[G.R. No. 130886. January 29, 2004] COMMONWEALTH INSURANCE CORPORATION, petitioner, vs.

COURT OF APPEALS and RIZAL COMMERCIAL BANKING CORPORATION,respondents. DECISION AUSTRIA-MARTINEZ, J.: Before us is a petition for review on certiorari assailing the Decision[1] of the Court of Appeals (CA), promulgated on May 16, 1997 in CA-G.R. CV No. 44473[2], which modified the decision dated March 5, 1993 of the Regional Trial Court of Makati (Branch 64); and the Resolution[3] dated September 25, 1997, denying petitioners motion for reconsideration. The facts of the case as summarized by the Court of Appeals are as follows: In 1984, plaintiff-appellant Rizal Commercial Banking Corporation (RCBC) granted two export loan lines, one, for P2,500,000.00 to Jigs Manufacturing Corporation (JIGS) and, the other, for P1,000,000.00 to Elba Industries, Inc. (ELBA). JIGS and ELBA which are sister corporations both drew from their respective credit lines, the former in the amount of P2,499,992.00 and the latter for P998,033.37 plus P478,985.05 from the case-to-case basis and trust receipts. These loans were evidenced by promissory notes (Exhibits A to L, inclusive JIGS; Exhibits V to BB, inclusive ELBA) and secured by surety bonds (Exhibits M to Q inclusive JIGS; Exhibits CC to FF, inclusive ELBA) executed by defendant-appellee Commonwealth Insurance Company (CIC). Specifically, the surety bonds issued by appellee CIC in favor of appellant RCBC to secure the obligations of JIGS totaled P2,894,128.00 while that securing ELBAs obligation was P1,570,000.00. Hence, the total face value of the surety bonds issued by appellee CIC was P4,464,128.00. JIGS and ELBA defaulted in the payment of their respective loans. On October 30, 1984, appellant RCBC made a written demand (Exhibit N) on appellee CIC to pay JIGs account to the full extend (sic) of the suretyship. A similar demand (Exhibit O) was made on December 17, 1984 for appellee CIC to pay ELBAs account to the full extend (sic) of the suretyship. In response to those demands, appellee CIC made several payments from February 25, 1985 to February 10, 1988 in the total amount of P2,000,000.00. There having been a substantial balance unpaid, appellant RCBC made a final demand for payment (Exhibit P) on July 7, 1988 upon appellee CIC but

the latter ignored it. Thus, appellant RCBC filed the Complaint for a Sum of Money on September 19, 1988 against appellee CIC.[4] The trial court rendered a decision dated March 5, 1993, the dispositive portion of which reads as follows: WHEREFORE, premises considered, in the light of the above facts, arguments, discussion, and more important, the law and jurisprudence, the Court finds the defendants Commonwealth Insurance Co. and defaulted third party defendants Jigs Manufacturing Corporation, Elba Industries and Iluminada de Guzman solidarily liable to pay herein plaintiff Rizal Commercial Banking Corporation the sum of Two Million Four Hundred Sixty-Four Thousand One Hundred Twenty-Eight Pesos (P2,464,128.00), to pay the plaintiff attorneys fees of P10,000.00 and to pay the costs of suit. IT IS SO ORDERED.[5] Not satisfied with the trial courts decision, RCBC filed a motion for reconsideration praying that in addition to the principal sum of P2,464,128.00, defendant CIC be held liable to pay interests thereon from date of demand at the rate of 12% per annum until the same is fully paid. However, the trial court denied the motion. RCBC then appealed to the Court of Appeals. On May 16, 1997, the CA rendered the herein assailed decision, ruling thus: ... Being solidarily bound, a suretys obligation is primary so that according to Art. 1216 of the Civil Code, he can be sued alone for the entire obligation. However, one very important characteristic of this contract is the fact that a suretys liability shall be limited to the amount of the bond (Sec. 176, Insurance Code). This does not mean however that even if he defaults in the performance of his obligation, the extend (sic) of his liability remains to be the amount of the bond. If he pays his obligation at maturity upon demand, then, he cannot be made to pay more than the amount of the bond. But if he fails or refuses without justifiable cause to pay his obligation upon a valid demand so that he is in mora solvendi (Art. 1169, CC), then he must pay damages or interest in consequence thereof according to Art. 1170. Even if this interest is in excess of the amount of the bond, the defaulting surety is liable according to settled jurisprudence. ...

