Spouses Evangelista vs. Mercator Finance Corp.

Summary judgment is proper where the non-moving party fails to raise a genuine issue of material fact, and a person who signs a promissory note as a co-maker and executes a continuing suretyship agreement is solidarily liable with the principal debtor, the consideration supporting the surety obligation need not pass directly to the surety.

Petitioners Spouses Eduardo B. Evangelista and Epifania C. Evangelista were the registered owners of five parcels of land covered by Transfer Certificates of Title Nos. T-193458, T-192133, T-193136, T-193137 and T-193138. They dealt with Mercator Finance Corporation in connection with credit accommodations extended to Embassy Farms, Inc., a corporation of which they were officers. The dispute concerns the legal character of the security they constituted over their own properties for the corporate obligation and the effect of their subsequent inaction on the titles that had passed to Mercator and thereafter to Salazar and Lamecs.

Petitioners Spouses Eduardo B. Evangelista and Epifania C. Evangelista were the registered owners of five parcels of land covered by Transfer Certificates of Title Nos. T-193458, T-192133, T-193136, T-193137 and T-193138. On February 16, 1982, they executed a Real Estate Mortgage over these parcels in favor of Mercator Finance Corporation. The mortgage recited that it was executed "for and in consideration of certain loans, and/or other forms of credit accommodations obtained from the Mortgagee (defendant Mercator Finance Corporation) amounting to EIGHT HUNDRED FORTY-FOUR THOUSAND SIX HUNDRED TWENTY-FIVE 78/100 (P844,625.78) PESOS, Philippine Currency."

On the same date, petitioners signed a Continuing Suretyship Agreement in favor of Mercator, under which they jointly and severally guaranteed the full, faithful and prompt payment of any and all indebtedness of Embassy Farms, Inc. to Mercator, the obligations being "joint and several and independent of the obligations of the Principal." They likewise signed a promissory note for P844,625.78, payable in six monthly installments from September 16, 1982 to February 16, 1983, as co-makers with Embassy Farms, Inc., with the signatures of Eduardo B. Evangelista and Epifania C. Evangelista appearing on the note and another signature of Eduardo B. Evangelista below the words Embassy Farms, Inc. Subsequent promissory notes restructuring the loan were also executed by petitioners and Embassy Farms.

Because the obligation was not paid, Mercator conducted extra-judicial foreclosure proceedings over the mortgaged parcels. The certificate of sale was issued on January 12, 1987, and certificates of title in the name of Mercator were issued on September 27, 1988. Mercator thereafter sold the properties to respondent Lydia P. Salazar, who in turn transferred them to respondent Lamecs Realty and Development Corporation.

On August 12, 1997 — nearly ten years after the foreclosure sale — petitioners filed a complaint for annulment of titles against Mercator, Salazar, Lamecs, and the Register of Deeds of Bulacan. According to petitioners, they executed the Real Estate Mortgage only as officers of Embassy Farms and did not personally receive any proceeds of the loan, which went entirely to the corporation; the mortgage was therefore without consideration as to them and void, as were the foreclosure, the sale to Mercator, and the subsequent transfers to Salazar and Lamecs. Mercator countered that petitioners signed the promissory note as co-makers, executed a continuing suretyship agreement, and signed the restructuring notes, making them jointly and severally liable with Embassy Farms. Salazar and Lamecs asserted that they were innocent purchasers for value and in good faith relying on the validity of Mercator's title, and that petitioners' long silence and inaction estopped them and rendered them guilty of laches.

The trial court granted Mercator's motion for summary judgment, finding that the promissory notes showed the signatories' liability to be solidary in view of the phrase "jointly and severally," and that petitioners, by affixing their signatures in a dual capacity, had bound themselves as solidary debtors with Embassy Farms, rendering untenable the claim that the principal loan was void for lack of consideration. The Court of Appeals affirmed, finding petitioners' insistence that the loans were not personally theirs to be self-serving and misplaced, and observing that the signatures on the promissory notes manifested their personal liability on the very face of the documents.

