Case Summary (G.R. No. 136603)
Factual Background
Allied Banking Corporation filed a complaint with preliminary attachment to recover money from Cheng Ban Yek Co., Inc. on seven past due promissory notes, with principal amounts totaling P10,000,000.00, and to hold defendants Alfredo Ching and Emilio Tanedo liable under a Continuing Guaranty that provided for joint and several liability relative to those notes. The trial court granted the attachment upon the required bond. Thereafter, the attachment remained in place despite efforts by the corporate defendant to have it discharged.
The Court of Appeals described the summary judgment as rooted in the bank’s effort to collect the unpaid obligations and in the continuing guaranty commitments that, by their terms, extended beyond the original maturity of the notes.
Trial Court’s Summary Judgment and the Attachment-Linked Disposition
On October 16, 1984, the trial court rendered summary judgment. The decretal portion ordered Cheng Ban Yek Co., Inc. to pay the bank several principal sums under the bank’s causes of action—amounts of P2,000,000.00, P2,500,000.00, P1,000,000.00, P1,000,000.00, P1,000,000.00, P1,000,000.00, and P1,500,000.00—with specified interest, service charge, and penalty charge terms for periods stated in the summary judgment. It likewise awarded attorneys’ fees equivalent to 25% of the amount due and demandable and ordered payment of costs of suit by the corporate defendant.
A key feature of the trial court’s order was paragraph nine, which declared the Continuing Guaranty extinguished after the bank allegedly branded it as worthless security and preferred to avail itself of the provisional remedy of attachment. The trial court correspondingly declared defendants Alfredo Ching and Emilio Tanedo relieved of their obligation under the continuing guaranty.
Appeals to the Court of Appeals
Both the bank and Cheng Ban Yek Co., Inc. appealed the summary judgment to the Court of Appeals. The bank’s appeal was limited to paragraph nine, which had relieved the guarantors from liability under the continuing guaranty.
The corporation, on the other hand, attacked the summary character of the proceedings, contending that it had filed a petition for suspension of payment with the Securities and Exchange Commission. It alleged that the SEC dismissed the petition for lack of quorum but that the dismissal had been duly appealed to the Court of Appeals. The Court of Appeals’ factual narration included that the creditors’ meeting convened to approve the petition gathered creditors representing P110,355,607.37 out of outstanding liabilities of P237,718,426.00, which was below the three-fifths quorum allegedly required under Act No. 1956, Sec. 8.
Court of Appeals’ Decision
On March 27, 1990, the Court of Appeals promulgated its decision. It reversed and modified the trial court’s order by deleting paragraph nine of the dispositive portion and by declaring defendants Alfredo Ching and Emilio Tanedo solidarily liable with Cheng Ban Yek Co., Inc. for all items of the money judgment enumerated in paragraphs one to eight and paragraph ten, covering the ordered principal sums, interest and charges, attorneys’ fees, and costs as stated in the trial court’s summary judgment. The Court of Appeals affirmed the order in its other aspects. It also ruled that there would be no costs in that instance.
Tanedo’s Motion for Reconsideration and Denial
After the Court of Appeals’ ruling, petitioner Emilio Y. Tanedo filed a motion for reconsideration on April 11, 1990. He argued that during the pendency of the case before the Court of Appeals, the bank and Cheng Ban Yek Co., Inc. agreed to extend the time of payment of the indebtedness without his consent, and that this allegedly relieved him as guarantor or surety.
On November 27, 1998, the Court of Appeals denied the motion for lack of merit.
Issues Raised Before the Supreme Court
In the Supreme Court, the controversy centered on two issues: first, whether the bank’s execution of the Fourth Amendatory Agreement extinguished Tanedo’s obligations as surety; and second, whether the Continuing Guaranty executed by Tanedo constituted a contract of adhesion.
The Court’s Resolution on Whether the Amendatory Agreement Extinguished Suretyship
The Court held that the amendments to the promissory notes’ maturity did not release Tanedo because of the specific terms of the Continuing Guaranty. The Court recognized that the amendatory agreement between Allied Banking Corporation and Cheng Ban Yek Co., Inc. had extended the maturity of the promissory notes without notice or consent of Tanedo as surety. However, it emphasized that Tanedo had executed a continuing guaranty that expressly provided that he consented and agreed that the bank could, at any time or from time to time, extend or change the time of payment and/or the manner, place, or terms of payment of the obligations guaranteed. Thus, the Court concluded that the loan extensions did not release the surety.
