Escaño vs. Ortigas

An obligation involving two or more debtors is presumed to be joint rather than solidary absent express stipulation, and the mere designation of co-obligors as "sureties" does not convert a joint obligation into a solidary one absent evidence of a principal debtor-surety relationship among the co-obligors giving rise to a right of full reimbursement.

Falcon Minerals, Inc. obtained a loan from PDCP, secured by an Assumption of Solidary Liability from respondent Ortigas and others, and separate guaranties from petitioners Escaño and Silos. When Ortigas and his group sold their Falcon shares to Escaño, Silos, and Matti, part of the consideration was an Undertaking wherein Escaño, Silos, and Matti, identified as "Sureties," agreed to assume the liabilities of Ortigas and his group ("Obligor") to PDCP, including reimbursing them for any amounts paid to the bank.

• The PDCP Loan and Guaranties: On 28 April 1980, PDCP lent US$320,000 to Falcon. Ortigas and the Scholeys executed an Assumption of Solidary Liability for the loan. Separately, Escaño and Silos executed individual guaranties for the same loan.
• The 1982 Undertaking: Two years later, Ortigas and his group assigned their Falcon shares to Escaño, Silos, and Matti. To relieve the sellers from their PDCP liabilities, an Undertaking was executed on 11 June 1982. Escaño, Silos, and Matti were identified as "SURETIES" and Ortigas's group as "OBLIGORS." The "Sureties" agreed to assume the Obligors' guarantees, defend them if sued by PDCP, and reimburse them for any amounts paid to PDCP within seven days.
• Default and Compromise Agreements: Falcon defaulted, leaving a deficiency of ₱5,031,004.07. PDCP sued Falcon and the guarantors. Escaño settled with PDCP for ₱1,000,000. Ortigas settled for ₱1,300,000 without admitting liability. Silos settled for ₱500,000.
• Claim for Reimbursement: After settling, Ortigas sought reimbursement from Escaño, Silos, and Matti under the 1982 Undertaking.

• No Liability under the Undertaking: Petitioners argued that Ortigas was not "made to pay" PDCP but voluntarily settled, and that Ortigas settled without their knowledge or consent in violation of the Undertaking's notice requirement. Petitioners also claimed Ortigas was estopped from seeking reimbursement because he had initially denied liability to PDCP.
• Joint, Not Solidary Liability: Petitioners maintained that their obligation was merely joint, not solidary, citing Article 1207 of the Civil Code, as the Undertaking lacked an express stipulation of solidarity.
• No Attorney's Fees and Incorrect Interest: Petitioners asserted that attorney's fees were unwarranted absent stipulation or legal basis, and that the proper interest rate was 6%, not 12%, or that no interest was due at all.

• Liability under the Undertaking: Respondent countered that the phrase "for any reason made to pay" includes voluntary settlements, and the Undertaking expressly allowed the Obligors to negotiate directly with PDCP. The notice requirement applied only to initial demands, not post-litigation settlements.
• Solidary Liability: Respondent argued that the Undertaking was a surety agreement, and the repeated use of the term "SURETIES" established a solidary obligation under Article 2047 of the Civil Code. The nature of the obligation also required solidarity to fully release the Obligors.
• Attorney's Fees and Interest: Respondent contended that attorney's fees were justified under Article 2208(2) because petitioners' omission compelled him to litigate, and that a 12% interest rate applied to the sum of money owed.

• Liability under Undertaking: Whether petitioners are liable to reimburse respondent under the 1982 Undertaking despite respondent's voluntary settlement with PDCP.
• Nature of Liability: Whether the obligation of petitioners under the Undertaking is solidary or merely joint.
• Attorney's Fees: Whether petitioners are liable for attorney's fees.
• Interest: Whether petitioners are liable for interest, and the correct rate and accrual date thereof.

