G.R. No. 203133 , February 18, 2015
YULIM INTERNATIONAL COMPANY LTD., JAMES YU, JONATHAN YU, and ALMERICK TIENG LIM, Petitioners, vs. INTERNATIONAL EXCHANGE BANK (now Union Bank of the Philippines), Respondent.

FACTS

On June 2, 2000, respondent International Exchange Bank (iBank) granted petitioner Yulim International Company Ltd. (Yulim), a domestic partnership, an Omnibus Loan Line for ₱5,000,000.00, evidenced by a Credit Agreement secured by a Chattel Mortgage over Yulim’s inventories. As further guarantee, petitioners James Yu, Jonathan Yu, and Almerick Tieng Lim, Yulim’s partners, executed a Continuing Surety Agreement in favor of iBank. Yulim availed of the credit facility through several promissory notes, which were later consolidated into a single promissory note (PN No. SADDK001014188) for ₱4,246,310.00, maturing on February 28, 2002. Yulim defaulted. After demand letters were sent, iBank filed a Complaint for Sum of Money with Replevin. The petitioners moved to dismiss, claiming their loan was fully paid by assigning a condominium unit to iBank. The RTC dismissed the complaint against the individual petitioners, holding only Yulim liable. Both parties appealed. The CA modified the RTC decision, holding the individual petitioners jointly and severally liable with Yulim based on the Continuing Surety Agreement and ruling that the Deed of Assignment of the condominium unit did not constitute payment but was merely an interim security. The petitioners elevated the case to the Supreme Court.

ISSUE

1. Whether the CA erred in ordering petitioners James Yu, Jonathan Yu, and Almerick Tieng Lim jointly and severally liable with Yulim for the loan.
2. Whether the CA erred in not ordering iBank to pay moral damages, exemplary damages, and attorney’s fees to the petitioners.

RULING

The Supreme Court DENIED the petition, affirming the CA’s decision.
1. The individual petitioners are jointly and severally liable with Yulim. They executed a Continuing Surety Agreement wherein they “jointly and severally” guaranteed full payment of Yulim’s obligations. Under Article 2047 of the Civil Code, this constitutes a contract of suretyship, rendering them directly and primarily responsible solidarily with the principal debtor. The RTC’s requirement that the loan proceeds must have benefited the sureties’ families (citing Articles 161 of the Civil Code and 121 of the Family Code) was erroneous, as those provisions apply only when enforcing liability against the conjugal partnership itself, not against sureties in their personal capacity.
2. The petitioners’ obligation was not extinguished by the Deed of Assignment. The petitioners failed to prove payment. The Deed of Assignment was explicitly an “interim security” for the loan, as stated in its Section 2.01, and Section 2.02 provided that it would become null and void upon the execution of a real estate mortgage. It was not a dation in payment (cession) under Article 1255 of the Civil Code, as there was no agreement that the assignment would extinguish the obligation. The bank’s letter dated May 4, 2001, did not constitute approval of the assignment as full payment. The petitioners’ claim for moral and exemplary damages and attorney’s fees failed due to the lack of merit in their petition.