G.R. No.

124049 June 30, 1999

RODOLFO P. VELASQUEZ, petitioner,
vs.
COURT OF APPEALS, and PHILIPPINE COMMERCIAL INTERNATIONAL BANK,
INC., respondent.

Facts:

Sometime in December 1994 the Pick-up Fresh Farms, Inc. (PUFFI), of which petitioner
Velasquez was an officer and stockholder, filed an application for a loan of P7,500,000.00 with
PCIB under the government's Guarantee Fund for Small Medium Enterprises (GFSME). 2 On 16
April 1985 the parties executed the corresponding loan agreement. As security for the loan,
promissory notes numbered TL 121231 and TL 121258 for the amounts of P4,000,000.00 and
P3,500,000.00, respectively, were signed by Inigo A. Nebrida and Mariano Canilao, Jr. as
officers of and for both PUFFI and Aircon Refrigeration Industries, Inc. (ARII). 3 A chattel
mortgage was also executed by ARII over its equipment and machineries in favor of PCIB.
Petitioner along with Nebrida and Canilao, Jr. also executed deeds of suretyship in favor of
PCIB. Separate deeds of suretyship were further executed by Cesar R. Dean and Artemio L.
Raymundo.4

When PUFFI defaulted in the payment of its obligations PCIB foreclosed the chattel mortgage.
The proceeds of the sale amounted to P678,000.00. 5 Thus, PCIB filed an action to recover the
remaining balance of the entire obligation including interests, penalties and other charges.
Exemplary damages and attorney's fees of 25% of the total amount due were also sought. On 9
October 1989 a writ of preliminary attachment was granted by the trial court. 6

Petitioner and Canilao filed their joint answer with counterclaim denying personal liability and
interposing the defense of novation. At the pre-trial on 11 April 1989 petitioner and counsel
failed to appear despite due notice. On 11 April 1989, upon motion of PCIB, petitioner was
declared as in default and the trial court granted the motion for summary judgment as against
Canilao. 7 Both PCIB and Canilao submitted their respective position papers. Petitioner, who was
still in default as he did not move to lift the order of default, adopted Canilao's position paper
through an ex parte manifestation. 8 On 8 November 1989 an ex parte hearing was conducted as
against petitioner. 9

On 20 June 1990 the trial court rendered a summary judgment in favor of PCIB holding
petitioner and Canilao solidarily liable to pay P7,227,624.48 plus annual interest of 17%, and
P700,000.00 as attorney's fees and the costs of suit. The case was dismissed without prejudice
with regard to the other defendants as they were not properly served with summons. 10

On 31 July 1990 petitioner filed a motion for reconsideration praying that the order of default be
lifted and that the summary judgment be set aside. 11 On 13 September 1991 the trial court
denied the motion for lack of merit. 12 On appeal, the Court of Appeals on 28 September 1995
affirmed in toto the RTC judgment. 13 Petitioner's motion for reconsideration was thereafter
denied. Hence this petition which maintains that the appellate court committed reversible error in
sustaining or affirming the summary judgment despite the existence of genuine triable issues of
facts and in refusing to set aside the default order against petitioner.

We are not persuaded. Petitioner, in raising the first error, invokes our ruling in Viajar v.
Estenzo 14 that a party who moves for a summary proceeding has the burden of demonstrating
clearly the absence of any genuine issue of fact, or that the issue posed in the complaint is so
patently unsubstantial as not to constitute a genuine issue for trial, and any doubt as to the
existence of such an issue is resolved against the movant.

While this rule is true in the summary proceedings under Rule 34 of the Revised Rules of Court,
it does not apply to summary proceedings under Rule 35. A different rationale operates in the
latter for it arises out of facts already established or admitted during the pre-trial held
beforehand, unlike in the former where the judge merely relies on the merits of the movant's
allegations. 15 Rule 34 pertains to a judgment on the pleadings while Rule 35 relates to a
summary judgment which was the holding in this case.

Petitioner further insists that there are triable issues of fact raised in his answer, namely: (a) the
denial of personal liability on his part in the deed of suretyship since he signed thereon as an
officer of ARII; (b) PCIB's acceptance of royalties coming from the Franchise Agreement
between PUFFI and Arturo Rosales who novated the loan agreement between PUFFI and PCIB;
and, (c) the propriety of payment of the entire debt. According to petitioner, the fact that the
addresses stated under the names of petitioner and fellow surety signors were those of ARII
implies that they signed as officers of the corporation, otherwise, their personal addresses would
have been used. Petitioner further avers that any ambiguity in the contract should be decided
against PCIB under the contract of adhesion doctrine.

A mere perusals of the deed of suretyship readily shows petitioner's personal liability under the
loan contract, hence, proper for summary judgment. Moreover, the more appropriate doctrine in
this case is that of the "complementary contracts construed together" doctrine which we
enunciated in National Power Corporation v. CA  16 —

The surety bond must be read in its entirety and together with the contract
between the NPC and the contractors. The provisions must be construed together
to arrive at their true meaning. Certain stipulations cannot be segregated and then
made to control.