• Liability under Undertaking: Petitioners are liable to reimburse respondent. The phrase "for any reason made to pay" encompasses voluntary settlements, as the phrase was intended to be unlimited and unqualified. The notice requirement under paragraph 3(a) applies to initial demands from PDCP, not to settlements made after being impleaded in a suit. The Undertaking expressly allowed respondent to negotiate with PDCP. Estoppel does not apply because the compromise agreement expressly stated the payment was without admission of liability.
• Nature of Liability: The obligation is merely joint, not solidary. Under Article 1207, jointness is presumed absent express stipulation or a requirement by law or the nature of the obligation. The designation of petitioners as "SURETIES" does not establish solidarity among co-obligors. A suretyship under Article 2047 requires a principal debtor-surety relationship, which was absent among the co-obligors in the Undertaking. Unlike a solidary co-debtor who can only claim proportional shares from co-debtors under Article 1217, a surety is entitled to full reimbursement from the principal debtor under Articles 2066 and 2067. Imposing solidarity would erroneously create rights of full reimbursement among the co-obligors, an intention not reflected in the Undertaking.
• Attorney's Fees: The award of attorney's fees was proper. Petitioners' failure to comply with the Undertaking compelled respondent to litigate with PDCP and incur expenses to protect his interest, falling under Article 2208(2) of the Civil Code.
• Interest: A 12% per annum interest rate applies pursuant to Eastern Shipping Lines, as the obligation consists of the payment of a sum of money. However, the interest must be computed from the date of judicial demand, which was 14 March 1994 when respondent filed his third-party complaint, not from 28 February 1994 as held by the RTC.

• Presumption of Jointness — When there is a concurrence of two or more debtors in one obligation, the obligation is presumed to be joint, not solidary, unless expressly stated or required by the nature of the obligation or law. The burden to prove solidarity lies with the party alleging it.
• Nature of Suretyship vs. Solidary Co-Debtor — A suretyship under Article 2047 binds the surety solidarily with the principal debtor, but a surety is not equivalent to a solidary co-debtor. A solidary co-debtor who pays can only claim proportional shares from co-debtors (Art. 1217), whereas a surety who pays is entitled to full reimbursement and subrogation against the principal debtor (Arts. 2066, 2067). Therefore, labeling co-obligors as "sureties" does not automatically impose solidarity among them absent a principal-surety relationship within their group.
• Interpretation of Contracts — The various stipulations of a contract shall be interpreted together, attributing to doubtful ones the sense resulting from all taken jointly. If a stipulation admits of several meanings, it shall be understood as bearing the import most adequate to render it effectual.

• "In case of concurrence of two or more creditors or of two or more debtors in one and the same obligation, and in the absence of express and indubitable terms characterizing the obligation as solidary, the presumption is that the obligation is only joint."
• "A guarantor who binds himself in solidum with the principal debtor under the provisions of the second paragraph does not become a solidary co-debtor to all intents and purposes. There is a difference between a solidary co-debtor and a fiador in solidum (surety). The latter... retains all the other rights, actions and benefits which pertain to him by reason of the fiansa; while a solidary co-debtor has no other rights than those bestowed upon him in Section 4, Chapter 3, Title I, Book IV of the Civil Code."

• Eastern Shipping Lines, Inc. v. Court of Appeals, G.R. No. 97412, 12 July 1994, 234 SCRA 78 — Followed. Established the rules for computing legal interest, specifically applying the 12% per annum rate for obligations consisting of the payment of a sum of money from the time of default.
• Palmares v. Court of Appeals, 351 Phil. 664 (1998) — Cited. Discussed the nature of a surety's liability, noting that a surety may be sued immediately without prior proceedings against the principal.

• Article 1207, Civil Code — Presumption of joint liability in concurrence of multiple debtors, unless solidarity is expressly stated or required by law or nature.
• Article 1210, Civil Code — Indivisibility of an obligation does not necessarily give rise to solidarity.
• Article 1217, Civil Code — Governs reimbursement among solidary debtors, limiting recovery to the proportional share of each co-debtor.
• Article 2047, Civil Code — Defines suretyship as binding oneself solidarily with the principal debtor, subject to the provisions on solidary obligations.
• Articles 2066 and 2067, Civil Code — Grant the guarantor/surety the right to full indemnification and subrogation against the principal debtor.
• Article 2208(2), Civil Code — Allows recovery of attorney's fees when the defendant's act or omission compels the plaintiff to litigate with third persons or incur expenses to protect his interest.
• Articles 1373 and 1374, Civil Code — Govern the interpretation of contracts, requiring stipulations to be interpreted together and doubtful ones given the meaning that renders them effectual.

Leonardo A. Quisumbing (On Official Leave), Antonio T. Carpio, Conchita Carpio Morales, Presbitero J. Velasco, Jr.