• Lack of Consideration: Petitioners argued that they executed the Real Estate Mortgage only as officers of Embassy Farms and did not personally obtain any loan or credit accommodation, as all the proceeds went to the corporation; the mortgage was therefore without consideration as to them and void.
• Void Foreclosure and Sales: Petitioners maintained that because the mortgage was void for want of a principal obligation, the foreclosure proceedings, the sale to Mercator as the highest bidder in the public auction, the issuance of transfer certificates of title to it, and the subsequent sales to Salazar and Lamecs were likewise void.
• Genuine Issues of Material Fact: Petitioners contended that their personal liability to Mercator was at issue and required a full-blown trial, so the grant of summary judgment was improper.
• Ambiguity in the Promissory Note: Petitioners alleged an ambiguity in the wording of the promissory note and claimed that, since Mercator provided the form, the ambiguity should be resolved against it.
• True Intent of the Parties: Petitioners insisted that the promissory note did not convey their true intent in executing the document.

• Solidary Liability: Mercator contended that petitioners signed the promissory note as co-makers, executed a Continuing Suretyship Agreement to guarantee the indebtedness of Embassy Farms, and signed the succeeding promissory notes restructuring the loan, making them jointly and severally liable with Embassy Farms; their failure to pay justified the foreclosure and the subsequent sale of the mortgaged properties.
• Innocent Purchasers for Value and Laches: Salazar and Lamecs asserted that they were innocent purchasers for value and in good faith relying on the validity of Mercator's title, and that petitioners' silence and inaction for almost ten years from the foreclosure and subsequent sales estopped them and rendered them guilty of laches.

• Summary Judgment: Whether the trial court erred in granting summary judgment despite the alleged existence of genuine issues of material fact.
• Validity of the Real Estate Mortgage: Whether the Real Estate Mortgage executed by petitioners in favor of Mercator was null and void.
• Validity of the Foreclosure: Whether the extra-judicial foreclosure proceedings undertaken on the subject parcels of land to satisfy the indebtedness of Embassy Farms, Inc. were null and void.
• Validity of the Subsequent Sales: Whether the sale made by Mercator in favor of Lydia Salazar and that executed by Salazar in favor of Lamecs Realty and Development Corporation were null and void.
• Damages: Whether the parties are entitled to damages.

• Summary Judgment: No. Summary judgment was proper because petitioners raised no genuine issue of material fact; the promissory note and the continuing suretyship agreement established their solidary liability as a matter of law.
• Validity of the Real Estate Mortgage: Valid. Petitioners were solidary obligors with Embassy Farms, and the mortgage rested on a valid principal obligation supported by consideration.
• Validity of the Foreclosure: Valid. The foreclosure and sale proceeded from a valid mortgage and the petitioners' default.
• Validity of the Subsequent Sales: Valid. Petitioners' personal liability having been established, the transfers to Salazar and Lamecs stand.
• Damages: No award was made to petitioners, the complaint having been properly dismissed.

• Summary Judgment: Summary judgment is a procedural technique aimed at weeding out sham claims or defenses at an early stage of the litigation. The crucial question is whether the issues raised in the pleadings are genuine or fictitious, as shown by affidavits, depositions, or admissions accompanying the motion. A genuine issue is an issue of fact that calls for the presentation of evidence, as distinguished from an issue that is fictitious or contrived so as not to constitute a genuine issue for trial. To forestall summary judgment, the non-moving party must confirm the existence of genuine issues where there is a substantial, plausible, and fairly arguable defense upon which a reasonable finding of fact could return a verdict for that party. The proper inquiry is whether the affirmative defenses offered by petitioners constitute a genuine issue of fact requiring a full-blown trial. Petitioners did not deny that they obtained a loan from Mercator; they merely claimed that they got it as officers of Embassy Farms without intending to personally bind themselves or their property. A simple perusal of the promissory note and the continuing suretyship agreement showed otherwise, as these documentary evidence proved that petitioners were solidary obligors with Embassy Farms.