That the "complementary contracts construed together" doctrine applies in this case finds support
in the principle that the surety contract is merely an accessory contract and must be interpreted
with its principal contract, which in this case was the loan agreement. This doctrine closely
adheres to the spirit of Art. 1374 of the Civil Code which states that —

Art. 1374. The various stipulations of a contract shall be interpreted together,

attributing to the doubtful ones that sense which may result from all of them taken
jointly.
Applying the "complementary contracts construed together" doctrine leaves no doubt that it was
the intention of the parties that petitioner would be personally liable in the deed of suretyship
because the loan agreement, among others, provided 17 —

Art. 3. LOAN SECURITY. — . . . . 3.4 Suretyship. — To further secure the

obligations of the BORROWER to the LENDER, Messrs. Nebrida, Raymundo,
Canilao, Dean and Velasquez and Aircon and Refrigeration Ind. Inc. shall each
execute a suretyship agreement in favor of the LENDER in form and substance
acceptable to the LENDER.

It would have been a different matter had petitioner properly contested the deed of suretyship
under Sec. 8, Rule 8, of the Rules of Court. But he did not. The omission, as properly noted by
the trial court, was fatal for it resulted in petitioner's admission of the due execution and
genuineness of the contract. The admission effectively eliminated any defense relating to the
authenticity and due execution of the document, e.g., that the document was spurious,
counterfeit, or of different import on its face as the one executed by the parties; or that the
signatures appearing thereon were forgeries; or that the signatures were unauthorized. 18

Petitioner also claims that PCIB's acceptance of royalty fees which were the fruits of the
Franchising Agreement between PUFFI and Arturo Rosales 19 constituted a novation of the loan
agreement and deeds of suretyship, therefore, a genuine issue of fact.

This contention is untenable. Extinctive novation has these requisites: (a) the existence of a
previous valid obligation; (b) the agreement of all the parties to the new contract; (c) the
extinguishment of the old obligation or contract; and, (d) the validity of the new one. Thus,
novation is effected only when a new contract has extinguished an earlier contract between the
same parties.20 Necessarily, there is no novation when the new contract is not between the same
parties as in the old contract.

The franchise agreement was only between PUFFI and Rosales. PCIB was never mentioned
therein; neither was there any reference to the subject loan agreement. What PCIB simply did
was to accept royalty payments out of the franchise — an act which was already beyond the
scope of the franchise agreement but which was not in conflict with the payment arrangement in
the loan agreement. Our ruling in the Magdalena Estates Inc. v. Rodriguez is instructive, to
wit 21 —

An obligation to pay a sum of money is not novated, in a new instrument wherein

the old is ratified, by changing only the terms of payment and adding other
obligations not incompatible with the old one, or wherein the old contract is
merely supplemented by the new one. The mere fact that the creditor receives a
guaranty or accepts payments from a third person who has agreed to assume the
obligation, when there is no agreement that the first debtor shall be released from
responsibility, does not constitute a novation, and the creditor can still enforce the
obligation against the original debtor.
As regards the defense of overpayment, since it is being raised for the first time we need not
discuss it for it is deemed waived pursuant to Sec. 2, Rule 9, of the Rules of Court.

At this point, it must be stressed that insofar as petitioner is concerned, the RTC decision was not
a summary judgment but a judgment default as hearing was held ex parte against him. Even so,
the RTC decision is still without grave abuse of discretion. Thus, the CA could not be in error in
upholding it despite claims by petitioner that the default order should have been set aside
because he could not be bound by the negligence of his counsel.

Petitioner attempts to avoid any personal blame by claiming that a special power of attorney in
favor of his lawyer was drawn up because he could not attend the pre-trial due to previous
commitments abroad. The lawyer, however, failed to attend thereby prejudicing his interest.
However, the findings of the Court of Appeals, as fully substantiated by the records, showed that
the lawyer was not the only one negligent, thus 22 —

Velasquez appears to have appointed his counsel, Atty. Rodolfo Vega, as his
attorney-in-fact to represent him at the pre-trial but the said lawyer failed to
appear, hence Velasquez was declared as in default. The records show that the
Order of April 11, 1984 declaring him as in default was sent to his counsel and
was received by the latter as early as May 10, 1989. No steps were taken to have
the said Order lifted or reconsidered. This is binding on Velasquez who is himself
guilty of negligence when, after executing the special power of attorney in favor
of his lawyer, he left for abroad and apparently paid no further attention to his
case until he received the decision. There is therefore no fraud, accident, mistake
or excusable negligence which will warrant a lifting of the Order of Default.

As a general rule, a client is bound by the mistakes of his counsel; 23 more so by the result of his
own negligence.

WHEREFORE, the petition is DENIED. The Decision of 28 September 1995 of the Court of
Appeals affirming the 20 June 1990 judgment of the RTC- Br. 61, Makati City, ordering
petitioner Rodolfo P. Velasquez and Mariano N. Canilao, Jr. to solidarily pay respondent
Philippine Commercial and Industrial Bank (PCIB) the amount of P7,227,624.48 with annual
interest of 17% and attorney's fees of P700,000.00 plus cost of suits as well as its Resolution of
19 February 1995 denying reconsideration, is AFFIRMED.1âwphi1.nêt

SO ORDERED.