Case Summary (G.R. No. 203133)
Key Dates and Core Transactions
June 2, 2000: iBank extended an Omnibus Loan Line of P5,000,000.00 to Yulim. Promissory notes were issued between October 26, 2000 and January 11, 2001 and later consolidated into PN No. SADDK001014188 for P4,246,310.00, maturing February 28, 2002. Yulim defaulted; demand letters were sent April 5, 2002. Writ of replevin was issued August 8, 2002; sheriff’s sale of seized inventory produced proceeds valued at P140,000.00 (certificate dated November 7, 2002). Petitioners delivered a Deed of Assignment of a condominium unit to iBank in 2001; litigation culminated in RTC judgment December 21, 2009, CA decision modifying that judgment issued February 1, 2012, and Supreme Court decision denying the petition rendered February 18, 2015.
Credit Facility, Securities and the Continuing Surety Agreement
The credit facility was documented by a Credit Agreement and secured by a Chattel Mortgage over Yulim’s warehouse inventories. The petitioners (individual partners) executed a Continuing Surety Agreement in favor of iBank. The Deed of Assignment of the condominium unit was executed and acknowledged in its own terms as interim security with express provisions that it was to be converted into a Deed of Real Estate Mortgage once title issued in Yulim’s name. The parties also consolidated multiple promissory notes into a single consolidated promissory note for P4,246,310.00.
Facts Relating to Payment, Assignment and Enforcement
Petitioners claimed they had fully paid the loan by assigning the condominium unit to iBank, asserting the bank’s May 4, 2001 letter accepted the Deed of Assignment as full and final payment. iBank treated the assignment as collateral and consolidated the promissory notes into a single note with specified terms (expiry, interest computation). After default, iBank sought judicial remedies including replevin and sale of seized collateral; sale proceeds were significantly less than the indebtedness.
RTC Findings and Judgment
The Regional Trial Court (Makati City, Branch 145) found insufficient evidence to hold the individual petitioners liable and dismissed the complaint against them, while holding Yulim (the corporate debtor) liable to pay P4,246,310.00 with interest at 16.50% per annum from February 28, 2002, plus costs. The RTC emphasized absence of evidence that loan proceeds benefited the petitioners’ families and denied motions for reconsideration.
Court of Appeals’ Ruling and Modifications
The Court of Appeals reversed the RTC insofar as the individual petitioners were concerned and held James, Jonathan and Almerick jointly and severally liable with Yulim for the monetary obligations. The CA (a) found that petitioners failed to prove extinguishment of the debt by payment, (b) construed the Deed of Assignment as an interim security (in effect a mortgage) rather than a dacion en pago or absolute conveyance, citing Manila Banking Corporation v. Teodoro, and (c) rejected the RTC’s reliance on family law provisions (Articles 161 and 121) as applicable only when liability is sought to be enforced against the conjugal partnership; because the petitioners signed as sureties, their liability was contractual and enforceable independent of any familial benefit.
Issues Presented to the Supreme Court
The petition to the Supreme Court raised two principal assignments of error: (1) that the CA erred in holding the individual petitioners jointly and severally liable with Yulim for the amount due; and (2) that the CA erred in not awarding petitioners moral damages, exemplary damages, and attorney’s fees against iBank.
Supreme Court’s Analysis on Suretyship and Solidary Liability
The Supreme Court emphasized the plain language of the Continuing Surety Agreement in which the petitioners unconditionally and irrevocably “jointly and severally” guaranteed full and complete payment of any and all credit accommodations granted to Yulim, explicitly including interest, fees, penalties and other charges, and stating that the instrument is “a guarantee of payment and not merely of collection” and that the liability of the sureties “shall be direct, immediate and not contingent” upon the bank’s pursuit of remedies against the principal. Relying on Article 2047 of the Civil Code and on the doctrine that an express undertaking to be “jointly and severally” liable creates solidarity under Articles 1207 and the related provisions, the Court found that the petitioners contractually bound themselves to be solidarily liable with the principal debtor.