Appellant RCBC contends that when appellee CIC failed to pay the obligation upon extrajudicial demand, it incurred in delay in consequence of which it became liable to pay legal interest. The obligation to pay such interest does not arise from the contract of suretyship but from law as a result of delay or mora. Such an interest is not, therefore, covered by the limitation of appellees liability expressed in the contract. Appellee CIC refutes this argument stating that since the surety bonds expressly state that its liability shall in no case exceed the amount stated therein, then that stipulation controls. Therefore, it cannot be made to assume an obligation more than what it secured to pay. The contention of appellant RCBC is correct because it is supported by Arts. 1169 and 1170 of the Civil Code and the case of Asia Surety & Insurance Co., Inc. and Manila Surety & Fidelity Co. supra. On the other hand, the position of appellee CIC which upholds the appealed decision is untenable. The best way to show the untenability of this argument is to give this hypothetical case situation: Surety issued a bond for P1 million to secure a Debtors obligation of P1 million to Creditor. Debtor defaults and Creditor demands payment from Surety. If the theory of appellee and the lower court is correct, then the Surety may just as well not pay and use the P1 million in the meantime. It can choose to pay only after several years after all, his liability can never exceed P1 million. That would be absurd and the law could not have intended it.[6] (Emphasis supplied) and disposed of the case as follows: WHEREFORE, the appealed Decision is MODIFIED in the manner following: The appellee Commonwealth Insurance Company shall pay the appellant Rizal Commercial Banking Corporation: 1. On the account of JIGS, P2,894,128.00 ONLY with 12% legal interest per annum from October 30, 1984 minus payments made by the latter to the former after that date; and on the account of ELBA, P1,570,000.00 ONLY with 12% legal interest per annum from December 17, 1984 minus payments made by the latter to the former after that day; respecting in both accounts the applications of payment made by appellant RCBC on appellee CICs payments; 2. Defendant-appellee Commonwealth Insurance Company shall pay plaintiffappellant RIZAL COMMERCIAL BANKING CORP. and (sic) attorneys fee of P10,000.00 and cost of this suit; 3. The third-party defendants JIGS MANUFACTURING CORPORATION, ELBA INDUSTRIES and ILUMINADA N. DE GUZMAN shall respectively indemnify COMMONWEALTH INSURANCE CORPORATION for whatever it had paid and

shall pay to RIZAL COMMERCIAL BANKING CORPORATION of their respective individual obligations pursuant to this decision. SO ORDERED.[7] CIC filed a motion for reconsideration but the CA denied the same. Hence, herein petition by CIC raising a single assignment of error, to wit: Respondent Court of Appeals grievously erred in ordering petitioner to pay respondent RCBC the amount of the surety bonds plus legal interest of 12% per annum minus payments made by the petitioner.[8] The sole issue is whether or not petitioner should be held liable to pay legal interest over and above its principal obligation under the surety bonds issued by it. Petitioner argues that it should not be made to pay interest because its issuance of the surety bonds was made on the condition that its liability shall in no case exceed the amount of the said bonds. We are not persuaded. Petitioners argument is misplaced. Jurisprudence is clear on this matter. As early as Tagawa vs. Aldanese and Union Gurantee Co.[9] and reiterated in Plaridel Surety & Insurance Co., Inc. vs. P.L. Galang Machinery Co., Inc.[10], and more recently, in Republic vs. Court of Appeals and R & B Surety and Insurance Company, Inc.[11], we have sustained the principle that if a surety upon demand fails to pay, he can be held liable for interest, even if in thus paying, its liability becomes more than the principal obligation. The increased liability is not because of the contract but because of the default and the necessity of judicial collection.[12] Petitioners liability under the suretyship contract is different from its liability under the law. There is no question that as a surety, petitioner should not be made to pay more than its assumed obligation under the surety bonds.[13] However, it is clear from the above-cited jurisprudence that petitioners liability for the payment of interest is not by reason of the suretyship agreement itself but because of the delay in the payment of its obligation under the said agreement. Petitioner admits having incurred in delay. Nonetheless, it insists that mere delay does not warrant the payment of interest. Citing Section 244 of the Insurance Code,[14] petitioner submits that under the said provision of law, interest shall accrue only when the delay or refusal to pay is unreasonable; that the delay in the payment

