I. NATURE and EXTENT surety).

surety).[However, a significant distinction still lies between a joint and The surety bond and performance bond executed by defendants Lucky
several debtor, on one hand, and a surety on the other. Solidarity Star and Stronghold Insurance are in the nature of accessory contracts In fine, respondent should be answerable to petitioner on account of
(A). Escao v. Ortigas, Jr. signifies that the creditor can compel any one of the joint and several which depend for its existence upon another contract. Thus, when the Lucky Stars non-performance of its obligation as guaranteed by the
526 SCRA 26 (June 29, 2007) debtors or the surety alone to answer for the entirety of the principal agreement between the plaintiff Asset Builders and defendant Lucky performance bond.
debt. The difference lies in the respective faculties of the joint and Star was rescinded, the surety and performance bond were
Facts: several debtor and the surety to seek reimbursement for the sums they automatically cancelled. Finally, Article 1217 of the New Civil Code acknowledges the right of
On April 28, 1980, Private Development Corporation of the Philippines paid out to the creditor. In the case of joint and several debtors, Article reimbursement from a co-debtor (the principal co-debtor, in case of
(PDCP) entered into a loan agreement with Falcon Minerals, Inc. (Falcon) 1217 makes plain that the solidary debtor who effected the payment to Thus, Asset Builders filed this present petition for review on certiorari suretyship) in favor of the one who paid (the surety). Thus, respondent
amounting to $320,000.00 subject to terms and conditions. the creditor may claim from his co-debtors only the share which assailing decision of RTC which orders defendant Lucky Star to pay is entitled to reimbursement from Lucky Star for the amount it may be
[Nagpautang ang PDCP sa Falcon ng $320K] corresponds to each, with the interest for the payment already made. petitioner Asset Builders the sum of P575,000.00 with damages, but required to pay petitioner arising from its bonds.
Such solidary debtor will not be able to recover from the co-debtors the absolving respondent Stronghold Insurance of any liability on its Surety
On the same day, 3 stockholders-officers of Falcon: Ortigas Jr., George full amount already paid to the creditor, because the right to recovery Bond and Performance Bond. WHEREFORE, Decision of the RTC, is AFFIRMED with MODIFICATION.
A. Scholey, and George T. Scholey executed an Assumption of Solidary extends only to the proportional share of the other co-debtors, and not Issue: Whether or not respondent insurance company, as surety, can be Respondent Stronghold Insurance is hereby declared jointly and
Liability to assume in [their] individual capacity, solidary liability with as to the particular proportional share of the solidary debtor who held liable under its bonds. severally liable with Lucky Star for the payment of P575,000.00 and the
[Falcon] for due and punctual payment of the loan contracted by already paid. In contrast, even as the surety is solidarily bound with the payment of P345,000.00 on the basis of its performance bond.
Falcon with PDCP. principal debtor to the creditor, the surety who does pay the creditor Held: Yes.
has the right to recover the full amount paid, and not just any
Two (2) separate guaranties were executed to guarantee payment of the proportional share, from the principal debtor or debtors. Such right to As provided in Article 2047, the surety undertakes to be bound solidarily (C). CASTELLVI DE HIGGINS VS. SELLNER
same loan by other stockholders and officers of Falcon, acting in their full reimbursement falls within the other rights, actions and benefits with the principal obligor. That undertaking makes a surety agreement 41 PHIL. 142
personal and individual capacities. One guaranty was executed by which pertain to the surety by reason of the subsidiary obligation an ancillary contract as it presupposes the existence of a principal MALCOLM, J.
Escao, Silos, Silverio, Inductivo and Rodriguez. assumed by the surety. contract. Although the contract of a surety is in essence secondary only
to a valid principal obligation, the surety becomes liable for the debt or Facts
Two years later, an agreement developed to cede control of Falcon to *Petitioners and Matti are jointly liable to Ortigas, Jr. in the amt. of duty of another although it possesses no direct or personal interest over
Escao, Silos and Matti. Contracts were executed whereby Ortigas, P1.3M; Legal interest of 12% per annum on P 1.3M computed from the obligations nor does it receive any benefit therefrom. Let it be
This is an action brought by plaintiffs to recover from defendant the
George A. Scholey, Inductivo and the heirs of then already deceased March 14, 1994. Assailed rulings are affirmed. Costs against stressed that notwithstanding the fact that the surety contract is
sum of P10,000. The brief decision of the trial court held that the suit
George T. Scholey assigned their shares of stock in Falcon to Escao, petitioners secondary to the principal obligation, the surety assumes liability as a
was premature, and absolved the defendant from the complaint, with
Silos and Matti. An Undertaking dated June 11, 1982 was executed by regular party to the undertaking.
the costs against the plaintiffs. Sellner wrote;
the concerned parties, namely: with Escao, Silos and Matti as
SURETIES and Ortigas, Inductivo and Scholeys as OBLIGORS Suretyship, in essence, contains two types of relationship the principal
(B). Asset Builders vs Stronghold relationship between the obligee (petitioner) and the obligor (Lucky I will, within fifteen days after notice of such default, pay you in cash the
Falcon eventually availed of the sum of $178,655.59 from the credit line Asset Builders Corp (ABC) obligee, petitioner Star), and the accessory surety relationship between the principal (Lucky sum of P10,000 and interest upon your surrendering to me the three
extended by PDCP. It would also execute a Deed of Chattel Mortgage Lucky Star Drilling & Construction Corporation (Lucky Star) - Star) and the surety (respondent). In this arrangement, the obligee thousand shares of stock of the Keystone Mining Co. held by you as
over its personal properties to further secure the loan. However, Falcon obligor accepts the suretys solidary undertaking to pay if the obligor does not security for the payment of said note.
subsequently defaulted in its payments. After PDCP foreclosed on the Stronghold Insurance Company (Stronghold) surety, respondent pay. Such acceptance, however, does not change in any material way
chattel mortgage, there remained a subsisting deficiency of Php the obligees relationship with the principal obligor. Neither does it
5,031,004.07 which falcon did not satisfy despite demand. FACTS: ABC entered into an agreement with Lucky Star as part of the make the surety an active party to the principal obligee-obligor Issue
completion of its project to construct the ACG Commercial Complex. relationship. Thus, the acceptance does not give the surety the right to
Issue: Whether the obligation to repay is solidary, as contended by Lucky Star was to supply labor, materials, tools, and equipment intervene in the principal contract. The suretys role arises only upon
Determination of defendant's status in the transaction referred to.
respondent and the lower courts, or merely joint as argued by including technical supervision to drill one (1) exploratory production the obligors default, at which time, it can be directly held liable by the
Plaintiffs contend that he is a surety; defendant contends that he is a
petitioners. well on the project site. obligee for payment as a solidary obligor.
guarantor. Plaintiffs also admit that if defendant is a guarantor, articles
1830, 1831, and 1834 of the Civil Code govern.
Held/Ruling: To guarantee faithful compliance with their agreement, Lucky Star In the case at bench, when Lucky Star failed to finish the drilling work
In case, there is a concurrence of two or more creditors or engaged respondent Stronghold which issued two (2) bonds in favor of within the agreed time frame despite petitioners demand for
of two or more debtors in one and the same obligation, Article 1207 of petitioner ABC. completion, it was already in delay. Due to this default, Lucky Stars Held
the Civil Code states that among them, [t]here is a solidary liability only liability attached and, as a necessary consequence, respondents liability The points of difference between a surety and a guarantor are familiar
when the obligation expressly so states, or when the law or the nature ABC paid Lucky Star P575,000.00 as advance payment, representing 50% under the surety agreement arose. to American authorities. A surety and a guarantor are alike in that each
of the obligation requires solidarity. Article 1210 supplies further of the contract price. Lucky Star, thereafter, commenced the drilling promises to answer for the debt or default of another. A surety and a
caution against the broad interpretation of solidarity by providing: The work. Undeniably, when Lucky Star reneged on its undertaking with the guarantor are unlike in that the surety assumes liability as a regular
indivisibility of an obligation does not necessarily give rise to solidarity. On agreed completion date, Lucky Star managed to accomplish only petitioner and further failed to return the P575,000.00 downpayment party to the undertaking, while the liability as a regular party to upon an
Nor does solidarity of itself imply indivisibility. These Civil Code 10% of the drilling work. ABC sent a demand letter to Lucky Star for the that was already advanced to it, respondent, as surety, became solidarily independent agreement to pay the obligation if the primary pay or fails
provisions establish that in case of concurrence of two or more creditors immediate completion of the drilling work. However, Lucky Star failed to bound with Lucky Star for the repayment of the said amount to to do so. A surety is charged as an original promissory; the engagement
or of two or more debtors in one and the same obligation, and in the fulfill its obligation. petitioner. of the guarantor is a collateral undertaking. The obligation of the surety
absence of express and indubitable terms characterizing the obligation is primary; the obligation of the guarantor is secondary.
as solidary, the presumption is that the obligation is only joint. It thus ABC sent Notice of Rescission of Contract with Demand for Damages to Contrary to the trial courts ruling, respondent insurance company was It is perfectly clear that the obligation assumed by defendant was simply
becomes incumbent upon the party alleging that the obligation is Lucky Star and a Notice of Claim for payment to Stronghold to make not automatically released from any liability when petitioner resorted to that of a guarantor, or, to be more precise, of the fiador whose
indeed solidary in character to prove such fact with a preponderance of good its obligation under its bonds. the rescission of the principal contract for failure of the other party to responsibility is fixed in the Civil Code. The letter of Mr. Sellner recites
evidence. perform its undertaking. Precisely, the liability of the surety arising from that if the promissory note is not paid at maturity, then, within fifteen
Despite notice, ABC did not receive any reply either from Lucky Star or the surety contracts comes to life upon the solidary obligors default. It days after notice of such default and upon surrender to him of the three
Note that Article 2047 itself specifically calls for the Stronghold, prompting it to file its Complaint for Rescission with should be emphasized that petitioner had to choose rescission in order thousand shares of Keystone Mining Company stock, he will assume
application of the provisions on joint and solidary obligations to Damages against both before the RTC. to prevent further loss that may arise from the delay of the progress of responsibility. Sellner is not bound with the principals by the same
suretyship contracts. Article 1217 of the Civil Code thus comes into play, the project. Without a doubt, Lucky Stars unsatisfactory progress in the instrument executed at the same time and on the same consideration,
recognizing the right of reimbursement from a co-debtor (the principal RTC rendered the assailed decision ordering Lucky Star to pay ABC but drilling work and its failure to complete it in due time amount to non- but his responsibility is a secondary one found in an independent
debtor, in case of suretyship) in favor of the one who paid (i.e., the absolving Stronghold from liability. Relevant parts of the decision reads: performance of its obligation.
CRED TRANS digests GUARANTY & SURETYSHIP (Art 2047-2084) Page 1 of 15
collateral agreement, Neither is Sellner jointly and severally liable with the exclusion of Machetti and that the proceedings be proven by the return of a writ of execution unsatisfied or by Palmares and Sps. Azarraga were only able to pay 16.3k. MB Lending
the principal debtors. continued as to said company, but still remain suspended other means, but is not sufficiently established by the mere filed a complaint against Palmares as the lone party-defendant,
as to Machetti. This motion was granted1. fact that he has been declared insolvent in insolvency allegedly by reason of Sps. Azarragas insolvency. Palmares main
- The Hospicio filed a complaint against the Fidelity and proceedings under our statutes, in which the extent of the contention was that she is to be held liable only upon default of the
Surety Company asking for a judgment for P12,800 against insolvent's inability to pay is not determined until the final principal debtor Sps. Azarraga. She avers that immediately after the
(D.) the company upon its guaranty. liquidation of his estate. loan matured, she offered to settle the obligation, but MB Lending
ROMULO MACHETTI, plaintiffappellee, vs. HOSPICIO DE SAN JOSE, refused, and instead informed her that they would try to collect from
defendant and appellee, and FIDELITY & SURETY COMPANY OF THE Sps. Azarraga. In addition, partial payment has been made.