Supreme Court’s Analysis on the Deed of Assignment, Cession and Dacion en Pago
The Court examined the Deed of Assignment and the bank’s May 4, 2001 letter and concluded that both documents and testimonial evidence showed the assignment was intended and treated as collateral, not as payment. Section 2.01 of the Deed expressly characterized the assignment as “interim security for the repayment” of loans; Section 2.02 expressly contemplated execution of a real estate mortgage once title was issued and contemplated that the Deed of Assignment would become null and void upon such mortgage. The Court explained that Article 1255 (cession in payment) presupposes assignment of property to creditors in payment, but the Deed’s terms did not effect an absolute transfer in satisfaction; Article 1245 governs dacion en pago (governed by law on sales) and was not shown to have been effected. Testimony from an iBank officer corroborated that the bank considered the unit as collateral and that no dacion en pago
...continue readingCase Syllabus (G.R. No. 203133)
Nature of the Case
- Civil action: Complaint for Sum of Money with Replevin arising from loan facilities extended by International Exchange Bank (iBank) to Yulim International Company Ltd. (Yulim), with a Continuing Surety Agreement executed by the individual partners James Yu, Jonathan Yu, and Almerick Tieng Lim (the petitioners).
- Procedural posture: Petition for review to the Supreme Court from the Court of Appeals (CA) decision which modified the Regional Trial Court (RTC) judgment and held the individual petitioners jointly and severally liable with Yulim for its loan obligations.
- Decision under review: CA Decision in CA-G.R. CV No. 95522 dated February 1, 2012, modified by the CA to impose solidary liability on the three individual petitioners; petition to the Supreme Court filed as G.R. No. 203133, decision rendered February 18, 2015.
Parties
- Petitioners: Yulim International Company Ltd. (a domestic partnership) and its capitalist partners James Yu, Jonathan Yu, and Almerick Tieng Lim.
- Respondent: International Exchange Bank (iBank), now Union Bank of the Philippines.
Credit Facility and Security Instruments
- On June 2, 2000, iBank granted Yulim an Omnibus Loan Line credit facility for P5,000,000.00, evidenced by a Credit Agreement.
- Primary collateral: Chattel Mortgage over Yulim’s inventories located in its merchandise warehouse at 106 4th Street, 9th Avenue, Caloocan City.
- Additional guarantee: Continuing Surety Agreement executed by the individual capitalist partners (James, Jonathan, Almerick) in favor of iBank.
- Promissory notes issued by Yulim under the facility:
- PN No. 2110005852 — Face value P1,298,926.00 — PN date 10/26/2000 — maturity 01/29/2001.
- PN No. 2110006026 — Face value P1,152,963.00 — PN date 11/18/2000 — maturity 02/05/2001.
- PN No. 2110006344 — Face value P499,890.00 — PN date 12/04/2000 — maturity 03/12/2001.
- PN No. 2110006557 — Face value P798,010.00 — PN date 12/18/2000 — maturity 04/23/2001.
- PN No. 2110100189 — Face value P496,521.00 — PN date 01/11/2001 — maturity 05/07/2001.
- Consolidation: The individual PNs were later consolidated under a single promissory note, PN No. SADDK001014188, for P4,246,310.00, maturing on February 28, 2002.
Default, Demand and Replevin
- Yulim defaulted on PN No. SADDK001014188.
- April 5, 2002: iBank sent demand letters to Yulim through its President James and through Almerick; demands were unsuccessful.
- iBank filed a Complaint for Sum of Money with Replevin against Yulim and its sureties.
- August 8, 2002: Court granted application for writ of replevin.
- Sheriff’s Certificate of Sale dated November 7, 2002: items seized from Yulim’s warehouse were appraised/worth P140,000.00 (contrary to petitioners’ insistence of P500,000.00).
