Orix Metro Leasing and Finance Corporation vs. Cardline Inc.

The market value of returned leased machines does not reduce the lessee's outstanding rental obligation unless the machines are actually sold or re-leased, and the guaranty deposit is automatically forfeited as penalty upon default rather than deducted from unpaid rent; sureties who expressly waive the benefit of excussion in solidary, direct, and immediate terms may be held immediately liable.

Cardline Inc. leased four machines from Orix Metro Leasing and Finance Corporation under three similarly-worded lease agreements containing detailed default provisions governing repossession, sale or re-leasing of the machines, and treatment of the guaranty deposit. Cardline's principal stockholders and officers—Mary C. Calubad, Sony N. Calubad, and Ng Beng Sheng—signed continuing suretyship agreements in their personal capacities to guarantee Cardline's obligations under each lease agreement.

Cardline Inc. leased four machines from Orix Metro Leasing and Finance Corporation, as evidenced by three similarly-worded lease agreements. Cardline's principal stockholders and officers—Mary C. Calubad, Sony N. Calubad, and Ng Beng Sheng—signed continuing suretyship agreements in their personal capacities to guarantee Cardline's obligations under each lease agreement.

Cardline defaulted in paying rent, with unpaid obligations amounting to P9,369,657.00 as of July 12, 2007. Orix formally demanded payment from Cardline, but the latter refused to pay.

Orix filed a complaint for replevin, sum of money, and damages with an application for a writ of seizure against Cardline and the individual respondents before the RTC, docketed as Civil Case No. 07-855. The RTC issued a writ of seizure allowing Orix to recover the machines from Cardline. Thereafter, the RTC declared the respondents in default for failing to file an answer and allowed Orix to present evidence ex parte. The respondents filed a motion to set aside the order of default, but the RTC denied the motion.

On May 6, 2008, the RTC rendered judgment in Orix's favor, ordering the respondents to pay the sum of P9,369,657.00 or whatever balance of the outstanding obligation remained after the recovery or sale of the machines, with interest and penalty charges from July 12, 2007 until fully paid; 30% of the total amount due as attorney's fees; 25% as liquidated damages; and expenses incurred in securing the leased properties through manual delivery. The respondents appealed, arguing that the RTC erred in declaring them in default, but the CA and subsequently the Supreme Court denied the appeal. The denial in G.R. No. 189877 became final and executory.

Ng Beng Sheng separately filed a petition for annulment of judgment, arguing that the RTC had no jurisdiction over his person because the summons was not properly served. The CA denied the petition on the grounds of forum shopping and res judicata, explaining that the jurisdictional issue had already been addressed by the RTC in the order denying the motion to set aside the order of default, and by the CA and the Supreme Court on appeal.

In the main case, Orix filed a motion for the issuance of a writ of execution, which the RTC granted in its December 1, 2010 order. The RTC clerk of court issued a writ of execution commanding the sheriff to enforce the May 6, 2008 judgment. The respondents filed a motion for a status quo ante order, but the RTC denied the motion. The respondents then filed a petition for prohibition under Rule 65 before the CA, assailing the issuance of the December 1, 2010 order and arguing that their rental obligations were offset by the market value of the returned machines—valued at P14,481,500.00—and by the guaranty deposit amounting to P1,635,638.89. The CA granted the petition, ruling that Cardline's debt had been fully satisfied and annulling the RTC's order of execution.

• No Offset from Market Value: Orix argued that the market value of the returned machines and the guaranty deposit do not offset the outstanding obligations, as the lease agreements' provisions on sale or re-leasing were never triggered and the guaranty deposit was intended for automatic forfeiture as penalty.
• Solidary Liability: Orix argued that the individual respondents are solidarily liable to Orix and are not entitled to the benefit of excussion, having bound themselves jointly and severally and expressly waived excussion in the suretyship agreements.
• Forum Shopping: Orix argued that the respondents and their counsel engaged in willful and deliberate forum shopping by instituting several actions essentially seeking to nullify the RTC's decision.