of its obligation is not unreasonable because such delay was brought about by negotiations being made with RCBC for the amicable settlement of the case. We are not convinced. It is not disputed that out of the principal sum of P4,464,128.00 petitioner was only able to pay P2,000,000.00. Letters demanding the payment of the respective obligations of JIGS and ELBA were initially sent by RCBC to petitioner on October 30, 1984[15] and December 17, 1984.[16] Petitioner made payments on an installment basis spanning a period of almost three years, i.e., from February 25, 1985 until February 10, 1988. On July 7, 1988, or after a period of almost five months from its last payment, RCBC, thru its legal counsel, sent a final letter of demand asking petitioner to pay the remaining balance of its obligation including interest.[17] Petitioner failed to pay. As of the date of the filing of the complaint on September 19, 1988, petitioner was even unable to pay the remaining balance of P2,464,128.00 out of the principal amount it owes RCBC. Petitioners contention that what prevented it from paying its obligation to RCBC is the fact that the latter insisted on imposing interest and penalties over and above the principal sum it seeks to recover is not plausible. Considering that petitioner admits its obligation to pay the principal amount, then it should have paid the remaining balance of P2,464,128.00, notwithstanding any disagreements with RCBC regarding the payment of interest. The fact that the negotiations for the settlement of petitioners obligation did not push through does not excuse it from paying the principal sum due to RCBC. The issue of petitioners payment of interest is a matter that is totally different from its obligation to pay the principal amount covered by the surety bonds it issued. Petitioner offered no valid excuse for not paying the balance of its principal obligation when demanded by RCBC. Its failure to pay is, therefore, unreasonable. Thus, we find no error in the appellate courts ruling that petitioner is liable to pay interest. As to the rate of interest, we do not agree with petitioners contention that the rate should be 6% per annum. The appellate court is correct in imposing 12% interest. It is in accordance with our ruling in Eastern Shipping Lines, Inc. vs. Court of Appeals,[18] wherein we have established certain guidelines in awarding interest in the concept of actual and compensatory damages, to wit: I. When an obligation, regardless of its source, i.e., law, contracts, quasicontracts, delicts or quasi-delicts is breached, the contravenor can be held liable for damages. The provisions under Title XVIII on Damages of the Civil Code govern in determining the measure of recoverable damages.

II. With regard particularly to an award of interest in the concept of actual and compensatory damages, the rate of interest, as well as the accrual thereof, is imposed, as follows 1. When the obligation is breached, and it consists in the payment of a sum of money, i.e., a loan or forbearance of money, the interest due should be that which may have been stipulated in writing. Furthermore, the interest due shall itself earn legal interest from the time it is judicially demanded. In the absence of stipulation, the rate of interest shall be 12% per annum to be computed from default, i.e. from judicial or extrajudicial demand under and subject to the provisions of Article 1169 of the Civil Code. 2. When an obligation, not constituting a loan or forbearance of money, is breached, an interest on the amount of damages awarded may be imposed at the discretion of the court at the rate of 6% per annum. No interest, however, shall be adjudged on unliquidated claims or damages except when or until the demand can be established with reasonable certainty. Accordingly, where the demand is established with reasonable certainty, the interest shall begin to run from the time the claim is made judicially or extrajudicially (Art. 1169, Civil Code) but when such certainty cannot be reasonably established at the time the demand is made, the interest shall begin to run only from the date the judgment of the court is made (at which time the quantification of damages may be deemed to have been reasonably ascertained). The actual base for the computation of legal interest shall, in any case, be on the amount finally adjudged. 3. When the judgment of the court awarding a sum of money becomes final and executory, the rate of legal interest, whether the case falls under paragraph 1 or paragraph 2, above, shall be 12% per annum from such finality until its satisfaction, this interim period being deemed to be by then an equivalent to a forbearance of credit.[19] (Emphasis supplied) In the present case, there is no dispute that petitioners obligation consists of a loan or forbearance of money. No interest has been agreed upon in writing between petitioner and respondent. Applying the above-quoted rule to the present case, the Court of Appeals correctly imposed the rate of interest at 12% per annum to be computed from the time the extra-judicial demand was made. This is in accordance with the provisions of Article 1169[20] of the Civil Code and of the settled rule that where there has been an extra-judicial demand before action for performance was filed, interest on the amount due begins to run not from the date of the filing of the complaint but from the date of such extra-judicial demand.[21] RCBCs extra-judicial demand for the payment of JIGS obligation was made on October 30, 1984; while the extra-judicial demand for the payment of ELBAs obligation was made on

