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YULIM INTERNATIONAL COMPANY LTD. v. INTERNATIONAL EXCHANGE BANK

FACTS:

Yulim International Company Ltd. (Yulim) obtained a credit facility from International Exchange Bank (iBank) and secured it with a chattel mortgage over its inventories. In addition to this, the partners of Yulim, namely James Yu, Jonathan Yu, and Almerick Tieng Lim, executed a continuing surety agreement in favor of iBank. Due to Yulim's default on the loan, iBank filed a complaint for sum of money with replevin against Yulim and its sureties. The Regional Trial Court (RTC) ruled that only Yulim was liable for paying the loan amount to iBank. However, the Court of Appeals (CA) overturned the RTC's decision and held that James, Jonathan, and Almerick were jointly and severally liable with Yulim for the loan obligations. The CA also denied iBank's appeal for attorney's fees, moral damages, and exemplary damages. Consequently, the petitioners (James, Jonathan, and Almerick) filed a petition for review before the Supreme Court to challenge the CA's ruling.

ISSUES:

  1. Whether the individual petitioners are jointly and severally liable to pay iBank the outstanding loan amount.

  2. Whether iBank is liable to pay the petitioners moral damages, exemplary damages, and attorney's fees.

  3. Whether the Deed of Assignment served as full and final payment of the petitioners' loan obligations to iBank.

  4. Whether the Deed of Assignment constituted a dacion en pago.

RULING:

  1. The individual petitioners are held jointly and severally liable with defendant-appellant Yulim for the payment of the monetary awards.

  2. iBank is not liable to pay the petitioners moral damages, exemplary damages, and attorney's fees.

  3. The Court held that the Deed of Assignment did not serve as full and final payment of the petitioners' loan obligations. The letter by iBank only accepted the collaterals provided for the loans, including the Deed of Assignment, as security for the loans. The terms of the new promissory note were also spelled out in the letter. Therefore, the condominium unit assigned in the Deed of Assignment was only a temporary security and not a payment to settle the promissory notes.

  4. The Court ruled that the Deed of Assignment did not constitute a dacion en pago. The assignment was, in essence, a mortgage and security for the loan, not a satisfaction of the petitioners' indebtedness. Article 1255 of the Civil Code, which contemplates the assignment of the entire debtor's property, invokes the existence of two or more creditors. On the other hand, Article 1245 of the Civil Code states that dacion in payment, where property is alienated to the creditor in satisfaction of a debt in money, is governed by the law on sales. In this case, there was no sale contemplated by the parties in the Deed of Assignment.

PRINCIPLES:

  • A contract of suretyship renders the surety directly and primarily responsible for the obligation of the principal debtor.

  • The liability of the sureties can be interpreted as solidary when they bind themselves "jointly and severally" with the principal debtor.

  • A deed of assignment may serve as collateral or security for a loan and not as a full payment of the loan obligations.

  • The assignment of property in satisfaction of a debt in money, known as dacion en pago, is governed by the law on sales.

  • The assignment of the entire debtor's property contemplates the existence of two or more creditors.