment and later invoked defenses tied to alleged extension of maturity and the effect of the SEC rehabilitation proceedings.
The trial court granted RCBC’s unopposed Motion for Summary Judgment and rendered judgment ordering payment.
On appeal, the Court of Appeals set aside the trial court decision, holding that the trial court should have held the merits in abeyance due to the SEC suspension order.
The Court of Appeals denied RCBC’s motion for reconsideration, prompting RCBC’s Petition for Review.

Key Factual Allegations

Alfredo Ching signed a Comprehensive Surety Agreement with RCBC on 4 May 1979, guaranteeing the prompt payment of all PBM obligations owing RCBC in the aggregate amount of P40,000,000.00.
Between 8 September to 30 October 1980, PBM made several applications for letters of credit with RCBC.
Under the letters of credit, PBM obligated itself to pay on demand for all drafts drawn under or purporting to be drawn under the credits.
RCBC opened the letters of credit and imported goods for PBM’s account, and PBM received the goods through trust receipts.
PBM’s obligations totaled P7,982,649.08.
On 7 August 1981, RCBC sued PBM and Ching in CV-42333 for collection of the said sum.
RCBC’s complaint included procurement of a Writ of Preliminary Attachment upon filing of a bond, attaching PBM’s and Ching’s assets.
The trial court lifted the attachment on 4 December 1981 after respondents filed a counter-bond.
On 1 April 1982, PBM filed a Petition for Suspension of Payments with the SEC, including a request for rehabilitation, docketed as SEC Case No. 2250.
On 6 July 1982, the SEC issued an injunctive Order suspending “all actions for claims against PBM pending before any Court or tribunal, in whatever stage the same may have been.”
On 26 April 1988, the SEC approved a revised rehabilitation plan and ordered its implementation.
On 14 October 1982, RCBC pursued its claims in CV-42333 and filed a Motion for Summary Judgment, which was unopposed due to withdrawal of an earlier opposition-extension request.
The trial court rendered summary judgment on 25 November 1982, ordering PBM and Ching to pay jointly and severally:
- P7,982,649.08 inclusive of interest, service charges, and penalties as of 7 August 1981, plus additional amounts from that date until fully paid; and
- P10,000.00 as attorney’s fees with costs.

Central Legal Question

The Court framed the controlling question as whether an SEC Order suspending, during rehabilitation, the payment of all claims against the principal debtor bars a creditor from recovering from the surety.
The Court answered the question in the negative as to the surety, holding that RCBC could proceed against Alfredo Ching.

Arguments of RCBC

RCBC contended that the SEC injunctive Order affected only PBM, the corporation under rehabilitation.
RCBC argued that its right as a creditor to proceed against Alfredo Ching as surety was not affected by the SEC suspension.
RCBC asserted that applying the SEC order to both PBM and Ching would deprive RCBC of its right to enforce the surety’s separate and independent undertaking.

Arguments of PBM and Ching

PBM and Ching argued that liabilities incurred by PBM were corporate in character, so Ching, as a corporate officer, could not be held liable.
PBM and Ching maintained that the pendency of SEC Case No. 2250 and the SEC a