December 17, 1984. On the other hand, the complaint for a sum of money was filed by RCBC with the trial court only on September 19, 1988. WHEREFORE, the instant petition is DENIED and the assailed Decision and Resolution of the Court of Appeals are AFFIRMED in toto. SO ORDERED. Puno, (Chairman), Quisumbing, Callejo, Sr., and Tinga, JJ., concur.

On February 8, 1993, plaintiffs filed a replevin bond through petitioner Visayan Surety & Insurance Corporation. The contract of surety provided thus: WHEREFORE, we, sps. Danilo Ibajan and Mila Ibajan and the VISAYAN SURETY & INSURANCE CORP., of Cebu, Cebu, with branch office at Manila, jointly and severally bind ourselves in the sum of Three Hundred Thousand Pesos (P300,000.00) for the return of the property to the defendant, if the return thereof be adjudged, and for the payment to the defendant of such sum as he/she may recover from the plaintiff in the action.[3] On February 8, 1993, the trial court granted issuance of a writ of replevin directing the sheriff to take the Isuzu jeepney into his custody. Consequently, on February 22, 1993, Sheriff Arnel Magat seized the subject vehicle and turned over the same to plaintiff spouses Ibajan.[4] On February 15, 1993, the spouses Bartolome filed with the trial court a motion to quash the writ of replevin and to order the return of the jeepney to them. On May 3, 1993, Dominador V. Ibajan, father of plaintiff Danilo Ibajan, filed with the trial court a motion for leave of court to intervene, stating that he has a right superior to the plaintiffs over the ownership and possession of the subject vehicle. On June 1, 1993, the trial court granted the motion to intervene. On August 8, 1993, the trial court issued an order granting the motion to quash the writ of replevin and ordering plaintiff Mila Ibajan to return the subject jeepney to the intervenor Dominador Ibajan.[5] On August 31, 1993, the trial court ordered the issuance of a writ of replevin directing the sheriff to take into his custody the subject motor vehicle and to deliver the same to the intervenor who was the registered owner.[6] On September 1, 1993, the trial court issued a writ of replevin in favor of intervenor Dominador Ibajan but it was returned unsatisfied. On March 7, 1994, intervenor Dominador Ibajan filed with the trial court a motion/application for judgment against plaintiffs bond. On June 6, 1994, the trial court rendered judgement the dispositive portion of which reads: WHEREFORE, in the light of the foregoing premises, judgment is hereby rendered in favor of Dominador Ibajan and against Mila Ibajan and the Visayan Surety and

[G. R. No. 127261. September 7, 2001] VISAYAN SURETY & INSURANCE CORPORATION, petitioner, vs. THE HONORABLE COURT OF APPEALS, SPOUSES JUN BARTOLOME+ and SUSAN BARTOLOME and DOMINADOR V. IBAJAN,+ respondents. DECISION PARDO, J.: The Case The case is a petition to review and set aside a decision[1] of the Court of Appeals affirming that of the Regional Trial Court, Bian, Laguna, Branch 24, holding the surety liable to the intervenor in lieu of the principal on a replevin bond. The Facts The facts, as found by the Court of Appeals,[2] are as follows: On February 2, 1993, the spouses Danilo Ibajan and Mila Ambe Ibajan filed with the Regional Trial Court, Laguna, Bian a complaint against spouses Jun and Susan Bartolome, for replevin to recover from them the possession of an Isuzu jeepney, with damages. Plaintiffs Ibajan alleged that they were the owners of an Isuzu jeepney which was forcibly and unlawfully taken by defendants Jun and Susan Bartolome on December 8, 1992, while parked at their residence.