PHILIPPINE ISLANDS, defendant-appellant. CFI: 1 As will be seen, the original action in
which Machetti was the plaintiff and RTC dismissed MB Lendings complaint without
- rendered judgment against the Fidelity and Surety prejudice to the filing of a separate action for a sum of money against
the Hospicio de San Jose defendant, has been converted into an
Company (FSC) for P12,800 in accordance with the Sps. Azarraga. The offer Palmares made to pay the obligation is
action in which the Hospicio de San Jose is plaintiff and the Fidelity
[G.R. No. L-16666. April 10, 1922.] complaint. FSC appealed. considered a valid tender of payment sufficient to discharge her
and Surety Company, the original plaintiff's guarantor, is the
defendant, Machetti having been practically eliminated from the secondary liability on the instrument. As co-maker, Palmares is only
case. secondarily liable on the instrument.
Issue: whether FSC, being a guarantor, be compelled to pay.
Theme: LIABILITY OF GUARANTOR; INSOLVENCY OF PRINCIPAL.
CA reversed RTC and declared Palmares liable to pay
A guarantor cannot be compelled to pay until it is shown that (E). PALMARES v. CA and MB LENDING MB Lending the outstanding balance of 13.7k at 6% per month
the principal is unable to pay and such inability is not sufficiently 1998 / Regalado / Surety > Distinguished from guaranty
Ruling: computed from the date the loan was contracted until fully paid,
shown by the mere fact that he has been declared insolvent
penalty charges, attorneys fees, and costs. Palmares is a surety since
under the present Insolvency Law in which the extent of the - the court below erred in proceeding with the case against SURETY / SURETYSHIP GUARANTOR / GUARANTY she bound herself to be jointly and severally liable with Sps. Azarraga
insolvent's inability to pay is not determined until the final the guarantor while the proceedings were suspended as to GUARANTOR: Insurer of the
SURETY: Insurer of the debt when she signed as co-maker. Therefore, she is primarily liable and
liquidation of his estate. the principal. The guaranty in the present case was for a solvency of the debtor may be sued for the entire obligation.
future debt of unknown amount and even regarding the A suretyship is an undertaking A guaranty is an undertaking that
guaranty as an ordinary fianza under the Civil Code, the that the debt shall be paid the debtor shall pay ISSUE & HOLDING
Facts: surety cannot be held responsible until the debt is A guarantor agrees that the WON Palmares is a guarantor or a surety. SURETY; primarily liable.
liquidated. (Civil Code, art. 1825.) A surety promises to pay the creditor, after proceeding against
- Romulo Machetti, by a written agreement, undertook to
construct a building for the Hospicio de San Jose, the But in this instance the guarantor's case is even stronger than that of an principal's debt if the principal the principal, may proceed against RATIO
contract price being P64,000. ordinary surety. In English the term "guarantor" implies an undertaking will not pay the guarantor if the principal is Palmares expressly bound herself to be jointly and severally or solidarily
- One of the conditions of the agreement was that the of guaranty, as distinguished from suretyship. unable to pay liable with Sps. Azarraga; therefore, her liability is that of a surety. The
contractor should obtain the "guarantee" of the Fidelity and A surety binds himself to perform A guarantor does not contract rule that ignorance of the contents of an instrument does not ordinarily
Surety Company of the Philippine Islands to the amount of Distinguishing features of contracts of guaranty vis--vis surety: if the principal does not, without that the principal will pay, but affect the liability of one who signs it also applies to contracts of
P12,800 and the following endorsement in the English regard to his ability to do so simply that he is able to do so suretyship. The mistake of a surety as to the legal effect of her
- It is very true that notwithstanding the use of the words A surety undertakes directly for A guarantor contracts to pay if, by obligation is ordinarily no reason for relieving her of liability.
language appears upon the contract:
"guarantee" or "guaranty" circumstances may be shown the payment and is so the use of due diligence, the debt
"MANILA, July 15, 1916. which convert the contract into one of suretyship but such responsible at once if the cannot be made out of the The undertaking to pay upon default of the principal
circumstances do not exist in the present case: on the principal debtor makes default principal debtor debtor does not automatically remove it from the ambit of a
"For value received we hereby
contrary it appears affirmatively that the contract is the contract of suretyship. The second and third paragraphs of the
guarantee compliance with the terms and
guarantor's separate undertaking in which the principal FACTS promissory note do not contain any other condition for the
conditions as outlined in the above
does not join, that it rests on a separate consideration enforcement of MB Lendings right against Palmares. A contract of
contract.
moving from the principal and that although it is written in Pursuant to a promissory note, MB Lending extended a suretyship is that wherein one lends his credit by joining in the principal
"FIDELITY & SURETY continuation of the contract for the construction of the 30k loan to Sps. Azarraga and Estrella Palmares, payable on or debtor's obligation, so as to render himself directly and primarily
COMPANY OF THE PHILIPPINE ISLANDS. building, it is a collateral under taking separate and distinct before 12 May 1990, with compounded interest at 6% per annum to be responsible with him, and without reference to the solvency of the
from the latter. All of these circumstances are computed every 30 days from the date thereof. principal.
(Sgd.) "OTTO VORSTER, distinguishing features of contracts of guaranty.
"Vice-President," I, Mrs. Estrella Palmares, as the Co-maker of Several attendant factors support the finding that Palmares is a
- Now, while a surety undertakes to pay if the the above-quoted loan, have fully understood surety.
- Machetti constructed the building under the supervision of principal does not pay, the guarantor only binds himself to When she was informed about the spouses failure to pay,
the contents of this Promissory Note for Short-
architects representing the Hospicio de San Jose. pay if the principal cannot pay. The one is the insurer of the she immediately offered to settle the account with MB
Term Loan:
- Subsequently it was found that the work had not been debt, the other an insurer of the solvency of the debtor. Lending.
carried out in accordance with the specifications which This latter liability is what the Fidelity and Surety Company She presented the receipts of the payments already made,
That as Co-maker, I am fully aware
formed part of the contract and that the workmanship was assumed in the present case. which were all issued in her name and of the Azarraga
that I shall be jointly and severally or solidarily
not of the standard required, and spouses. This can only be construed to mean that the
liable with the above principal maker of this
the Hospicio de San Jose therefore refused to pay the payments made by the principal debtors were considered
FSC, being a guarantor, cannot be compelled to pay until it is shown note;
balance of the contract price. by MB Lending as creditable directly upon the account and
that Machetti is unable to pay That in fact, I hereby agree that
- Machetti thereupon brought this action inuring to the benefit of Palmares.
M.B. LENDING CORPORATION may demand
- the Hospicio de San Jose answered the complaint and The Fidelity and Surety Company having bound itself to pay
- payment of the above loan from me in case
presented a counterclaim for damages for the partial only in the event its principal, Machetti, cannot pay it A surety is bound equally and absolutely with the principal, and as
the principal maker, Mrs. Merlyn Azarraga
noncompliance with the terms of the agreement, in the follows that it cannot be compelled to pay until it is shown such is deemed an original promisor and debtor from the beginning. In
defaults in the payment of the note subject to
total sum of P71,350. that Machetti is unable to pay. Such inability may be suretyship, there is but one contract, and the surety is bound by the
the same conditions above-contained.
- Machetti was declared insolvent under Insolvency law. same agreement which binds the principal. The contract of a surety
- The Hospicio de San Jose filed a motion asking that the starts with the agreement, which is precisely the situation obtaining in
Fidelity and Surety Company be made cross-defendant to this case.
CRED TRANS digests GUARANTY & SURETYSHIP (Art 2047-2084) Page 2 of 15
 delay, such as the subsequent insolvency of the principal, or the fact Gilats claim for interest on the premise that the interest shall only does not give the surety the right to intervene in the principal contract.
A surety is usually bound with his principal by the same that the remedies against the principal may be lost by lapse of time, are accrue when the delay or refusal to pay the principal obligation is The suretys role arises only upon the debtors default, at which time, it
instrument, executed at the same time and upon the same immaterial. The raison d'tre for the rule is that there is nothing to without any justifiable cause. Here, UCPB failed to pay its surety can be directly held liable by the creditor for payment as a solidary
consideration; he is an original debtor, and his liability is immediate and prevent the creditor from proceeding against the principal at any obligation because of the advice of its principal (One Virtual) not to obligor. Hence, the surety remains a stranger to the Purchase
direct. Where a written agreement on the same sheet of paper with and time. pay. The RTC then obligated UCPB to pay Gilat the principal debt (US Agreement. (See Stronghold Insurance Co. Inc. v. Tokyu Construction
immediately following the principal contract between the buyer and $1.2 Million) under the Surety Bond, with legal interest at the rate of Co. Ltd.)
seller is executed simultaneously therewith, providing that the signers of Leniency shown to a debtor in default, by delay permitted by the 12% per annum computed from the time the judgment becomes final
the agreement agreed to the terms of the principal contract, the signers creditor without change in the time when the debt might be and executory, plus attorneys fees and litigation expenses. The Court of 7. UCPB cannot invoke in its favor the arbitration clause in the Purchase
were "sureties" jointly liable with the buyer. demanded, does not constitute an extension of the time of Appeals (CA) dismissed the appeal of UCPB based on lack of Agreement, because it is not a party to that contract. An arbitration
payment, which would release the surety. jurisdiction. It ruled that agreement being contractual in nature, it is binding only on the parties
Re: Palmares argument that the complaint was prematurely filed In order to constitute an extension discharging the surety: in"enforcing a surety contract, the complementary-contracts- thereto, as well as their assigns and heirs.
for lack of demand UNMERITORIOUS It should appear that the extension was for a definite construed-together doctrine findsapplication." In this case, the CA
Palmares was saying that Sps. Azarraga cannot as yet be considered in period, pursuant to an enforceable agreement between the considered the arbitration clause contained in the Purchase Agreement 8. Section 24 of Republic Act No. 9285 is clear in stating that a referral
default, as MB Lending has not yet made either a judicial or extrajudicial principal and the creditor (principal contract) between Gilat and One Virtual as applicable to arbitration may only take place "if at least one party so requests not
demand. This argument fails. Paragraph (G) of the note states that It was made without the consent of the surety or with a and binding on the parties to the suretyship agreement (accessory later than the pre-trial conference, or upon the request of both parties
"should I fail to pay in accordance with the above schedule of payment, reservation of rights with respect to him contract). Hence, the trial courts Decision was vacated. Gilat and One thereafter." UCPB has not presented evidence to show that either Gilat
I hereby waive my right to notice and demand." Hence, demand by the The contract must be one which precludes the creditor Virtual were ordered to proceed to arbitration. or One Virtual submitted its contesting claim for arbitration. Interest, by
creditor is no longer necessary in order that delay may exist since the from enforcing the principal contract within the period way of damages or indemnity, may be awarded to a creditor in case of
contract itself already expressly so declares. As a surety, petitioner is during which he could otherwise have enforced it, and Held : Liability of a surety on the principal contract is direct, primary and inexcusable delay incurred by a debtor in the payment of his obligation
equally bound by such waiver. which precludes the surety from paying the debt absolute
9. Article 2209 of the Civil Code is clear: "[i]f an obligation consists in the
Even if it were otherwise, demand on the sureties is not None of these elements are present here. The mere fact that MB 1. The failure of One Virtual, as the principal debtor, to fulfill its payment of a sum of money, and the debtor incurs a delay, the
necessary before bringing suit against them, since the commencement Lending gave Sps. Azarraga an extended period of time within which to monetary obligation to petitioner Gilat gave the latter an immediate indemnity for damages, there being no stipulation to the contrary, shall
of the suit is a sufficient demand. A surety is not even entitled, as a comply with their obligation did not effectively absolve Palmares from right to pursue UCPB as the surety. be the payment of the interest agreed upon, and in the absence of
matter of right, to be given notice of the principal's default. the consequences of her undertaking. Besides, the burden is on the stipulation, the legal interest."
