G.R. No. L-33205 August 31, 1987
LIRAG TEXTILE MILLS, INC., and BASILIO L. LIRAG, petitioners, vs. SOCIAL SECURITY SYSTEM, and HON. PACIFICO DE CASTRO, respondents.

FACTS

Petitioners Lirag Textile Mills, Inc. and its President, Basilio L. Lirag, entered into a Purchase Agreement with respondent Social Security System (SSS) on September 4, 1961. Under this agreement, the SSS purchased P1,000,000 worth of preferred shares from the corporation. The agreement stipulated that the corporation would repurchase the shares in annual installments starting from the fourth year and pay cumulative 8% dividends. Basilio L. Lirag signed the contract not only as corporate president but also in his personal capacity as a surety, expressly binding himself jointly and severally liable to pay outstanding amounts immediately should the corporation default.
The corporation failed to redeem the shares as scheduled and did not pay the stipulated dividends. Despite demands, petitioners did not comply, attributing the default to financial reverses such as smuggling, labor strikes, and a fire. The SSS filed a collection suit. The parties submitted a stipulation of facts, and the trial court ruled in favor of the SSS, ordering petitioners to pay the outstanding redemption amounts, unpaid dividends, 12% liquidated damages, and legal interest.

ISSUE

The core legal issues are: (1) whether the petitioners are liable for the unpaid obligations under the Purchase Agreement; (2) whether the award of 12% liquidated damages and legal interest is proper; and (3) whether Basilio L. Lirag is personally liable as a surety.

RULING

The Supreme Court affirmed the trial court’s decision in toto, upholding petitioners’ liability. On the first issue, the Court found liability established by the stipulation of facts, where petitioners expressly admitted the failure to redeem shares and pay dividends. The alleged financial difficulties did not constitute a valid defense to excuse contractual performance; they were business risks assumed by the corporation.
On the second issue, the award of 12% liquidated damages was deemed correct as it was expressly stipulated in the Purchase Agreement as a consequence of breach. The grant of legal interest on the overdue redemption payments and unpaid dividends was also proper. Since these were sums of money that became due and demandable, they earned legal interest from the time of judicial demand, which is the filing of the complaint.
On the third issue, the Court held Basilio L. Lirag solidarily liable as a surety. By signing the agreement in that capacity with a clear undertaking to “immediately pay” upon the corporation’s default, he was estopped from denying this personal obligation. His signature manifested a direct, solidary commitment distinct from his corporate role. The Court emphasized that to interpret his liability otherwise would violate the clear terms and intent of the contract. His obligation as a surety was to pay without qualification if the principal obligor failed.