Insurance Corporation ordering them to pay the former jointly and severally the value of the subject jeepney in the amount of P150,000.00 and such other damages as may be proved by Dominador Ibajan plus costs.[7] On June 28, 1994, Visayan Surety and Insurance Corporation and Mila Ibajan filed with the trial court their respective motions for reconsideration. On August 16, 1994, the trial court denied both motions. On November 24, 1995, Visayan Surety and Insurance Corporation (hereafter Visayan Surety) appealed the decision to the Court of Appeals.[8] On August 30, 1996, the Court of Appeals promulgated its decision affirming the judgment of the trial court.[9] On September 19, 1996, petitioner filed a motion for reconsideration.[10] On December 2, 1996, the Court of Appeals denied the motion for reconsideration for lack of merit.[11] Hence, this petition.[12] The Issue The issue in this case is whether the surety is liable to an intervenor on a replevin bond posted by petitioner in favor of respondents.[13] Respondent Dominador Ibajan asserts that as intervenor, he assumed the personality of the original defendants in relation to the plaintiffs bond for the issuance of a writ of replevin. Petitioner Visayan Surety contends that it is not liable to the intervenor, Dominador Ibajan, because the intervention of the intervenor makes him a party to the suit, but not a beneficiary to the plaintiffs bond. The intervenor was not a party to the contract of surety, hence, he was not bound by the contract. The Courts Ruling The petition is meritorious. An intervenor is a person, not originally impleaded in a proceeding, who has legal interest in the matter in litigation, or in the success of either of the parties, or an interest against both, or is so situated as to be adversely affected by a distribution or other disposition of property in the custody of the court or of an officer thereof. [14]

May an intervenor be considered a party to a contract of surety which he did not sign and which was executed by plaintiffs and defendants? It is a basic principle in law that contracts can bind only the parties who had entered into it; it cannot favor or prejudice a third person.[15] Contracts take effect between the parties, their assigns, and heirs, except in cases where the rights and obligations arising from the contract are not transmissible by their nature, or by stipulation or by provision of law.[16] A contract of surety is an agreement where a party called the surety guarantees the performance by another party called the principal or obligor of an obligation or undertaking in favor of a third person called the obligee.[17] Specifically, suretyship is a contractual relation resulting from an agreement whereby one person, the surety, engages to be answerable for the debt, default or miscarriage of another, known as the principal.[18] The obligation of a surety cannot be extended by implication beyond its specified limits.[19] When a surety executes a bond, it does not guarantee that the plaintiffs cause of action is meritorious, and that it will be responsible for all the costs that may be adjudicated against its principal in case the action fails. The extent of a suretys liability is determined only by the clause of the contract of suretyship.[20] A contract of surety is not presumed; it cannot extend to more than what is stipulated.[21] Since the obligation of the surety cannot be extended by implication, it follows that the surety cannot be held liable to the intervenor when the relationship and obligation of the surety is limited to the defendants specified in the contract of surety. WHEREFORE, the Court REVERSES and sets aside the decision of the Court of Appeals in CA-G. R. CV No. 49094. The Court rules that petitioner Visayan Surety & Insurance Corporation is not liable under the replevin bond to the intervenor, respondent Dominador V. Ibajan. No costs. SO ORDERED. Davide, Jr., C.J., (Chairman), Puno, Kapunan, and Ynares-Santiago, JJ., concur.

BANK OF COMMERCE and STEPHEN Z. TAALA, Petitioners,

G.R. No. 174006 Present: CARPIO, J., Chairperson, NACHURA, PERALTA, ABAD, and MENDOZA, JJ. Promulgated: December 8, 2010