Inasmuch as the creditor owes no duty of active diligence to take care surety Palmares to show that she has been discharged by some act of 2. In suretyship, the oft-repeated rule is that a suretys liability is joint
of the interest of the surety, his mere failure to voluntarily give the creditor MB Lending. and solidary with that of the principal debtor. This 10. Delay arises from the time the obligee judicially or extrajudicially
information to the surety of the default of the principal cannot have the undertaking makes a surety agreement an ancillary contract, as it demands from the obligor the performance of the obligation, and the
effect of discharging the surety. The surety is bound to take notice of SC DECISION: Constrained to dismiss the petition for lack of merit, presupposes the existence of a principal contract. Nevertheless, latter fails to comply. Delay, as used in Article 1169, is synonymous with
the principal's default and to perform the obligation. but to except therefrom the issue anent the propriety of the although the contract of a surety is in essence secondary only to a valid default or mora, which means delay in the fulfilment of obligations. It is
monetary award adjudged to herein respondent corporation. principal obligation, its liability to the creditor or "promise" of the the nonfulfillment of an obligation with respect to time.11. In order for
The alleged failure of MB Lending to prove the fact of principal is said to be direct, primary and absolute; in other words, a the debtor (in this case, the surety) to be in default, it is necessary that
demand on Sps. Azarraga is immaterial. In the absence of a statutory or surety is directly and equally bound with the principal. He becomes the following requisites be present: (1) that the obligation be
contractual requirement, it is not necessary that performance of his (F). Gilat Satellite vs. UCPB (2014) liable for the debt and duty of the principal obligor, even without demandable and already liquidated;(2) that the debtor delays
obligation be first demanded of the principal, especially where demand possessing a direct or personal interest in the obligations constituted by performance; and(3) that the creditor requires the performance judicially
would have been useless; nor is it a requisite that the principal be called Gilat Satellite Networks Ltd., vs. United Coconut Planters Bank the latter. or extrajudicially.12. If a surety, upon demand, fails to pay, it can be held
on to account. A suretyship is a direct contract to pay the debt of (UCPB) General Insurance Co., Inc. liable for interest, even if in thus paying, its liability becomes more than
another. As an original promisor and debtor from the beginning, he Subject: 3. Thus, a surety is not entitled to a separate notice of default or to the the principal obligation. The increased liability is not because of the
is held ordinarily to know every default of his principal. Liability of a surety on the principal contract is direct, primary and benefit of excussion. It may in fact be sued separately or together with contract, but because of the default and the necessity of judicial
absolute; The existence of a suretyship agreement does not give the the principal debtor. collection.13. For delay to merit interest, it must be inexcusable in
Re: Palmares argument that the filing of the complaint solely surety the right to intervene in the principal contract, hence, surety nature14. In culpa contractual x x x the mere proof of the existence of
against her was improper UNMERITORIOUS cannot invoke the arbitration clause between the parties in the principal 4. Sureties do not insure the solvency of the debtor, but rather the debt the contract and the failure of its compliance justify, prima facie, a
contract; Interest, as a form of indemnity, may be awarded to a creditor itself. They are contracted precisely to mitigate risks of non- corresponding right of relief. xxx A breach upon the contract confers
Under NCC 1216, the creditor may proceed against any one of the
in case of inexcusable delay incurred by a debtor in the payment of his performance on the part of the obligor. This responsibility necessarily upon the injured party a valid cause for recovering that which may have
solidary debtors or some or all of them simultaneously. In
obligation places a surety on the same level as that of the principal debtor. The been lost or suffered. The remedy serves to preserve the interests of the
accordance with the rule that, in the absence of statute or agreement
effect is that the creditor is given the right to directly proceed against promisee that may include his "expectation interest," which is his
otherwise, a surety is primarily liable, and with the rule that his proper
Facts: either principal debtor or surety. This is the reason why excussion interest in having the benefit of his bargain by being put in as good a
remedy is to pay the debt and pursue the principal for reimbursement,
One Virtual placed with Gilat Satellite Network (Gilat) a purchase order cannot be invoked. To require the creditor to proceed to arbitration position as he would have been in had the contract been performed, or
the surety cannot at law, unless permitted by statute and in the absence
for various telecommunications equipment, promising to pay portions would render the very essence of suretyship nugatory and diminish its his "reliance interest," which is his interest in being reimbursed for loss
of any agreement limiting the application of the security, require the
of the price according to a payment schedule. To ensure the prompt value in commerce. (See Palmares v. Court of Appeals) The existence of caused by reliance on the contract by being put in as good a position as
creditor or obligee, before proceeding against the surety, to resort to
payment, it obtained a surety bond from defendant UCPB General a suretyship agreement does not give the surety the right to intervene he would have been in had the contract not been made; or his
and exhaust his remedies against the principal, particularly where both
Insurance Co., Inc. (UCPB) in favor of Gilat One Virtual failed to pay Gilat in the principal contract, hence, surety cannot invoke the arbitration "restitution interest," which is his interest in having restored to him any
principal and surety are equally bound.
twice, prompting Gilat to write the surety UCPB two demand letters clause between the parties in the principal contract benefit that he has conferred on the other party. Indeed, agreements
for payment. However, UCPB failed to settle the amount. Gilat filed a can accomplish little, either for their makers or for society, unless they
MB Lendings mere failure to immediately sue Palmares on her
complaint against UCPB. The RTC, ruling in favor of Gilat, found that 5. UCPBs claim that the Purchase Agreement, being the principal are made the basis for action. The effect of every infraction is to create
obligation does not release her from liability.
Gilat has already complied with its end of the obligation, i.e. delivery contract to which the Suretyship Agreement is accessory, must take anew duty, that is, to make recompense to the one who has been
Where a creditor refrains from proceeding against the principal,
and installation of the purchased equipment. Demand notwithstanding, precedence over arbitration as the preferred mode of settling disputes, injured by the failure of another to observe his contractual obligation
the surety is not exonerated. Mere want of diligence or forbearance
One Virtual and UCPB, as surety, failed to settle the obligation. The cannot be sustained. unless he can show extenuating circumstances, like proof of his exercise
does not affect the creditor's rights vis-a-vis the surety, unless the
lower court reasoned that UCPB, as surety, bound itself to pay of due diligence x x x or of the attendance of fortuitous event, to excuse
surety requires him by appropriate notice to sue on the obligation.
in accordance with the Payment Milestones. This obligation was not 6. The acceptance of a surety agreement does not change in any him from his ensuing liability.
In the absence of proof of resultant injury, a surety is not discharged by
made dependent on any condition outside the terms and conditions of material way the creditors relationship with the principal debtor nor (See Guanio v. Makati-Shangri-la Hotel)
the creditor's mere statement that the creditor will not look to the
the Surety Bond and Payment Milestones. However, the RTC denied does it make the surety an active party to the principal creditor-debtor
surety, or that he need not trouble himself. The consequences of the
relationship. In other words, the acceptance [of the surety agreement]
CRED TRANS digests GUARANTY & SURETYSHIP (Art 2047-2084) Page 3 of 15
15. Records are bereft of proof to show that UCPBs delay was indeed Guaranty cannot be retroactive applied as contracts of origin with instruction to set aside motion to dismiss and to require
justified by the circumstances that is, One Virtuals advice regarding suretyship contemplates future dealing. defendant Chua to answer the complaint. ISSUE:
Gilats alleged breach of obligations. Ratio: Whether the individual private respondents may be held solidarily liable
ISSUE: WON Willex is liable as guarantor for the loans obtained by with Sanyu Chemical under the provisions of the Continuing Suretyship
16. As to the issue of when interest must accrue, our Civil Code is Inter-Resin to IUCP? Yes Go, as president and general manager, respectively, of Daicor, was Agreement, or whether that Agreement must be held null and void as
explicit in stating that it accrues from the time judicial or extrajudicial to cover existing as well as future obligations which Daicor may incur having been executed without consideration and without a pre-existing
demand is made on the surety. This ruling is in accordance with the HELD: with RCBC. This was only subject to the proviso that their liability shall principal obligation to sustain it.
provisions of Article 1169 of the Civil Code and of the settled rule that Intent is controlling: clear from the evidence that the not exceed at any one time the aggregate principal amount of
where there has been an extra-judicial demand before an action for Continuing Guarantee executed by Willex with Inter-Resin Php100,000.00. (Par.1 of said agreement). Whether private respondents are liable under the Deed of Assignment
performance was filed, interest on the amount due begins to run, not would cover sums obtained (in the past retroactive) which they, along with the principal debtor Sanyu Chemical, executed in
from the date of the filing of the complaint, but from the date of that and/or to be obtained by Inter-Resin Industrial from application for a loan Daicorwould request for. According to said favor of petitioner, on the receivables thereby assigned.
extra-judicial demand. Interest must start to run from the time agreement, the guaranty is continuing and shall remain in full force or
Interbank -?Although a contract of suretyship is ordinarily
petitioner sent its first demand letter (5 June 2000), because the effect until the bank is notified of its termination. HELD:
not to be construed as retrospective, in the end the
obligation was already due and demandable at that time. Although obligations arising from contracts have the force of law
intention of the parties as revealed by the evidence is
agreement was still in full force and effect and is thus covered by the between the contracting parties, (Article 1159 of the Civil Code) this
controlling apply it to the 1978 loan.
17. Petitioner is rewarded legal interest at the rate of 6% per annum latter agreement. Thus, even if Chua did not sign the promissory note, does not mean that the law is inferior to it; the terms of the contract
from 5 June 2000, its first date of extra judicial demand, until the Guarantor or surety is bound by the same consideration he is still liable by virtue of the surety agreement. The only condition could not be enforced if not valid. So, even if, as in this case, the
satisfaction of the debt. that makes the contract effective between the principal necessary for him to be liable under the agreement was that Daicor is agreement was for a continuing suretyship to include obligations
parties thereto. . . . It is never necessary that a guarantor or or may become liable as maker, endorser, acceptor or otherwise. enumerated in the agreement, the same could not be enforced. First,
18. "When the obligation is breached, and it consists in the payment of surety should receive any part or benefit, if such there be, because this contract, just like guaranty, cannot exist without a valid
a sum of money, i.e., a loan or forbearance of money, the interest due accruing to his principal. an accessory obligation dependent upon the principal obligation, i.e., obligation (Art. 2052, Civil Code); and, second, although it may be given
should be that which may have been stipulated in writing. Furthermore, the loan obtained by Daicor as evidenced by the promissory note. as security for future debt (Art. 2053, C.C.), the obligation contemplated
the interest due shall itself earn legal interest from the time it is in the case at bar cannot be considered 'future debt' as envisioned by
judicially demanded. In the absence of stipulation, the rate of interest (H). Rizal Commercial Banking Corp. vs. Arro guarantee future debts that may be incurred by Daicor with petitioner, this law.
shall be 6% per annum to be computed from default, i.e., from judicial as allowed under NCC Art.2053: A guaranty may also be given as
or extrajudicial demand under and subject to the provisions of Article Rizal Commercial Banking Corporation, petitioner, vs. Hon. Jose P. security for future debts, the amount of which is not yet known; there There is no proof that when the suretyship agreement was entered into,
1169 of the Civil Code. x x x When the judgment of the court awarding a Arro, Judge of the Court of FirstInstance of Davao, and Residoro can be no claim against the guarantor until the debt is liquidated. A there was a pre-existing obligation which served as the principal
sum of money becomes final and executory, the rate of legal Chua, respondents. conditional obligation may also be secured. obligation between the parties. Furthermore, the 'future debts' alluded
interest...shall be 6% per annum from such finality until its satisfaction, Date: 31 July 1982 Ponente: De Castro, J. to in Article 2053 refer to debts already existing at the time of the
this interim period being deemed to be by then an equivalent to a constitution of the agreement but the amount thereof is unknown,
forbearance of credit." (See Nacar v. Gallery Frames, modifying Eastern Facts: (I). ATOK FINANCE CORPORATION vs. COURT OF APPEALS G.R. No. unlike in the case at bar where the obligation was acquired two years
Shipping Lines v. CA) 80078. May 18, 1993 after the agreement."
executed a comprehensive surety agreement to guaranty, above FACTS:
(G). Willex Plastic, Inc. v. CA, International Corporate Bank (1996) all, any existing or future indebtedness of Davao Agricultural On 27 July 1979, private respondents Sanyu Chemical Corporation as A guaranty or a suretyship agreement is an accessory contract in the
Doctrine: It is never necessary that a guarantor or surety should receive Industries Corporation (Daicor), and/or induce the bank at any time or principal and Sanyu Trading Corporation along with individual private sense that it is entered into for the purpose of securing the performance
any part or benefit, if such there be, accruing to his principal from time to time to make loans or advances or to extend credit to said stockholders of Sanyu Chemical as sureties, executed a Continuing of another obligation which is denominated as the principal obligation.