Petitioners’ Defense and Alleged Payment
- October 2, 2002: Petitioners moved to dismiss, claiming full payment after assignment to iBank of Condominium Unit No. 141 (with parking) at 20 Landsbergh Place, Tomas Morato Avenue, Quezon City.
- Petitioners’ assertions regarding condo unit:
- Claimed pre-selling value P3.3 million; market value had risen to P5.5 million.
- Contended the Deed of Assignment, executed and supported by delivery of documents, was to serve as full and final payment of their obligations and that iBank’s May 4, 2001 letter constituted approval.
- May 16, 2006: Petitioners filed an Answer reiterating deed-of-assignment payment defense and alleging iBank’s penalties and charges were exorbitant, oppressive, and unconscionable.
RTC Proceedings and Ruling (Trial Court)
- RTC of Makati City, Branch 145, Civil Case No. 02-749 conducted trial on the merits.
- RTC Dispositive Judgment dated December 21, 2009:
- Held individual defendants James Yu, Jonathan Yu, and Almerick Tieng Lim not liable to iBank; complaint against them dismissed for insufficiency of evidence.
- Found corporate defendant Yulim liable for P4,246,310.00 with interest at 16.50% per annum from February 28, 2002 until fully paid, plus costs of suit.
- Dismissed defendants’ counterclaims for insufficiency of evidence.
- RTC stated there was no iota of evidence that the loan proceeds benefited the families of the individual petitioners (basis for non-liability of individuals as found by RTC).
- Post-judgment motions:
- Petitioners moved for reconsideration on January 12, 2010.
- iBank filed a motion for partial reconsideration on January 19, 2010.
- Joint Order dated March 8, 2010 denied both motions.
Issues on Appeal to the Court of Appeals
- Yulim’s appellate errors alleged:
- RTC erred in ordering Yulim to pay P4,246,310.00 with interest at 16.5% per annum from February 28, 2002 until fully paid.
- RTC erred in not ordering iBank to pay attorney’s fees, moral damages, and exemplary damages.
- iBank’s appellate errors alleged against RTC:
- Trial court erred in not holding individual petitioners solidarily liable with Yulim based on the Continuing Surety Agreement.
- Trial court erred in not holding petitioners liable for penalty charges under the Credit Agreement and promissory notes.
- Trial court erred in not awarding attorney’s fees and in not holding petitioners jointly and severally liable for costs of suit incurred by iBank.
Court of Appeals Ruling and Reasoning
- CA’s factual finding: Petitioners failed to prove payment/extinguishment of debt amounting to P4,246,310.00 evidenced by PN No. SADDK001014188.
- Burden of proof: Having established existence of debt, debtors asserting extinguishment by payment must prove such defense with legal certainty; CA found absence of such proof in the record.
- Deed of Assignment characterization:
- CA found the assignment of the condominium unit to be a temporary arrangement serving as security pending execution of a real estate mortgage, not an acceptance of full payment by iBank.
- Cited Manila Banking Corporation v. Teodoro, Jr. for principle that assignment to guarantee an obligation is in effect a mortgage and not an absolute conveyance conferring ownership to the assignee.
- Found nothing in the Deed of Assignment indicating iBank’s acceptance of the property as full payment.
- Solidary liability of individual petitioners:
- CA disagreed with RTC’s application of Articles 161 Civil Code and 121 Family Code (which the RTC invoked to require showing that loan proceeds benefited the families) because those Articles apply when liability is enforced against a conjugal partnership, not where individual petitioners signed as sureties.
- Emphasized that petitioners signed as sureties and iBank sought enforcement of the loan obligation against them as such.
- Accordingly, CA granted iBank’s appeal in part and denied petitioners’ appeal, modifying the RTC decision to hold James, Jonathan and Almerick jointly and severally liable with Yulim for payment of the monetary awards; affirmed the rest of the RTC decision.