On October 22, 1993, respondents borrowed money from petitioner bank in the amount of Nine Hundred Thousand Pesos (P900,000.00). Respondents executed a Real Estate Mortgage[5] over the condominium unit as collateral, and the same was annotated at the back of CCT No. 2130. On October 3, 1995, respondents again borrowed One Million One Hundred Thousand Pesos (P1,100,000.00) from petitioner bank, which was also secured by a mortgage over the same property annotated at the back of CCT No. 2130.[6] On January 2, 1996, respondents paid One Million Eleven Thousand Five Hundred Fifty-Five Pesos and 54 centavos (P1,011,555.54), as evidenced by Official Receipt No. 147741[7] issued by petitioner bank. On the face of the receipt, it was written that the payment was in full payment of the loan and interest. Respondents then asked petitioner bank to cancel the mortgage annotations on CCT No. 2130 since the loans secured by the real estate mortgage were already paid in full. However, the bank refused to cancel the same and demanded payment of Four Million Six Hundred Thirty-Three Thousand Nine Hundred Sixteen Pesos and SixtySeven Centavos (P 4,633,916.67), representing the outstanding obligation of respondents as of February 27, 1998. Respondents requested for an accounting which would explain how the said amount was arrived at. However, instead of heeding respondents request, petitioner bank applied for extra-judicial foreclosure of the mortgages over the condominium unit. The public auction sale was scheduled on September 4, 1998. Petitioner Stephen Z. Taala, a notary public, was tasked to preside over the auction sale.[8] Respondents filed suit with the RTC, Quezon City, assailing the validity of the foreclosure and auction sale of the property. They averred that the loans secured by the property had already been paid in full. Furthermore, they claimed that the Notice of Auction Sale by Notary Public[9] failed to comply with the provisions of Act No. 3135, as amended by Act No. 4118, requiring the publication and posting of the notice of auction sale in at least three (3) public places in Quezon City.[10] Respondents likewise prayed for the payment of moral and exemplary damages, and attorneys fees, and for the issuance of a temporary restraining order and/or writ of preliminary injunction to enjoin the extra-judicial foreclosure sale of the property.[11] On October 23, 1998, the RTC granted respondents prayer for issuance of a writ of preliminary injunction, restraining petitioner bank from foreclosing on the mortgage.[12] Petitioner bank admitted that there were only two (2) mortgage loans annotated at the back of CCT No. 2130, but denied that respondents had already

- versus -

Spouses ANDRES and ELIZA FLORES, Respondents.

x------------------------------------------------------------------------------------x DECISION NACHURA, J.:

Before the Court is a petition for review on certiorari under Rule 45 of the Rules of Court, assailing the Decision[1] dated February 28, 2006 and the Resolution[2] dated August 9, 2006 of the Court of Appeals (CA) in CA-G.R. CV No. 80362.

The facts of the case are as follows: Respondents filed a case for specific performance against petitioners before the Regional Trial Court (RTC) of Quezon City, docketed as Civil Case No. Q-9835425. Respondents are the registered owners of a condominium unit in Embassy Garden Homes, West Triangle, Quezon City, registered under Condominium Certificate of Title (CCT) No. 2130,[3] issued by the Register of Deeds of Quezon City.[4]

fully settled their outstanding obligations with the bank.[13] It averred that several credit lines were granted to respondent Andres Flores by petitioner bank that were secured by promissory notes executed by him, and which were either increased or extended from time to time. The loan that was paid on January 2, 1996, in the amount of P1,011,555.54, was only one of his loans with the bank. There were remaining loans already due and demandable, and had not been paid by respondents despite repeated demands by petitioner bank. The remaining loans, although not availed of at the same time, were similarly secured by the subject real estate mortgage as provided in the continuing guaranty agreement therein.[14] Petitioner bank alleged that respondents requested and were granted an increase in their Bills Discounted Line from Nine Hundred Thousand Pesos (P900,000.00) to Two Million Pesos (P2,000,000.00), which was secured by the same real estate mortgage on CCT No. 2130. However, the subject condominium unit commanded only a market value of One Million Seven Hundred Twenty-Three Thousand Six Hundred Pesos (P1,723,600.00), and a loan value of Nine Hundred Fifty-Nine Thousand Six Hundred Sixteen Pesos (P959,616.00). Since the market value of the condominium unit was lower than the combined loans, the parties agreed to fix the amount of the real estate mortgage atP1,100,000.00. Moreover, petitioner bank stressed that under the terms of the two real estate mortgages, future loans of respondents were also covered.[15] On December 4, 2002, the RTC rendered a resolution,[16] the fallo of which reads: FROM THE FOREGOING MILIEU, the present case for specific performance with damages and injunction filed by plaintiffs, Sps. Andres and Eliza Flores against defendants, Bank of Commerce and Stephen Z. Taala, is hereby DISMISSED. Likewise, the counterclaim filed by defendants, Bank of Commerce and Stephen Z. Taala against plaintiffs, Sps. Andres and Eliza Flores is DISMISSED for insufficiency of evidence. SO ORDERED.[17] In denying respondents complaint for specific performance, the RTC ratiocinated that respondents right of action hinged mainly on the veracity of their claim that they faithfully complied with their loan obligations and had fully paid them in January 1996. The RTC stated that the evidence submitted by petitioner bank, specifically the promissory notes and statement of account dated February 27, 1998, negated this contention. The RTC declared that respondents incurred other debts from petitioner bank, which must be paid first before they could be absolved of