Daicor, provided that the liability shall not exceed at any time Suretyship Agreement in favor of Atok Finance as creditor. It is also true that Article 2052 of the Civil Code states that "a guarantee
Facts: Php100,000.00. cannot exist without a valid obligation." Nevertheless, a guaranty may
1978: Inter-Resin took out a loan from Manila Bank. As romissory note for Php100,000.00 (for additional capital to the In 1981, Sanyu Chemical assigned its trade receivables outstanding to be constituted to guarantee the performance of a voidable or an
additional security, Inter-Resin and Investment charcoal buy and sell and the activated carbon importation business) Atok Finance in consideration of receipt from Atok Finance of the unenforceable contract. It may also guarantee a natural obligation."
Underwriting (IUCP) executed a Continuing Surety was issued in favor of petitioner RCBC payable a month after amount of P105,000.00. The assigned receivables carried a standard Moreover, Article 2053 of the Civil Code states that a guaranty may also
Agreement stating that they are liable to Manila Bank execution. This was signed by Go in his personal capacity term of thirty (30) days; it appeared, however, that the standard be given as security for future debts, the amount of which is not yet
solidarily for the loan taken out by Inter-Resin and in behalf of Daicor. Respondent Chua did not sign in said commercial practice was to grant an extension of up to one hundred known; there can be no claim against the guarantor until the debt is
promissory note. twenty (120) days without penalties. liquidated. A conditional obligation may also be secured."
1979: Inter-Resin and Willex Plastic executed a Continuing
Guarantee for the loan which Inter-Resin obtained from
for a sum of money against Daicor, Go and Chua. In 1984, Atok Finance commenced action against Sanyu Chemical, the Comprehensive or continuing surety agreements are in fact quite
Investment Underwriting to the extent of P5M.
missed upon his motion, alleging Arrieta spouses, Pablito Bermundo and Leopoldo Halili before the commonplace in present day financial and commercial practice. A bank
1981: Investment Underwriting (IUCP) paid Manila Bank
that the complaint states no cause of action against him as he was not a Regional Trial Court of Manila to collect a sum of money plus penalty or a financing company which anticipates entering into a series of credit
P4M to satisfy Inter-Resins1978 Obligation signatory to the note and hence he cannot be held liable. This was so charges starting from 1 September 1983. Atok Finance alleged that transactions with a particular company, commonly requires the
Investment Underwriting (IUCP) then demanded payment despite RCBCs opposition, invoking the comprehensive surety Sanyu Chemical had failed to collect and remit the amounts due under projected principal debtor to execute a continuing surety agreement
of the P4M from both Inter-Resin and Willexo Inter-Resin agreement which it holds to cover not just the note in question but also the trade receivables. along with its sureties. By executing such an agreement, the principal
paid IUCP P600K from the proceeds of its fire insurance every other indebtedness that Daicor may incur from petitioner bank. places itself in a position to enter into the projected series of
Willex denied obligation, it alleged that it is only a Sanyu Chemical and the individual private respondents sought dismissal transactions with its creditor; with such suretyship agreement, there
guarantor of the principal, hence its liability was only Hence, this petition. of Atok's claim upon the ground that such claim had prescribed under would be no need to execute a separate surety contract or bond for
secondary to the principal and that it did not receive Article 1629 of the Civil Code and for lack of cause of action. The private each financing or credit accommodation extended to the principal
consideration nor benefit from the contract between the Issue: WON respondent Chua may be held liable with Go and Daicor respondents contended that the Continuing Suretyship Agreement, debtor. As we understand it, this is precisely what happened in the case
bank and Inter-Resin. under the promissory note, even if he was not a signatory to it, in being an accessory contract, was null and void since, at the time of its at bar.
light of the provisions of the comprehensive surety agreement wherein execution, Sanyu Chemical had no pre-existing obligation due to Atok
Willex insisted that IUCP should pursue Inter-Resin and
he bound himself with Go and Daicor, as solidary debtors, to pay Finance. As regards the second issue, the contention of Sanyu Chemical was that
apply to the loan the assets of the latter first before going
existing and future debts of said corporation. Atok Finance had no cause of action under the Deed of Assignment for
after it.
After trial the trial court rendered a decision in favor of Atok Finance. On the reason that Sanyu Chemical's warranty of the debtors' solvency had
Willex further alleged that it is guarantor of a loan to ceased. It relied on Article 1629 of the Civil Code which provides: In case
Held: Yes, he may be held liable. Order dismissing the complaint against appeal the CA reversed and set aside the decision of the trial court and
Manila Bank and not to Interbank, hence the Continuing respondent Chua reversed and set aside. Case remanded to court of entered a new judgment dismissing the complaint of Atok Finance. the assignor in good faith should have made himself responsible for the
CRED TRANS digests GUARANTY & SURETYSHIP (Art 2047-2084) Page 4 of 15
solvency of the debtor, and the contracting parties should not have covered UTEFS purchase of fertilizers from Planters Producst. Uy and Otherwise stated, a continuing guaranty is one which covers all Exhibits, pp. 19-20). On the same date, South City Homes, Inc.
agreed upon the duration of the liability, it shall last for one year only, Dio did not sign the application for this credit and were not asked to transactions, including those arising in the future, which are represented by Edgar C. Rodrigueza and Aurelio F. Tablante, likewise
from the time of the assignment if the period had already expired. If the execute suretyship or guarantee. UTEFS executed a trust receipt within the description or contemplation of the contract of executed a Continuing Suretyship Agreement in which said corporation
credit should be payable within a term or period which has not yet whereby it agreed to deliver to Metrobank the goods in the event of guaranty, until the expiration or termination thereof. "jointly and severally unconditionally" guaranteed the "full, faithful and
expired, the liability shall cease one year after the maturity." non-sale, and if sold, the proceeds will be delivered to Metrobank. How : A guaranty shall be construed as continuing when by the prompt payment and discharge of any and all indebtedness" of Fortune
However, UTEFS did not comply with its obligation. As a result, terms thereof it is evident that the object is to give a standing Motors Corporation to BA Finance Corporation.
The debt referred to in this law is the debt under the assigned contract Metrobank demanded payment from UTEFS and the sureties, Uy & credit to the principal debtor to be used from time to time
or the original debts in favor of the assignor which were later assigned Dio. The sureties refused to pay on the ground that the obligation for either indefinitely or until a certain period; especially if the right Fortune Motors Corporation thereafter executed trust receipts covering
to the assignee. The debt alluded to in the law, is not the debt incurred which they executed the continuing suretyship agreement has been to recall the guaranty is expressly reserved. Hence, where the the motor vehicles delivered to it by CARCO under which it agreed to
by the assignor to the assignee as contended by the appellant. Applying paid. RTC ruled in favor of the petitioners, CA affirmed. contract states that the guaranty is to secure advances to be remit to the Entruster (CARCO) the proceeds of any sale and
the said law to the case at bar, the records disclose that none of the made from time to time, it will be construed to be a immediately surrender the remaining unsold vehicles. ). The drafts and
assigned receivables had matured when the Deed of Assignment was Issue: WON petitioners are liable for payment of the 1979 transaction continuing one. trust receipts were assigned to plaintiff-appellant, under Deeds of
executed. under the continuing suretyship agreement they executed in 1977. Assignment executed by CARCO.
Assuming that they are, what is the extent of their liability?
It may be stressed as a preliminary matter that the Deed of Assignment (K). FORTUNE MOTORS v. CA Upon failure of the defendant-appellant Fortune Motors Corporation to
was valid and binding upon Sanyu Chemical. Assignment of receivables HELD: The Supreme Court held that Uy & Dio are liable. The GR 112191 pay the amounts due under the drafts and to remit the proceeds of
is a commonplace commercial transaction today. It is an activity or agreement they executed in 1977 is a continuing suretyship, one which motor vehicles sold or to return those remaining unsold in accordance
operation that permits the assignee to monetize or realize the value of is not limited to a single transaction but which contemplates a FACTS: In 1981, Joseph Chua and Edgar Rodrigueza executed separate with the terms of the trust receipt agreements, BA Finance Corporation
the receivables before the maturity thereof. In other words, Sanyu succession of liabilities, for which, as they accrue, the guarantor surety agreements in favor of Fortune Motors (Phils.) Corporation to sent demand letter to Edgar C. Rodrigueza, South City Homes, Inc.,
Chemical received from Atok Finance the value of its trade receivables it becomes liable. The agreement that petitioners signed expressly cover obligations incurred by Fortune Motors whether they be enforced Aurelio Tablante, Palawan Lumber Manufacturing Corporation, Joseph L.
had assigned; Sanyu Chemical obviously benefitted from the provided that it is a continuing guaranty and shall be in full force and or thereafter made (from the time of said surety contracts). G. Chua, George D. Tan and Joselito C. Baltazar (Folder of Exhibits, pp.
assignment. The payments due in the first instance from the trade effect until written notice to the bank that it has been revoked by the 29-37). Since the defendants-appellants failed to settle their
debtors of Sanyu Chemical would represent the return of the surety. As to the 2nd issue, petitioners are only liable up to the maximum In 1982, Fortune Motors secured cars from Canlubang Automotive outstanding account with plaintiff-appellant, the latter filed on
investment which Atok Finance had made when it paid Sanyu Chemical limit fixed in the continuing suretyship agreements (Php800,000 for Resources Corporation (CARCO) via trust receipts and drafts made by December 22, 1983 a complaint for a sum of money with prayer for
the transfer value of such receivables. Dio and Php300,000 for Uy). The law is clear that a guarantor may bind CARCO. These were assigned to Filinvest Credit Corporation. Later preliminary attachment, with the Regional Trial Court of Manila.