The Court’s Resolution on Alleged Contract of Adhesion
On the second issue, the Court addressed Tanedo’s assertion that even if the continuing guaranty were treated as a contract of adhesion, it remained enforceable. The Court reasoned that a contract of suretyship was valid even under such characterization because Tanedo was not compelled into the arrangement; he remained free to reject it entirely. The Court further observed that Tanedo was a stockholder and officer of Cheng Ban Yek and Co., Inc. and that it was common business and banking practice to require sureties to guarantee corporate obligations.
In support of the conclusion on enforceability despite extension, the Court referred to jurisprudence, including Security Bank and Trust Company, Inc. v. Cuenca, citing Dino v. Court of Appeals, and to the proposition that contracts of adhesion could still be valid where the party was not deprived of choice, referencing Philippine Commercial International Bank v. Court of Appeals.
Disposition and Supreme Court’s Ruling
The Supreme Court denied the petition and affirmed the Court of Appeals’ decision that deleted paragraph nine of the summary judgment and declared Tanedo solidarily liable with Cheng Ban Yek Co., Inc. for the monetary awards and related items specified in the Court of Appeals’ modification. The Court also ruled that there would be no costs in the instance.
Legal Basis and Reasoning
The Supreme Court’s ruling rested on the contractual allocation of risk and consent in the Continuing Guaranty. The Court found that Tanedo’s suretyship expressly anticipated and authorized future changes in time and terms of payment by the bank. Accordingly, the bank’s subsequent agreement extending maturity—though made without notice or consent—did not extinguish t
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Case Syllabus (G.R. No. 136603)
Parties and Procedural Posture
- Emilio Y. Tanedo filed a petition seeking appellate review of a Court of Appeals decision.
- Allied Banking Corporation was the respondent bank and the plaintiff in the court below.
- Cheng Ban Yek & Co., Inc. was the defendant corporation against which the bank obtained monetary relief.
- Alfredo Ching and Emilio Tanedo were defendants in the trial court as guarantors under a Continuing Guaranty.
- The controversy began in the Regional Trial Court (Branch XLIV, Manila) through a complaint with preliminary attachment.
- The trial court issued an Order, as summary judgment on October 16, 1984.
- Both the bank and the corporation appealed to the Court of Appeals, which promulgated its decision on March 27, 1990.
- While the case was pending, Tanedo filed a motion for reconsideration based on alleged extensions of payment without his consent.
- The Court of Appeals denied the motion for lack of merit on November 27, 1998.
- The Supreme Court treated the petition as without merit and affirmed the Court of Appeals decision.
Key Factual Allegations
- The bank filed a complaint with preliminary attachment to recover sums of money from Cheng Ban Yek & Co., Inc. based on seven past due promissory notes totaling P10,000,000.00 in principal.
- The bank also sued Alfredo Ching and Emilio Tanedo under a Continuing Guaranty covering joint and several liability relative to the promissory notes.
- The preliminary attachment was granted upon the required bond and remained in effect despite efforts of the corporation to have it discharged.
- The trial court granted summary judgment in favor of Allied Banking Corporation against Cheng Ban Yek & Co., Inc. for multiple monetary causes of action.
- The trial court declared that the Continuing Guaranty had been extinguished after the bank branded it as a worthless security and instead availed of the provisional remedy of attachment.
- The trial court further declared Alfredo Ching and Emilio Tanedo relieved of liability under the Continuing Guaranty.
- The Court of Appeals modified the trial court’s order by deleting the paragraph that relieved the guarantors of liability.
- Tanedo argued that during the pendency of the case, the bank and the corporation agreed to extend the time of payment without his consent.
- The bank’s position was that the Continuing Guaranty expressly allowed extensions and changes in payment time and terms subject to the guarantor’s consent.
Contractual Instruments Involved
- The case turned on a Continuing Guaranty executed by Emilio Tanedo to secure the corporation’s obligations on the promissory notes.
- The Continuing Guaranty contained a clause providing that Tanedo consented and agreed that the bank may, at any time or from time to time, extend or change:
- the time of payments; and/or
- the manner; and/or
- the terms of payment
- for the instruments, loans, advances, credits, or other obligations guaranteed.
- The bank and the corporation executed a Fourth Amendatory Agreement that extended the maturity of the promissory notes.
- Tanedo contended that execution of the Fourth Amendatory Agreement extinguished his obligations as surety or guarantor.
Procedural Instruments and Remedies
- The bank initiated the action through a complaint with preliminary attachment to secure the bank’s claims for money.
- The trial court resolved the case through an Order, as summary judgment, rather than full trial proceedings.
- The Court of Appeals addressed the appeals by reversing and modifying the trial court’s deletion of guarantor liability.
- The attachment was not shown to have resulted in discharge of the Continuing Guaranty under the legal framework ultimately applied by the appellate courts.
Statutory and Doctrinal Framework
- The corporation’s app