liability, and, consequently, demand the release of the mortgage. The RTC also struck down respondents assertion that petitioner bank did not comply with the posting and publication requirements under Act No. 3135, as amended. Respondents filed a motion for reconsideration, which was, however, denied by the RTC in a decision[18] dated August 8, 2003. Aggrieved, respondents appealed to the CA. Meanwhile, on March 25, 2004, the auction sale of the subject property was conducted, and petitioner bank was awarded the property, as the highest bidder. On February 28, 2006, the CA rendered a Decision[19] reversing the decision and the resolution of the RTC. The dispositive portion of the CA Decision reads: IN VIEW OF ALL THE FOREGOING, the instant appeal is GRANTED; the challenged Decision dated December 4, 2002, is REVERSED and SET ASIDE; and a new one entered: (a) ordering the cancellation of the real estate mortgage annotations on the dorsal side of CCT No. 2130 of the Registry of Deeds of Quezon City; (b) ordering appellee Bank to issue a corresponding release of mortgages to plaintiffs-appellants CCT No. 2130; (c) declaring null and void the challenged extra-judicial foreclosure and public auction sale held on March 25, 2004 together with the Certificate of Sale dated April 14, 2004 issued in favor of appellee Bank; and, (d) appellees counterclaims are ordered dismissed, for lack of sufficient basis therefor. No costs. SO ORDERED.[20]

The CA ratiocinated that the principal obligation or loan was already extinguished by the full payment thereof. Consequently, the real estate mortgages securing the principal obligation were also extinguished. A real estate mortgage, being an accessory contract, cannot survive without the principal obligation it secures. The CA also noted that the two mortgages were individually annotated at

the back of CCT No. 2130. Thus, the CA opined that the individual annotations clearly indicated that the said mortgages were not meant to serve as a continuing guaranty for any future loan that respondents would obtain from petitioner bank. Petitioners filed a motion for reconsideration. On August 9, 2006, the CA issued a Resolution[21] denying the same. Hence, the instant petition.

to the MORTGAGEE [Bank of Commerce], its successors and assigns, all its/ his rights, title and interest to that parcel(s) of land, together with all the buildings and improvements now existing or which may hereafter be erected or constructed thereon, including all other rights or benefits annexed to or inherent therein now existing or which may hereafter exist, situated in Embassy Garden Homes, Quezon City, Philippines, and more particularly described in Original/Transfer Certificate(s) of Title No. CCT No. 2130 of the Registry of Deeds [of] Quezon City, as follows: CCT No. 2130