himself for less, but not for more than the principal debtor, both as Filinvest, when the obligation matured, demanded payment from
Article 1629 of the Civil Code is not material. The liability of Sanyu regards the amount and the onerous nature of the conditions (Art. Fortune Motor as well as from Chua and Rodrigueza. No payment was ISSUE: WHETHER OR NOT SURETYSHIP AGREEMENT IS VALID? NO
Chemical to Atok Finance rests not on the breach of the warranty of 2054). CA decision ordering petitioners to pay P2,397,883.68 which made. A case was filed. Rodrigueza averred that the surety agreement
solvency; the liability of Sanyu Chemical was not ex lege but rather ex represents the amount due inclusive of interest and charges, is was void because when it was signed in 1981, the principal obligation HELD: Petitioners assert that the suretyship agreement they signed is
contractu. Under the Deed of Assignment, the effect of non-payment by modified. (1982) did not yet exist. void because there was no principal obligation at the time of signing as
the original trade debtors was a breach of warranty of solvency by the principal obligation was signed six (6) months later. The Civil Code,
Sanyu Chemical, resulting in turn in the assumption of solidary liability Additional info: ISSUE: Whether or not the surety agreement is void. however, allows a suretyship agreement to secure future loans even if
by the assignor under the receivables assigned. In other words, the In Dino v. CA, the Court held that a continuing guaranty is one which the amount is not yet known.
assignor Sanyu Chemical becomes a solidary debtor under the terms of covers all transactions, including those arising in the future, which are HELD: No. Future obligations can be covered by a surety.
the receivables covered and transferred by virtue of the Deed of within the description or contemplation of the contract of guaranty, until Comprehensive or continuing surety agreements are in fact quite Article 2053 of the Civil Code provides that:
Assignment. The obligations of individual private respondent officers the expiration or termination thereof. commonplace in present day financial and commercial practice. A bank Art. 2053 A guaranty may also be given as security for future debts, the
and stockholders of Sanyu Chemical under the Continuing Suretyship or financing company which anticipates entering into a series of credit amount of which is not yet known. x x x
Agreement, were activated by the resulting obligations of Sanyu To repeat, in the present case, the Indemnity Agreement was subject to transactions with a particular company, commonly requires the
Chemical as solidary obligor under each of the assigned receivables by the two limitations of the credit accommodation: projected principal debtor to execute a continuing surety agreement In Fortune Motors (Phils.) Corporation v. Court of Appeals, [ we held:
virtue of the operation of the Deed of Assignment. That solidary liability that the obligation should not exceed P8 million, and along with its sureties. By executing such an agreement, the principal To fund their acquisition of new vehicles (which are later
of Sanyu Chemical is not subject to the limiting period set out in Article that the accommodation should expire not later than places itself in a position to enter into the projected series of retailed or resold to the general public), car dealers
1629 of the Civil Code. November 30, 1981. Hence, it was a continuing surety only in regard to transactions with its creditor; with such suretyship agreement, there normally enter into wholesale automotive financing
loans obtained on or before the aforementioned expiry date and not would be no need to execute a separate surety contract or bond for schemes whereby vehicles are delivered by the
It follows that at the time the original complaint was filed by Atok exceeding the total of P8 million. each financing or credit accommodation extended to the principal manufacturer or assembler on the strength of trust receipts
Finance in the trial court, it had a valid and enforceable cause of action debtor. or drafts executed by the car dealers, which are backed up
against Sanyu Chemical and the other private respondents. In Dino, the surety Agreement specifically provided that each by sureties. These trust receipts or drafts are then assigned
suretyship is a continuing one which shall remain in full force and and/or discounted by the manufacturer to/with financing
The Petition for Review is hereby GRANTED DUE COURSE, and the effect until this bank is notified of its revocation. Since the bank had not companies, which assume payment of the vehicles but with
Decision of the Court of Appeals are hereby REVERSED and SET ASIDE. been notified of such revocation, the surety was held liable even for (L). SOUTH CITY HOMES v. BA FINANCE the corresponding right to collect such payment from the
A new judgment is hereby entered REINSTATING the Decision of the the subsequent obligations of the principal borrower. GR 94566 car dealers and/or the sureties. In this manner, car dealers
trial court. are able to secure delivery of their stock-in-trade without
Furthermore, this Court has ruled in Dio v. CA: FACTS: On January 17, 1983, Joseph L. G. Chua, President of Fortune having to pay cash therefor; manufacturers get paid
(J.) Dio vs. Court of Appeals (1992) Under the Civil Code, a guaranty may be given to secure even future Motors Corporation, executed in favor of plaintiff-appellant a without any receivables/collection problems; and financing
debts, the amount of which may not be known at the time the guaranty Continuing Suretyship Agreement, in which he "jointly and severally companies earn their margins with the assurance of
FACTS: In 1977, Uy Tiam Enterprises and Freight Services (UTEFS), thru is executed. This is the basis for contracts denominated as continuing unconditionally" guaranteed the "full, faithful and prompt payment and payment not only from the dealers but also from the
its representative Uy Tiam, applied for and obtained credit guaranty or suretyship. A continuing guaranty is one which is not discharge of any and all indebtedness" of Fortune Motors Corporation sureties. When the vehicles are eventually resold, the car
accommodations from Metrobank in the sum of Php700,000. This was limited to a single transaction, but which contemplates a future course to BA Finance Corporation. On February 3, 1983, Palawan Lumber dealers are supposed to pay the financing companies --
secured by Continuing Suretyships separately executed by petitioners of dealing, covering a series of transactions, generally for an indefinite Manufacturing Corporation represented by Joseph L.G. Chua, George D. and the business goes merrily on. However, in the event the
Norberto Uy (who agreed to pay Php300,000) and Jacinto Dio (who time or until revoked. Tan, Edgar C. Rodrigueza and Joselito C. Baltazar, executed in favor of car dealer defaults in paying the financing company, may
bound himself liable up to Php800,000). Uy Tiam paid the obligation It is prospective in its operation and is generally intended to plaintiff-appellant a Continuing Suretyship Agreement in which, said the surety escape liability on the legal ground that the
under this letter of credit in 1977. UTEFS obtained another credit provide security with respect to future transactions within corporation "jointly and severally unconditionally" guaranteed the "full, obligations were incurred subsequent to the execution of
accommodation in 1978, which was likewise settled before he applied certain limits, and contemplates a succession of liabilities, for faithful and prompt payment and discharge of any and all indebtedness the surety contract?
and obtained another in 1979 in the sum of Php815,600. This sum which, as they accrue, the guarantor becomes liable. of Fortune Motors Corporation to BA Finance Corporation (Folder of
CRED TRANS digests GUARANTY & SURETYSHIP (Art 2047-2084) Page 5 of 15
x x x Of course, a surety is not bound under any particular principal without his wifes consent and should, thus, be considered as a mere therefore, is that if the obligation is joint and several, the creditor
obligation until that principal obligation is born. But there is no A guarantor or surety does not incur liability unless the principal debtor continuing offer. Like Andrew, Geronimo argued that he ought to be has the right to proceed even against the surety alone.
theoretical or doctrinal difficulty inherent in saying that the suretyship is held liable. It is in this sense that a surety, although solidarily liable relieved of his liability under the surety agreement inasmuch as he too
agreement itself is valid and binding even before the principal with the principal debtor, is different from the debtor. It does not mean, never consented to the repeated loan maturity date extensions given by A Suretyship contract refers to an agreement whereunder one person,
obligation intended to be secured thereby is born, any more than there however, that the surety cannot be held liable to the same extent as the Asianbank to Gateway. the surety, engages to be answerable for the debt, default, or
would be in saying that obligations which are subject to a condition principal debtor. The nature and extent of the liabilities of a guarantor miscarriage of another known as the principal. Geronimos position that
precedent are valid and binding before the occurrence of the condition or a surety is determined by the clauses in the contract of suretyship. After due hearing, the RTC rendered judgment holding Gateway, a surety cannot be made to pay when the principal is unable to pay is
precedent. Geronimo and Andrew jointly and severally liable to pay Asianbank. clearly specious and must be rejected.
ACCORDINGLY, the petition is GRANTED. The questioned decision of
Comprehensive or continuing surety agreements are in fact quite respondent appellate court is SET ASIDE and the decision of the trial Petitioners herein appealed to the CA. Following the filing of its and
commonplace in present day financial and commercial practice. A bank court is REINSTATED. Geronimos joint appellants brief, Gateway filed on a petition for (P). SECURITY BANK AND TRUST COMPANY, Inc., petitioner, vs.
or financing company which anticipates entering into a series of credit voluntary insolvency6 with the RTC in Imus, Cavite, which was granted. RODOLFO M. CUENCA, respondent.
transactions with a particular company, commonly requires the (N). MOLINO v. SECURITY CA affirmed the decision of the lower court. MR denied, hence this G.R. No. 138544 October 3, 2000
projected principal debtor to execute a continuing surety agreement GR 136780 petition for review under Rule 45.
along with its sureties. By executing such an agreement, the principal
places itself in a position to enter into the projected series of (NO DIGEST SA NET SAD. ) ISSUE: is Geronimo discharged from liability because of the insolvency
petitioner bank cannot hold herein respondent liable for loans obtained in
transactions with its creditor; with such suretyship agreement, there of Gateway, the principal. NO.
excess of the amount or beyond the period stipulated in the original
would be no need to execute a separate surety contract or bond for
agreement, absent any clear stipulation showing that the latter waived his
each financing or credit accommodation extended to the principal (O). GATEWAY v. ASIANBANK HELD: petition denied
right to be notified thereof, or to give consent thereto.
debtor. GR 172041 NO
Asianbank argues that the stay of the collection suit against Gateway
(M). PACIFIC BANKING v. IAC FACTS: Petitioner Gateway Electronics Corporation (Gateway) is a (because its case is transferred to an insolvency court) is without FACTS:
GR 72275 domestic corporation that used to be engaged in the semi-conductor bearing on the liability of Geronimo as a surety. Pursuing the point, Defendant-appellant Sta. Ines Melale (Sta. Ines/SIMC) is a corporation
business. During the period material, petitioner Geronimo delos Reyes Asianbank avers that Geronimo may not invoke the insolvency of engaged in logging operations. It was a holder of a Timber License
FACTS: The case is a petition for review on certiorari of the decision of was its president and one Andrew delos Reyes its executive vice- Gateway as a defense to evade liability. Agreement issued by the DENR
the Intermediate Appellate Court. In the case, Cecilia Regala obtained a president. On July 23, 1996, Geronimo and Andrew executed separate
Pacific Credit Card and her spouse, Roberto Regala signed as her but almost identical deeds of suretyship for Gateway in favor of Geronimo counters with the argument that his liability as a surety
guarantor. The holder of the card purchased goods and/or services respondent Asianbank for Domestic Bills Purchased Line and the cannot be separated from Gateways liability. As surety, he continues, he On 10 November 1980, Security Bank and Trust Co. granted appellant
under the pacificard amounting to P92, 803.98. Despite the execution of Omnibus Credit Line. is entitled to avail himself of all the defenses pertaining to Gateway, Sta. Ines a credit line in the amount of (P8,000,000.00) effective til
demand from the bank, the couple did not comply. The trial court including its insolvency, suggesting that if Gateway is eventually November 30, 1981 to assist the latter in meeting the additional
renders judgment for the plaintiff and against the defendants Later developments saw Asianbank extending to Gateway several export released from what it owes Asianbank, he, too, should also be so capitalization requirements of its logging operations.
condemning the latter, jointly and severally, to pay said plaintiff the packing loans .This loan package was later consolidated with A Dollar relieved.
amount of P92,803.98, with interest thereon at 14% per annum, Promissory Note (and secured by a chattel mortgage over Gateways
To secure payment, it executed a chattel mortgage over some of its
compounded annually, from the time of demand on November 17, 1978 equipment. Geronimos above contention is untenable.
machineries and equipments. And as an additional security, its President
until said principal amount is fully paid; plus 15% of the principal
and Chairman of the Board of Directors Rodolfo Cuenca, executed an
obligation as and for attorney's fees and expense of suit; and the costs. Gateway initially made payments on its loan obligations, but eventually Suretyship is covered by Article 2047 of the Civil Code, which states:
Indemnity agreement in favor of Security Bank whereby he bound
defaulted. Upon Gateways request, Asianbank extended the maturity By guaranty a person, called the guarantor, binds himself to the creditor
himself jointly and severally with Sta. Ines.