• Interpretation of Judgment: Respondents argued that the RTC's judgment should be interpreted to mean that if Orix recovers the properties, their market values should be deducted from the respondents' outstanding obligations.
• Guarantors, Not Sureties: Respondents argued that the individual respondents merely acted as guarantors, not as sureties.
• No Forum Shopping: Respondents argued that they committed no forum shopping because no cases were pending before the courts when they filed the petition for prohibition.

• Propriety of CA's Decision: Whether the CA correctly prohibited the RTC from enforcing the writ of execution.
• Benefit of Excussion: Whether the individual respondents can invoke the benefit of excussion.
• Forum Shopping: Whether the respondents committed forum shopping.

• Propriety of CA's Decision: No. The CA erroneously interpreted the RTC's judgment by relying on inapplicable lease provisions; the machines' market values do not reduce the outstanding obligation absent a sale or re-leasing, and the guaranty deposit is automatically forfeited as penalty, not deducted from unpaid rent.
• Benefit of Excussion: No. The individual respondents bound themselves solidarily with Cardline and expressly waived the benefit of excussion in the suretyship agreements, making their liability direct and immediate.
• Forum Shopping: No. The petition for prohibition involved a different cause of action from the prior petition for review on certiorari, as it respected the finality of the judgment but sought to interpret the dispositive portion to render execution unnecessary.

• Propriety of CA's Decision: The CA relied on Sections 19.2(d) and 19.3 of the lease agreements, which govern the re-leasing or sale of repossessed property. However, Orix neither re-leased nor sold the machines, rendering these provisions inapplicable. Even if they applied, Section 19.3 provides that the net "proceeds" from sale—not market values—shall be applied to unpaid rent. The CA's interpretation would produce the absurd result of Cardline paying its liabilities using Orix's own properties. On the guaranty deposit, Sections 6.1 and 19.2(b) show that the deposit was intended to be automatically forfeited as penalty upon default, with Orix retaining the right to recover unpaid rent. Orix did not exercise its option to apply the deposit as liquidated damages. Thus, Cardline's actual damages remain at P9,369,657.00, and the CA erred in preventing execution. Additionally, the respondents failed to file a motion to stay or quash the writ of execution before the RTC before resorting to the special civil action, meaning the petition for prohibition lacked the requirement that no other plain, speedy, and adequate remedy was available.
• Benefit of Excussion: Section 31.1 of the lease agreements states that persons who sign separate instruments to secure Cardline's obligations shall be jointly and severally liable with Cardline. Even assuming the individual respondents signed as guarantors, the surety agreements provide that their liability is "solidary, direct, and immediate" and that they "individually and collectively waive(s) in advance the benefit of excussion" under Articles 2058 and 2065 of the Civil Code. This waiver is effective under Article 2059(1). The issue had already been raised before the CA in G.R. No. 189877, where it was ruled that the issue cannot be raised for the first time on appeal.
• Forum Shopping: The elements of forum shopping are: (i) identity of parties or interests; (ii) identity of rights asserted and relief prayed for, founded on the same facts; (iii) any judgment rendered would amount to res judicata in the other action. These elements are absent here. The petition for review on certiorari sought to review the merits of the RTC's judgment, while the petition for prohibition respected the finality of the judgment but interpreted the dispositive portion in a way that would render execution unnecessary. These involve different causes of action. Moreover, Section 1(f), Rule 41 of the Rules of Court expressly allows an aggrieved party to file the appropriate civil action under Rule 65 to challenge an order of execution. While Ng Beng Sheng's prior petition for annulment of judgment was correctly dismissed for forum shopping, the petition for prohibition involves a different cause of action and thus does not constitute forum shopping.