The sole issue for resolution is whether the real estate mortgage over the subject condominium unit is a continuing guaranty for the future loans of respondent spouses despite the full payment of the principal loans annotated on the title of the subject property. We resolve this issue in the affirmative. The contested portion of the Deed of Real Estate Mortgage dated October 22, 1993 for the principal obligation of P900,000.00 and of the second one dated October 3, 1995 for the sum of P1,100,000.00, uniformly read: WITNESSETH: That for and in consideration of the credit accommodations granted by the MORTGAGEE [Bank of Commerce] to the MORTGAGOR [Andres Flores] and/or _____________________ hereby initially fixed at _____________________________PESOS: (P____________), Philippine Currency, and as security for the payment of the same, on demand or at maturity as the case may be, be the interest accruing thereon, the cost of collecting the same, the cost of keeping the mortgaged property(ies), of all amounts now owed or hereafter owing by the MORTGAGOR to the MORTGAGEE under this or separate instruments and agreements, or in respect of any bill, note, check, draft accepted, paid or discounted, or advances made and all other obligations to every kind already incurred or which may hereafter be incurred, for the use or accommodation of the MORTGAGOR, as well as the faithful performance of the terms and conditions of this mortgage and of the separate instruments and/or documents under which credits have been or may hereafter be advanced by the MORTGAGEE to the MORTGAGOR, including their renewals, extensions and substitutions, any and all of which separate instruments and/or documents and their renewals, extensions and substitutions are hereunto incorporated and made integral parts hereof, the MORTGAGOR [Andres Flores] has transferred and conveyed, as by these presents it/he does hereby transfer and convey, by way of First Mortgage,

Unit No. L-2, located on Building L, consisting of Ninety Five point Twenty (95.20) Square Meters, more of less, with Parking Space No. L-2.[22] It is petitioner banks contention that the said undertaking, stipulated in the Deed of Real Estate Mortgage dated October 22, 1993 and October 3, 1995, is a continuing guaranty meant to secure future debts or credit accommodations granted by petitioner bank in favor of respondents. On the other hand, respondents posit that, since they have already paid the loans secured by the real estate mortgages, the mortgage should not be foreclosed because it does not include future debts of the spouses or debts not annotated at the back of CCT No. 2130. A continuing guaranty is a recognized exception to the rule that an action to foreclose a mortgage must be limited to the amount mentioned in the mortgage contract.[23]Under Article 2053 of the Civil Code, a guaranty may be given to secure even future debts, the amount of which may not be known at the time the guaranty is executed. This is the basis for contracts denominated as a continuing guaranty or suretyship. A continuing guaranty is not limited to a single transaction, but contemplates a future course of dealing, covering a series of transactions, generally for an indefinite time or until revoked. It is prospective in its operation and is generally intended to provide security with respect to future transactions within certain limits, and contemplates a succession of liabilities, for which, as they accrue, the guarantor becomes liable. In other words, a continuing guaranty is one that covers all transactions, including those arising in the future, which are within the description or contemplation of the contract of guaranty, until the expiration or termination thereof.[24] A guaranty shall be construed as continuing when, by the terms thereof, it is evident that the object is to give a standing credit to the principal debtor to be used from time to time either indefinitely or until a certain period, especially if the right to recall the guaranty is expressly reserved. In other jurisdictions, it has been held that the use of particular words and expressions, such as payment of "any debt," "any

indebtedness," "any deficiency," or "any sum," or the guaranty of "any transaction" or money to be furnished the principal debtor "at any time" or "on such time" that the principal debtor may require, has been construed to indicate a continuing guaranty.[25]

In the instant case, the language of the real estate mortgage unambiguously reveals that the security provided in the real estate mortgage is continuing in nature. Thus, it was intended as security for the payment of the loans annotated at the back of CCT No. 2130, and as security for all amounts that respondents may owe petitioner bank. It is well settled that mortgages given to secure future advance or loans are valid and legal contracts, and that the amounts named as consideration in said contracts do not limit the amount for which the mortgage may stand as security if from the four corners of the instrument the intent to secure future and other indebtedness can be gathered.[26] A mortgage given to secure advancements is a continuing security and is not discharged by repayment of the amount named in the mortgage until the full amounts of the advancements are paid.[27] Respondents full payment of the loans annotated on the title of the property shall not effect the release of the mortgage because, by the express terms of the mortgage, it was meant to secure all future debts of the spouses and such debts had been obtained and remain unpaid. Unless full payment is made by the spouses of all the amounts that they have incurred from petitioner bank, the property is burdened by the mortgage. WHEREFORE, in view of the foregoing, the Decision dated February 28, 2006 and the Resolution dated August 9, 2006 of the Court of Appeals in CA-G.R. CV No. 80362 are hereby REVERSED and SET ASIDE. The decision of the Regional Trial Court dated December 4, 2002 is hereby REINSTATED.