The defendants appealed to the Intermediate Appellate Court. Wherein dates of the loan several times. These extensions bore the conformity of to fulfill the obligation of the principal debtor in case the latter should
the said court modified only as to appellant Roberto Regala, Jr., so as to three of Gateways officers, among them Andrew. fail to do so.
make him liable only for the purchases made by defendant Celia Aurora Specific stipulations:
Syjuco Regala with the use of the Pacificard from October 29, 1975 up Gateway issued two Philippine Commercial International Bank checks as If a person binds himself solidarily with the principal debtor, the
to October 29, 1976 up to the amount of P2,000.00 per month only, payment for its arrearages and but both checks were dishonored for provisions of Section 4, Chapter 3, Title I of this Book shall be observed.
with interest from the filing of the complaint up to the payment at the insufficiency of funds. Asianbanks demands for payment made upon In such case the contract is called a suretyship. The bank reserves the right to amend any of the
rate of 14% per annum without pronouncement as to costs. Gateway and its sureties went unheeded. As of November 23, 1999, The Courts disquisition in Palmares v. Court of Appeals on suretyship is aforementioned terms and conditions upon written notice
Gateways obligation to Asianbank, inclusive of principal, interest, and instructive, thus: to the Borrower.
ISSUE: Whether or not, Roberto Regalado as a guarantor is limited to penalties, totaled USD 2,235,452.17. As additional security for the payment of the loan, Rodolfo
pay up to only P2000 per month in the liability of his spouse to the said A surety is an insurer of the debt, whereas a guarantor is an insurer of M. Cuenca executed an Indemnity Agreement dated 17
bank? Thus Asianbank filed with the RTC in Makati City a complaint for a sum the solvency of the debtor. A suretyship is an undertaking that the debt December 1980 solidary binding himself:
of money against Gateway, Geronimo, and Andrew. shall be paid x x x. Stated differently, a surety promises to pay the Rodolfo M. Cuenca x x x hereby binds himself x x x jointly
HELD: The undertaking signed by Roberto Regala, Jr. although principals debt if the principal will not pay, while a guarantor agrees and severally with the client (SIMC) in favor of the bank for
denominated "Guarantor's Undertaking," was in substance a contract of In its answer to the amended complaint, Gateway traced the cause of its that the creditor, after proceeding against the principal, may proceed the payment, upon demand and without the benefit of
surety. As distinguished from a contract of guaranty where the financial difficulties, described the steps it had taken to address its against the guarantor if the principal is unable to pay. A surety binds excussion of whatever amount x x x the client may be
guarantor binds himself to the creditor to fulfill the obligation of the mounting problem, and faulted Asianbank for trying to undermine its himself to perform if the principal does not, without regard to his ability indebted to the bank x x x by virtue of aforesaid credit
principal debtor only in case the latter should fail to do so, in a contract efforts toward recovery. to do so. x x xIn other words, a surety undertakes directly for the accommodation(s) including the substitutions, renewals,
of suretyship, the surety binds himself solidarily with the principal payment and is so responsible at once if the principal debtor makes extensions, increases, amendments, conversions and
debtor. It is true that under Article 2054 of the Civil Code, "(A) guarantor Andrew also filed an answer alleging, among other things, that the deed default x x x. revivals of the aforesaid credit accommodation(s) x x x
may bind himself for less, but not for more than the principal debtor, of suretyship he executed covering the Domestic Bills Purchased Line xxxx .
both as regards the amount and the onerous nature of the conditions. It and the Omnibus Credit Line did NOT include the Dollar Promissory
is likewise not disputed by the parties that the credit limit granted to Note, the payment of which was extended several times without his A creditors right to proceed against the surety exists 1985: Cuenca resigned as President and Chairman of the Board of
Celia Regala was P2,000.00 per month and that Celia Regala succeeded consent. independently of his right to proceed against the principal.Under Directors of defendant-appellant Sta. Ines. Subsequently, the
in using the card beyond the original period of its effectivity, October Article 1216 of the Civil Code, the creditor may proceed against any one shareholdings of Cuenca in Sta. Ines were sold at a public auction to
29, 1979. We do not agree however, that Roberto Jr.'s liability should be Geronimo, on the other hand, alleged that the subject deed of of the solidary debtors or some or all of them simultaneously. The rule, Adolfo Angala. Before and after this, Sta Ines availed of its credit line.
limited to that extent. suretyship, assuming the authenticity of his signature on it, was signed
CRED TRANS digests GUARANTY & SURETYSHIP (Art 2047-2084) Page 6 of 15
Sta Ines encountered difficulty in making the amortization payments on 2. that the accommodation should expire not later than documents to the Insurance Company as may be necessary to prove Under the deed of chattel mortgage, B.A. Finance Corporation was
its loans and requested SBTC for a complete restructuring of its November 30, 1981. Hence, it was a continuing surety only the claim, and to collect from the latter the proceeds of insurance to constituted attorney-in-fact with full power and authority to file, follow-
indebtedness. SBTC accommodated SIMCs request and signified its in regard to loans obtained on or before the the extent of its interests, in the event that the mortgaged car up, prosecute, compromise or settle insurance claims; to sign execute
approval in a letter dated 18 February 1988 wherein SBTC and Sta. aforementioned expiry date and not exceeding the total suffers any loss or damage. and deliver the corresponding papers, receipts and documents to the
Ines, without notice to or the prior consent of ] Cuenca, agreed to of P8 million. Insurance Company as may be necessary to prove the claim, and to
restructure the past due obligations of defendant-appellant Sta. Ines. Facts: Spouses Manuel and Lilia Cuady obtained from Supercars, Inc. collect from the latter the proceeds of insurance to the extent of its
To formalize their agreement to restructure the loan obligations of Sta. bought a Ford Escort 1300, four-door sedan in installments. To secure interests, in the event that the mortgaged car suffers any loss or
Ines, Security Bank and Sta. Ines executed a Loan Agreement dated 31 In Dino, the surety Agreement specifically provided that each the faithful and prompt compliance of the obligation under the said damage.
October 1989 suretyship is a continuing one which shall remain in full force and promissory note, the Cuady spouses constituted a chattel mortgage on
effect until this bank is notified of its revocation. Since the bank had not the aforementioned motor vehicle. Supercars, Inc. assigned the
been notified of such revocation, the surety was held liable even for promissory note, together with the chattel mortgage, to B.A. Finance
Sta Ines made payments up to (P1,757,000.00) The defaulted in the
the subsequent obligations of the principal borrower. Corporation. The Cuadys made partial payment leaving an un (S). FIDELIZA J. AGLIBOT, Petitioner,
payment of its restructured loan obligations to SBTC despite demands
paid balance.In addition thereto, the Cuadys owe B.A. Finance .B.A. v. INGERSOL L. SANTIA, Respondent.
made upon appellant SIMC and CUENCA,
(Q). PICZON VS. PICZON Finance Corporation, as the assignee of the mortgage lien obtained the G.R. No. 185945 : December 5, 2012
61 SCRA 67 (1974) renewal of the insurance coverage over the aforementioned motor
SBTC filed a complaint for collection of sum of resulting after trial on the vehicle for the with Zenith Insurance Corporation, when the Cuadys
merits in a decision by the court a quo, from which Cuenca appealed Facts: AGREEMENT OF LOAN failed to renew said insurance coverage themselves. Under the terms FACTS:
and conditions of the said insurance coverage, any loss under the policy
shall be payable to the B.A. Finance Corporation. Engr. Ingersol L. Santia (Santia) loaned the amount of P2,500,000.00 to
CA: Released Cuenca from liability because 1989 Loan Agreement KNOW YE ALL MEN BY THESE PRESENTS: Pacific Lending & Capital Corporation (PLCC), through its Manager,
novated the 1980 credit accommodation which extinguished the The motor vehicle figured in an accident and was badly damaged. The petitioner Fideliza J. Aglibot (Aglibot). The loan was evidenced by a
Indemnity Agreement for which Cuenca was liable solidarily. No unfortunate happening was reported to the B.A. Finance Corporation promissory note. Allegedly as a guaranty for the payment of the note,
notice/consent to restructure. Since with expiration date, liable only up That I, ESTEBAN PICZON, of legal age, married, Filipino, and resident of
and to the insurer, Zenith Insurance Corporation. The Cuadys asked the Aglibot issued and delivered to Santia eleven (11) post-dated personal
to that date and up to that amount (8M). Amounted to extension.of and with postal address in the municipality of Catbalogan, Province of
B.A. Finance Corporation to consider the same as a total loss, and to checks drawn from her own account maintained at Metrobank. Upon
time with no notice to suret therefore released from liability. Samar, Philippines, in my capacity as the President of the corporation
claim from the insurer the face value of the car insurance policy and presentment of the checks for payment, they were dishonored by the
known as the "SOSING-LOBOS and CO., INC.," as controlling stockholder,
apply the same to the payment of their remaining account and give bank for having been drawn against insufficient funds or closed
and at the same time as guarantor for the same, do by these presents
them the surplus thereof, if any. But instead of heeding the request of account. Santia thus demanded payment from PLCC and Aglibot of the
contract a loan of Twelve Thousand Five Hundred Pesos (P12,500.00),
the Cuadys, B.A. Finance Corporation prevailed upon the former to just face value of the checks, but neither of them heeded his demand.
(P2) SECURITY BANK V. CUENCA, (2000) Philippine Currency, the receipt of which is hereby acknowledged, from
have the car repaired. Not long thereafter, however, the car bogged Consequently, eleven (11) Informations for violation of B.P. 22 were filed
Surety: Obligations Secured, Art. 2053 the "Piczon and Co., Inc." another corporation, the main offices of the two
down. The Cuadys wrote B.A. Finance Corporation requesting the latter before the MTCC.
corporations being in Catbalogan, Samar, for which I undertake, bind and
to pursue their prior instruction of enforcing the total loss provision in
Being an onerous undertaking, a surety agreement is strictly construed agree to use the loan as surety cash deposit for registration with the
the insurance coverage. When B.A. Finance Corporation did not respond MTCC acquitted Aglibot. On appeal, the RTC rendered a decision
against the creditor, and every doubt is resolved in favor of the solidary Securities and Exchange Commission of the incorporation papers relative
favorably to their request, the Cuadys stopped paying their monthly absolving Aglibot and dismissing the civil aspect of the case on the
debtor. The fundamental rules of fair play require the creditor to obtain to the "Sosing-Lobos and Co., Inc.," and to return or pay the same amount
installments on the promissory note. In view of the failure of the Cuadys ground of failure to fulfill a condition precedent of exhausting all means
the consent of the surety to any material alteration in the principal loan with Twelve Per Cent (12%) interest per annum, commencing from the
to pay the remaining installments on the note, B.A. Finance Corporation to collect from the principal debtor.
agreement, or at least to notify it thereof. Hence, petitioner bank cannot date of execution hereof, to the "Piczon and Co., Inc., as soon as the said
sued them.
hold herein respondent liable for loans obtained in excess of the incorporation papers are duly registered and the Certificate of
On appeal, the Court of Appeals ruled that the RTC erred when it
amount or beyond the period stipulated in the original agreement, Incorporation issued by the aforesaid Commission.
dismissed the civil aspect of the case. Hence, the CA ruled that Aglibot is
absent any clear stipulation showing that the latter waived his right to
B.A. Finance Corporation contended that even if it failed to enforce the personally liable for the loan.
be notified thereof, or to give consent thereto. This is especially true
IN WITNESS WHEREOF, I hereunto signed my name in Catbalogan, total loss provision in the insurance policy of the motor vehicle subject
where, as in this case, respondent was no longer the principal officer or
Samar, Philippines, this 28th day of September, 1956. of the chattel mortgage, said failure does not operate to extinguish the Thus, Aglibot filed this instant petition for certiorari. She argued that she
major stockholder of the corporate debtor at the time the later
unpaid balance on the promissory note, considering that the was merely a guarantor of the obligation and therefore, entitled to the
obligations were incurred. He was thus no longer in a position to
circumstances obtaining in the case at bar do not fall under Article 1231 benefit of excussion under Article of the 2058 of the Civil Code. She
compel the debtor to pay the creditor and had no more reason to bind Issue: of the Civil Code relative to the modes of extinguishment of obligations. further posited that she is not personally liable on the checks since she
himself anew to the subsequent obligations.
merely contracted the loan in behalf of PLCC.