• Validity of the Real Estate Mortgage: The promissory note stated, "For value received, I/We jointly and severally promise to pay to the order of MERCATOR FINANCE CORPORATION," and was signed by petitioners Eduardo B. Evangelista and Epifania C. Evangelista and by Embassy Farms, Inc. with the signature of Eduardo B. Evangelista below it. The Continuing Suretyship Agreement designated petitioners as sureties who "jointly and severally unconditionally guarantees" the full, faithful and prompt payment of any and all indebtedness of Embassy Farms to Mercator, and provided that the obligations thereunder are joint and several and independent of the obligations of the principal, with a separate action permissible against the surety whether or not the principal is joined. The subsequent promissory notes restructuring the loan likewise proved that petitioners were solidarily liable with Embassy Farms. A surety is one who is solidarily liable with the principal. Petitioners cannot claim that they did not personally receive any consideration, for the consideration necessary to support a surety obligation need not pass directly to the surety; a consideration moving to the principal alone is sufficient, and a surety is bound by the same consideration that makes the contract effective between the principal parties. Having executed the suretyship agreement, there can be no dispute as to the personal liability of petitioners.

• Validity of the Foreclosure: Because the mortgage secured a valid principal obligation and petitioners were solidarily liable with Embassy Farms, their failure to pay justified the extra-judicial foreclosure and the sale of the mortgaged properties.

• Validity of the Subsequent Sales: The validity of the mortgage and the foreclosure having been sustained, the sale to Mercator as the highest bidder and the subsequent transfers to Salazar and Lamecs were not shown to be void.

• Damages: The complaint having been properly dismissed on summary judgment, no damages could be awarded to petitioners.

• Summary Judgment — A procedural technique aimed at weeding out sham claims or defenses at an early stage of the litigation. The crucial question is whether the issues raised in the pleadings are genuine or fictitious, as shown by affidavits, depositions, or admissions accompanying the motion. A genuine issue means an issue of fact which calls for the presentation of evidence, as distinguished from an issue which is fictitious or contrived so as not to constitute a genuine issue for trial. To forestall summary judgment, the non-moving party must confirm the existence of genuine issues where there is a substantial, plausible, and fairly arguable defense, i.e., issues of fact calling for the presentation of evidence upon which a reasonable finding of fact could return a verdict for the non-moving party. The Court applied the doctrine by examining the affirmative defenses offered by petitioners and concluding that they raised no genuine issue requiring a full-blown trial.

• Solidary Liability of a Surety — A surety is one who is solidarily liable with the principal. Where a person signs a promissory note as a co-maker and executes a continuing suretyship agreement guaranteeing the indebtedness of the principal, that person is solidarily bound with the principal debtor. The Court applied this doctrine to hold that petitioners, having signed the promissory note and the continuing suretyship agreement, were solidary obligors with Embassy Farms.

• Consideration in a Surety Obligation — The consideration necessary to support a surety obligation need not pass directly to the surety; a consideration moving to the principal alone is sufficient. A surety is bound by the same consideration that makes the contract effective between the principal parties thereto. The Court applied this rule to reject petitioners' claim that the mortgage and their undertaking were without consideration as to them because the loan proceeds went entirely to Embassy Farms.

• Construction of Ambiguous Instruments under the Negotiable Instruments Law — Where the language of an instrument is ambiguous or there are omissions therein, Section 17 of the Negotiable Instruments Law supplies rules of construction, including that where an instrument containing the word "I promise to pay" is signed by two or more persons, they are deemed to be jointly and severally liable thereon. The Court found no ambiguity in the promissory note but applied the provision in the alternative to confirm the solidary liability of the signatories.

• Parol Evidence Rule — When the terms of an agreement have been reduced to writing, it is considered as containing all the terms agreed upon, and there can be, between the parties and their successors in interest, no evidence of such terms other than the contents of the written agreement. The Court held that the rule barred petitioners from introducing evidence of conditions allegedly agreed upon other than those stipulated in the loan documents, since the written agreement is presumed to be the only repository and memorial of the truth.

• "Summary judgment 'is a procedural technique aimed at weeding out sham claims or defenses at an early stage of the litigation.'" — States the ratio for the Court's treatment of the procedural issue and frames the standard governing the propriety of summary judgment.