• Finality of Judgment and Execution — Once a judgment becomes final and executory, all that remains is execution; parties are generally not allowed to object to execution. An exception exists when the terms of the judgment are unclear, allowing a party to seek stay of execution or quashal of the writ. An order of execution is not appealable, but an aggrieved party may challenge it via an appropriate special civil action under Rule 65.
• Forum Shopping — Forum shopping exists when a party initiates two or more actions, other than appeal or certiorari, grounded on the same cause to obtain a more favorable decision. The elements are: (i) identity of parties, or at least such parties representing the same interest; (ii) identity of rights asserted and relief prayed for, the latter founded on the same facts; (iii) any judgment rendered in one action will amount to res judicata in the other action. The absence of any element defeats a forum shopping charge.
• Solidary Liability and Waiver of Excussion — When a party undertakes to be "jointly and severally" liable, the obligation is solidary. Even a guarantor can be held immediately liable without the benefit of excussion if the guarantor agreed that liability is direct and immediate, effectively waiving the benefit pursuant to Article 2059(1) of the Civil Code. An express waiver of excussion under Articles 2058 and 2065 in the suretyship agreement is binding.

• "the return or recovery of the machines does not reduce Cardline's outstanding obligation unless the returned machines are sold. No sale transpired pursuant to the lease agreements. Moreover, the guaranty deposit was not meant to reduce Cardline's unpaid obligation." — This passage states the ratio decidendi on the first issue, defining the controlling interpretation of the lease agreements' default provisions and the treatment of the guaranty deposit.

• "The petition for review on certiorari was filed to review the merits of the RTC's judgment. On the other hand, the petition for prohibition respects the finality of the RTC's judgment on the merits but interprets the dispositive portion in a way that would render the execution unnecessary." — This passage articulates the distinction in causes of action that defeats the forum shopping charge, a formulation frequently relevant in execution-stage Rule 65 challenges.

• "The Court cannot affirm this unreasonable and inequitable interpretation." — This sentence rejects the CA's offset ruling, underscoring the principle that contractual interpretation must not yield absurd or inequitable results, such as a lessee satisfying its debt using the lessor's own property.

• International Finance Corporation vs. Imperial Textile Mills, Inc., G.R. No. 160324, November 15, 2005 — Followed for the proposition that a stipulation of "jointly and severally" liability creates a solidary obligation.
• Tupaz vs. Court of Appeals, G.R. No. 145578, November 18, 2005 — Followed for the rule that a guarantor may be held immediately liable without the benefit of excussion if the guarantor agreed to direct and immediate liability.
• Reyes vs. Alsons, G.R. No. 153936, March 2, 2007 — Followed for the principle that a jurisdictional issue already resolved with finality in prior proceedings bars re-litigation via annulment of judgment, constituting res judicata and forum shopping.

• Section 19.2(d) and Section 19.3, Lease Agreements — These provisions govern the re-leasing or sale of repossessed machines and the application of proceeds. The Court held them inapplicable because Orix neither re-leased nor sold the machines, and because they refer to "proceeds" from sale, not market values.
• Sections 6.1 and 19.2(b), Lease Agreements — These provisions govern the guaranty deposit. The Court held that the deposit was intended for automatic forfeiture as penalty upon default, not for deduction from unpaid rent, though Orix retained the option to apply it as liquidated damages.
• Section 31.1, Lease Agreements — Provides that persons signing separate instruments to secure the lessee's obligations shall be jointly and severally liable with the principal lessee, establishing solidary liability of the individual respondents.
• Articles 2058, 2059(1), and 2065, Civil Code — Article 2059(1) recognizes the waiver of the benefit of excussion; Articles 2058 and 2065 were expressly waived by the individual respondents in the suretyship agreements.
• Section 1(f), Rule 41, Rules of Court — Provides that an order of execution is not appealable but may be challenged via an appropriate civil action under Rule 65.
• Section 2, Rule 65, Rules of Court — Defines the availability of prohibition against a tribunal acting without or in excess of jurisdiction when no other plain, speedy, and adequate remedy exists.
• Section 5, Rule 7, Rules of Court — Prohibits forum shopping; applied to determine whether the respondents' multiple filings constituted forum shopping.

Carpio (Chairperson), Brion, Del Castillo, Mendoza, and Leonen, JJ., concur.