Issue: Contending that the Indemnity Agreement was in the nature of a Whether or not Esteban was only a guarantor and not a surety.
Ruling Issue: Whether or not BA Finance ca still collect on the deficiency of the ISSUES:
continuing surety, petitioner maintains that there was no need for
respondent to execute another surety contract to secure the 1989 Loan Under the terms of the contract, Annex A, Esteban Piczon expressly Chattel Mortgage.
bound himself only as guarantor, and there are no circumstances in the I. Whether or not Aglibot is entitled to the benefit of excussion?
Agreement. Correct? NO.
record from which it can be deduced that his liability could be that of a II. Whether or not Aglibot is personally liable on the checks?
Held: That the Indemnity Agreement is a continuing surety does not surety. A guaranty must be express, (Article 2055, Civil Code) and it Held: In granting B.A. Finance Corporation the aforementioned powers
would be violative of the law to consider a party to be bound as a surety and prerogatives, the Cuady spouses created in the formers favor an HELD: The petition is bereft of merit.
authorize the bank to extend the scope of the principal obligation
inordinately. when the very word used in the agreement is "guarantor agency. Thus, under Article 1884 of the Civil Code of the Philippines,
B.A. Finance Corporation is bound by its acceptance to carry out the CIVIL LAW: guaranty; benefit of excussion; Statute of Frauds;
agency, and is liable for damages which, through its non-performance, contracts
In Dino v. CA, the Court held that a continuing guaranty is one which
covers all transactions, including those arising in the future, which are (R). BA Finance Corporation v. Court of Appeals, the Cuadys, the principal in the case at bar, may suffer; in such case, the
G.R. No. 94566 July 3, 1992 assignee of the mortgage agreement is bound by the same stipulation FIRST ISSUE: Aglibot cannot invoke the benefit of excussion.
within the description or contemplation of the contract of guaranty, until
the expiration or termination thereof. and if the assignee failed to file and prosecute the insurance claim when
Under the deed of chattel mortgage, B.A. Finance Corporation was the car was damaged totally, the mortgagor is relieved from his It is settled that the liability of the guarantor is only subsidiary, and all
constituted attorney-in-fact with full power and authority to file, obligation to pay as he suffered a loss because of the failure of the the properties of the principal debtor, the PLCC in this case, must first
To repeat, in the present case, the Indemnity Agreement was subject to
follow-up, prosecute, compromise or settle insurance claims; to sign mortgagee to file the claim. be exhausted before the guarantor may be held answerable for the
the two limitations of the credit accommodation:
execute and deliver the corresponding papers, receipts and debt. Thus, the creditor may hold the guarantor liable only after
1. that the obligation should not exceed P8 million, and

CRED TRANS digests GUARANTY & SURETYSHIP (Art 2047-2084) Page 7 of 15

judgment has been obtained against the principal debtor and the latter intervenor was not a party to the contract of surety, hence, he was not all the rights and obligations of the deceased (Article 661) and can not
is unable to pay, for obviously the exhaustion of the principals property Petition is DENIED. Court of Appeals is AFFIRMED. bound bythe contract. be regarded as third parties with respect to a contract to which the
the benefit of which the guarantor claims cannot even begin to take deceased was a party, touching the estate of the deceased x x x which
place before judgment has been obtained. This rule is contained in (T). TEXAS v ALONZO Hence, this petition. comes in to their hands by right of inheritance; they take such property
Article 2062 of the Civil Code, which provides that the action brought by No available Net Digest subject to all the obligations resting thereon in the hands of him from
the creditor must be filed against the principal debtor alone, except in whom they derive their rights. The third exception to the
some instances mentioned in Article 2059 when the action may be ISSUE: Whether or not the surety is liable to an intervenor on a replevin transmissibility of obligations under Article 1311 exists when they are
brought against both the guarantor and the principal debtor. bond posted by petitioner in favor of respondents. not transmissible by operation of law. The provision makes reference to
(U). VISAYAS SURETY V CA GR 127261 9/72001 those cases where the law expresses that the rights or obligations are
The Court must, however, reject Aglibots claim as a mere guarantor of extinguished by death, as is the case in legal support, parental authority,
the indebtedness of PLCC to Santia for want of proof, in view of Article usufruct, contracts for a piece of work, partnership and agency. By
HELD: The petition is meritorious. It is a basic principle in law that
1403(2) of the Civil Code, embodying the Statute of Frauds. Under the contrast, the articles of the Civil Code that regulate guaranty or
Action for recovery of goods and chattel wrongfully attained. Who is an contracts can bind only the parties who had entered into it; it cannot
above provision, concerning a guaranty agreement, which is a promise suretyship contain no provision that the guaranty is extinguished upon
intervenor? favor or prejudice third person. Contracts take effect between the
to answer for the debt or default of another, the law clearly requires that the death of the guarantor or the surety.
parties, their assigns, and heirs, except in cases where the rights and
it, or some note or memorandum thereof, be in writing. Otherwise, it
An individual who is not already a party to an existing lawsuit but who obligations arising from the contract are not transmissible by their The contracts of suretyship in favor of Luzon Surety Co. not being
would be unenforceable unless ratified, although under Article 1358 of
makes himself or herself a party either by joining with the plaintiff or nature, or by stipulation or by provision of law. The obligation of a rendered intransmissible due to the nature of the undertaking, nor by
the Civil Code, a contract of guaranty does not have to appear in a
uniting with the defendant in resistance of the plain-tiff's claims. surety cannot be extended by implication beyond its specified limits. stipulations of the contracts themselves, nor by provision of law, his
public document. Contracts are generally obligatory in whatever form
they may have been entered into, provided all the essential requisites eventual liability therefrom necessarily passed upon his death to his
for their validity are present, and the Statute of Frauds simply provides heirs. The contracts, therefore, give rise to contingent claims provable
the method by which the contracts enumerated in Article 1403(2) may FACTS: When a surety executes a bond, itdoes not guarantee that the plaintiffs against his estate. A contingent liability of a deceased person is part and
be proved, but it does not declare them invalid just because they are cause of action is meritorious, and that it will be responsible for all the parcel of the mass of obligations that must be paid if and when the
The case is a petition to review and set aside a decision of the costs that may be adjudicated against its principal in case the action contingent liability is converted into a real liability. Therefore, the
not reduced to writing. Thus, the form required under the Statute is for
Court of Appeals affirming that of the Regional TrialCourt, Bian, fails. The extent of a suretys liability is determined only by the clause of settlement or final liquidation of the estate must be deferred until such
convenience or evidentiary purposes only.
Laguna, Branch 24, holding the surety liable to the intervenor in lieu of the contract of suretyship. time as the bonded indebtedness is paid.
the principal on a replevin bond.
On the other hand, Article 2055 of the Civil Code also provides that a
guaranty is not presumed, but must be express, and cannot extend to
more than what is stipulated therein. This is the obvious rationale why a A contract of surety is not presumed; it cannot extend to more than
contract of guarantee is unenforceable unless made in writing or On February 2, 1993, the spouses Danilo and Mila Ibajan filed with the what is stipulated. Since the obligation of the surety cannot be extended
evidenced by some writing. Regional Trial Court, Laguna, Bian a complaintagainst spouses Jun and (W) YULIM INTERNATIONAL COMPANY LTD., v. INTERNATIONAL
by implication, it follows that the surety cannot be held liable to
Susan Bartolome, for replevin to recover from them the possession of EXCHANGE BANK (NOW UNION BANK OF THE PHILIPPINES)
theintervenor when the relationship and obligation of the surety is
MERCANTILE LAW: accommodation party an Isuzu jeepney, with damages. FACTS: On June 2, 2000, iBank, a commercial bank, granted Yulim, a
limited to the defendants specified in the contract of surety.
domestic partnership, a credit facility in the form of an Omnibus Loan
SECOND ISSUE: Aglibot is an accommodation party and therefore Plaintiffs Ibajan alleged that they were the owners of an Isuzu jeepney Line for P5,000,000.00, as evidenced by a Credit Agreement3 which was
liable to Santia. which was forcibly and unlawfully taken by defendants Jun and Susan secured by a Chattel Mortgage4 over Yulims inventories in its
Bartolome on December 8, 1992, while parked at their residence. (V) Estate of K.H. Hemady vs Luzon Surety Co., Inc. merchandise warehouse at 106 4th Street, 9th Avenue, Caloocan City. As
The appellate court ruled that by issuing her own post-dated checks, further guarantee, the partners, namely, James, Jonathan and Almerick,
On February 8, 1993, plaintiffs filed a replevin bond through petitioner Civil Law Wills and Succession Transmissible Obligations
Aglibot thereby bound herself personally and solidarily to pay Santia, executed a Continuing Surety Agreement in favor of iBank. Yulim
Visayan Surety & Insurance Corporation. Thecontract of surety provided
and dismissed her claim that she issued her said checks in her official availed of its aforesaid credit facility with iBank.
that Danilo and Mila are jointly and severally binding themselves in the FACTS: Luzon Surety filed a claim against the estate of K.H. Hemady
capacity as PLCCs manager merely to guarantee the investment of sum of Three HundredThousand Pesos (P300,000.00) for the return of based on indemnity agreements (counterbonds) subscribed by distinct
Santia. The facts present a clear situation where Aglibot, as the manager principals and by the deceased K.H. Hemady as surety (solidary
the property to the defendant, if the return thereof be adjudged, and
of PLCC, agreed to accommodate its loan to Santia by issuing her own guarantor). As a contingent claim, Luzon Surety prayed for the The promissory notes (PN) were later consolidated under a single
for the payment to the defendant of such sum as he/she may recover
post-dated checks in payment thereof. She is what the Negotiable allowance of the value of the indemnity agreements it had executed. promissory note, PN No. SADDK001014188, for P4,246,310.00, to
from the plaintiff in the action.
Instruments Law calls an accommodation party. The lower court dismissed the claim of Luzon Surety on the ground that mature on February 28, 2002. Yulim defaulted on the said note.