• "A genuine issue means 'an issue of fact which calls for the presentation of evidence, as distinguished from an issue which is fictitious or contrived so as not to constitute a genuine issue for trial.'" — Provides the canonical definition of a genuine issue that controls whether summary judgment may be granted.

• "Petitioners cannot claim that they did not personally receive any consideration for the contract for well-entrenched is the rule that the consideration necessary to support a surety obligation need not pass directly to the surety, a consideration moving to the principal alone being sufficient. A surety is bound by the same consideration that makes the contract effective between the principal parties thereto." — Articulates the controlling rule on consideration in suretyship that defeated petitioners' principal substantive argument.

• "A surety is one who is solidarily liable with the principal." — States the definition of a surety that anchors the Court's conclusion on petitioners' personal liability.

• Lustan vs. Court of Appeals, 266 SCRA 663 — Cited by the Court of Appeals and relied upon for the rule that third persons who are not parties to a loan may secure the latter by pledging or mortgaging their own property.
• Goldenrod, Incorporated vs. Court of Appeals, 366 SCRA 217 (2001) — Cited for the rule that a surety is one who is solidarily liable with the principal.
• Charles Lee vs. Court of Appeals, et al., G.R. Nos. 117913-14, February 1, 2002 — Cited for the rule that the consideration necessary to support a surety obligation need not pass directly to the surety, a consideration moving to the principal alone being sufficient.
• Tarnate vs. Court of Appeals, 241 SCRA 254 (1995) — Cited for the application of the parol evidence rule where parties admitted the existence of the loans and mortgage deeds and the fact of default but sought to introduce evidence of conditions allegedly agreed upon other than those stipulated in the loan documents.
• Evadel Realty and Development Corporation vs. Soriano, 357 SCRA 395 (2001) — Cited for the characterization of summary judgment as a procedural technique aimed at weeding out sham claims or defenses at an early stage of the litigation.
• Manufacturers Hanover Trust Co. and/or Chemical Bank vs. Rafael Ma. Guerrero, G.R. No. 136804, February 19, 2003 — Cited for the definition of a genuine issue as an issue of fact calling for the presentation of evidence, as distinguished from a fictitious or contrived issue.
• Spouses Guillermo Agbada Maxima Agbada vs. Inter-urban Developers, et al., G.R. No. 144029, September 19, 2002 — Cited for the inquiry into whether the affirmative defenses offered constitute a genuine issue of fact requiring a full-blown trial.
• Ong Yong, et al., vs. David S. Tiu, et al., G.R. Nos. 144476 144629, February 1, 2002 — Cited in support of Article 1370 of the Civil Code, that if the terms of a contract are clear and leave no doubt upon the intention of the contracting parties, the literal meaning of its stipulations shall control.

• Section 17, Negotiable Instruments Law — Provides the rules of construction where the language of an instrument is ambiguous or there are omissions therein. Paragraph (g) states that where an instrument containing the word "I promise to pay" is signed by two or more persons, they are deemed to be jointly and severally liable thereon. The Court invoked the provision in the alternative to confirm that the signatories of the promissory note were jointly and severally liable.
• Article 1370, Civil Code of the Philippines — Provides that if the terms of a contract are clear and leave no doubt upon the intention of the contracting parties, the literal meaning of its stipulations shall control. The Court cited it to support the rule that courts can interpret a contract only if there is doubt in its letter, and found no ambiguity in the promissory note.
• Articles 1302 and 1303, Civil Code of the Philippines — Cited by the Court of Appeals in observing that third persons interested in the fulfillment of the principal obligation, to save the subject properties from foreclosure and with a view toward being subrogated to the rights of the creditor, were free to discharge the same by payment.
• Section 9, Rule 130, Revised Rules of Court — States the parol evidence rule: when the terms of an agreement have been reduced to writing, it is considered as containing all the terms agreed upon, and there can be, between the parties and their successors in interest, no evidence of such terms other than the contents of the written agreement, subject to the exceptions enumerated therein. The Court held that the rule did not apply in favor of petitioners.

Panganiban and Sandoval-Gutierrez, JJ., concur. Corona and Carpio-Morales, JJ., were on official leave.