On May 3, 1993, Dominador V. Ibajan, father of plaintiff Danilo Ibajan, whatever losses may occur after Hemadys death, are not chargeable to
The relation between an accommodation party and the party filed with the trial court a motion for leave of court tointervene, stating his estate, because upon his death he ceased to be a guarantor.
accommodated is, in effect, one of principal and surety the that he has a right superior to the plaintiffs over the ownership and
ISSUES: What obligations are transmissible upon the death of the On April 5, 2002, iBank sent demand letters to Yulim, through its
accommodation party being the surety. It is a settled rule that a surety is possession of the subject vehicle andthe he trial court granted the
decedent? Are contingent claims chargeable against the estate? President, James, and through Almerick,8 but without success. iBank
bound equally and absolutely with the principal and is deemed an motion to intervene.
then filed a Complaint for Sum of Money with Replevin9against Yulim
original promisor and debtor from the beginning. The liability is
On August 8, 1993, the trial court issued an order granting the motion HELD: Under the present Civil Code (Article 1311), the rule is that and its sureties.
immediate and direct. It is not a valid defense that the accommodation
to quash the writ of replevin and ordering plaintiff MilaIbajan to return Contracts take effect only as between the parties, their assigns and
party did not receive any valuable consideration when he executed the
the subject jeepney to the intervenor Dominador Ibajan. heirs, except in case where the rights and obligations arising from the
instrument; nor is it correct to say that the holder for value is not a
contract are not transmissible by their nature, or by stipulation or by
holder in due course merely because at the time he acquired the On August 8, 2002, the Court granted the application for a writ of
On September 1, 1993, The trial court issued a writ of replevin in favor provision of law. While in our successional system the responsibility of
instrument, he knew that the indorser was only an accommodation replevin. Pursuant to the Sheriffs Certificate of Sale dated November 7,
of intervenor Dominador Ibajan but it was returnedunsatisfied and on the heirs for the debts of their decedent cannot exceed the value of the
party. Unlike in a contract of suretyship, the liability of the 2002, the items seized from Yulims warehouse were worth only
March 7, 1994, intervenor Dominador Ibajan filed with the trial court a inheritance they receive from him, the principle remains intact that
accommodation party remains not only primary but also unconditional P140,000.00, not P500,000.00 as the petitioners have insisted.
motion/application for judgment against plaintiffs bond. these heirs succeed not only to the rights of the deceased but also to
to a holder for value, such that even if the accommodated party receives
his obligations. Articles 774 and 776 of the New Civil Code expressly so
an extension of the period for payment without the consent of the Respective motions for reconsideration were made by both parties and
provide, thereby confirming Article 1311. On October 2, 2002, the petitioners moved to dismiss the complaint
accommodation party, the latter is still liable for the whole obligation petitioner Visayan Surety contends that it is notliable to the intervenor,
insisting that their loan had been fully paid after they assigned to iBank
and such extension does not release him because as far as a holder for Dominador Ibajan, because the intervention of the intervenor makes In Mojica v. Fernandez, the Supreme Court ruled Under the Civil
their Condominium Unit No. 141, with parking space, at 20 Landsbergh
value is concerned, he is a solidary co-debtor. him a party to the suit, but not a beneficiary to the plaintiffs bond. The Code the heirs, by virtue of the rights of succession are subrogated to
Place in Tomas Morato Avenue, Quezon City. They claimed that while
CRED TRANS digests GUARANTY & SURETYSHIP (Art 2047-2084) Page 8 of 15
the pre-selling value of the condominium unit was P3.3 Million, its HELD: The SC held that the individual petitioners here did not deny that part of the indebtedness, Wise & Co. filed an action against Atty. Held: Yes. As surety for the financial obligations of Fortune Motors
market value has since risen to P5.5 Million. The RTC, however, did not they executed the Continuing Surety Agreement, wherein they jointly Tanglao to recover the unpaid balance. (Phils.), Inc. and the Forte Merchant Finance, Inc., with the petitioner,
entertain the motion to dismiss for non-compliance with Rule 15 of the and severally with the PRINCIPAL [Yulim], hereby unconditionally and respondent Chua bound himself solidarily liable with the two (2)
Rules of Court. irrevocably guarantee full and complete payment when due, whether at ISSUE: W/N Tanglao is liable for the balance principal debtors. (Article 2047, Civil Code) The petitioner may therefore
stated maturity, by acceleration, or otherwise, of any and all credit demand payment of the whole financial obligations of Fortune Motors
accommodations that have been granted to Yulim by iBank, including HELD: No. Nothing is stated in the compromise agreement to the effect (Phils.), Inc. and Forte Finance, Inc., from Chua, if the petitioner chooses
On May 16, 2006, the petitioners filed their Answer reiterating that they interest, fees, penalty and other charges. Under Article 2047 of the Civil that Atty. Tanglao become Davids surety for the payment of the to go directly after him. Hence, since the only property of Chua was sold
have paid their loan by way of assignment of a condominium unit to Code, these words are said to describe a contract of suretyship. judgment debt. Tanglao did not contract any personal responsibility for to JALECO after the debts became due, the petitioner has the right to
iBank, as well as insisting that iBanks penalties and charges were the payment of the sum of P640. The only obligation which he file an annulment of the deed of exchange between Chua and JALECO
exorbitant, oppressive and unconscionable. contracted was that resulting from the mortgage. However, a wherein Chua sold his only property to JALECO to protect his interests.
foreclosure suit was not instituted against Atty. Tanglao but a purely Upon investigation with the Securities and Exchange Commission (SEC),
In a contract of suretyship, one lends his credit by joining in the
personal action for the recovery of the amount still owned by Atty. the petitioner gathered the following facts based on the SEC records: a)
principal debtors obligation so as to render himself directly and
RTC: Tanglao. Even granting that Atty. Tanglao may be considered a surety JALECO was organized on November 2, 1982 with a capital stock of
primarily responsible with him without reference to the solvency of the
(or guarantor), the action does not lie against him on the ground that all P5,000,000.00; b) the stockholders of said corporation were mostly
principal.26 According to the above Article, if a person binds himself
It ordered Yulim alone to pay iBank the amount of P4,246,310.00, plus the legal remedies against him have not previously been asked for and members of the immediate family of Joseph L. G. Chua; c) on April 4,
solidarily with the principal debtor, the provisions of Articles 1207 to
interest at 16.50% per annum from February 28, 2002 until fully paid, David has property sufficient to pay the balance of the debt the 1983, a Board Resolution was passed authorizing the issuance of 12,000
1222, or Section 4, Chapter 3, Title I, Book IV of the Civil Code on joint
plus costs of suit, and dismissed the complaint against petitioners payment of which is sought of Tanglao in his alleged capacity as surety. shares of stocks worth Pl,200,000.00 to a new subscriber and non-
and solidary obligations, shall be observed. Thus, where there is a
James, Jonathan and Almerick, stating that there was no iota of A guaranty or surety must be expressed and cannot be presumed. stockholder Joseph L. G. Chua; and d) prior to the acquisition by the
concurrence of two or more creditors or of two or more debtors in one
evidence that the loan proceeds benefited their families. Further, the guarantor cannot be compelled to pay the creditor unless corporation of the property located at Dasmarias Village, Makati, the
and the same obligation, Article 1207 provides that among
the latter has exhausted all the property of the debtor, and has resorted percentage of the shareholding of the members of the family of Joseph
them, [t]here is a solidary liability only when the obligation expressly so
to all legal remedies against the debtor. L. G. Chua was 88% while after the acquisition of the property and the
states, or when the law or the nature of the obligation requires
CA: issuance of the shares to Chua, they owned 94% of the corporation. In
solidarity.
(B) PBCOM vs CA G.R. No. 90267 (March 22, 1991) the instant case, the evidence clearly shows that Chua and his
The CA ruled that the petitioners failed to prove that they have already immediate family control JALECO. The Deed of Exchange executed by
paid Yulims consolidated loan obligations totaling P4,246,310.00, for Facts: On April 14, 1976, Fortune Motors (Phils.), Inc. executed a Surety Chua and JALECO had for its subject matter the sale of the only
which it issued to iBank PN No. SADDK001014188 for the said amount. As regards the petitioners contention that iBank in its letter dated May Agreement in favor of Philippine Bank of Communications (PBCOM) property of Chua at the time when Chua's financial obligations became
It held that the existence of a debt having been established, the burden 4, 2001 had accepted/approved the assignment of its condominium with defendant-appellee Joseph L.G. Chua, as one of the sureties. due and demandable. The records also show that despite the "sale",
to prove with legal certainty that it has been extinguished by payment unit in Tomas Morato Avenue as full and final payment of their various October 1, 1981, Fortune Motors (Phils.), Inc. executed another Surety respondent Chua continued to stay in the property, subject matter of
devolves upon the debtors who have offered such defense. The CA loan obligations, the Court is far from persuaded. The assignment being Agreement in favor of PBCOM with Chua likewise acting as one of the the Deed of Exchange. These circumstances tend to show that the Deed
found the records bereft of any evidence to show that Yulim had fully in its essence a mortgage, it was but a security and not a satisfaction of sureties. From March 7, 1983 to May 3, 1983 Fortune Motors, (Phils.) of Exchange was not what it purports to be. Instead, they tend to show
settled its obligation to iBank, further stating that the so-called the petitioners indebtedness.34 Article 125535 of the Civil Code thru its authorized officers and/or representatives executed several trust that the Deed of Exchange was executed with the sole intention to
assignment by Yulim of its condominium unit to iBank was nothing but invoked by the petitioners contemplates the existence of two or more receipts in favor of PBCOM. On March 6, 1981, Forte Merchant Finance, defraud Chua's creditorthe petitioner. It was not a bona fide
a mere temporary arrangement to provide security for its loan pending creditors and involves the assignment of the entire debtors property, Inc., executed a Surety Agreement in favor of PBCOM with Joseph L.G. transaction between JALECO and Chua. Chua entered a sham or
the subsequent execution of a real estate mortgage. Specifically, the CA not a dacion en pago. Under Article 1245 of the Civil Code, [d]ation in Chua as one of the sureties. On May 13, 1983 to March 16, 1984, Forte simulated transaction with JALECO for the sole purpose of transferring
found nothing in the Deed of Assignment which could signify that iBank payment, whereby property is alienated to the creditor in satisfaction of Merchant Finance, Inc. obtained credit accommodations from PBCOM in the title of the property to JALECO without really divesting himself of
had accepted the said property as full payment of the petitioners loan. a debt in money, shall be governed by the law on sales. Nowhere in the the form of trust receipt and loans represented by promissory notes. On the title and control of the said property.
The CA cited Manila Banking Corporation v. Teodoro, Jr.22 which held Deed of Assignment can it be remotely said that a sale of the October 24, 1983 Chua executed a Deed of Exchange transferring a
that an assignment to guarantee an obligation is in effect a mortgage condominium unit was contemplated by the parties, the consideration parcel of land with improvements to JALECO Development, Inc., in (C) Bitanga vs. Pyramid Const.
and not an absolute conveyance of title which confers ownership on the for which would consist of the amount of outstanding loan due to iBank exchange for 12,000 shares of said Corporation. As a result, Register of G.R. No. 173526
assignee. from the petitioners. Deeds of Rizal covering the aforementioned parcel of land was issued in August 28, 2008
the name of JALECO Development, Inc. Chua sold 6,000 shares of
JALECO Development, Inc., to Mr. Chua Tiong King and another 6,000 FACTS: Pyramid filed with the RTC a Complaint for specific performance
Concerning the solidary liability of petitioners James, Jonathan and shares of JALECO Development, Inc. to Guillermo Jose, Jr. and Caw Le Ja and damages with application for the issuance of a writ of preliminary
II. EFFECTS OF GUARANTY
Almerick, the CA disagreed with the trial courts ruling that it must first Chua, wife of Chua sold the 6,000 share of JALECO Development, Inc., to attachment against the petitioner and wife Marilyn.
be shown that the proceeds of the loan redounded to the benefit of the Chua Tiong King. In the meanwhile, for failure of both Fortune Motors Respondent alleged in its Complaint that, it entered into an agreement
(A.) Wise Co. vs. Tanglao G.R. No. 42518 (August 29, 1936)
family of the individual petitioners before they can be held liable. Article (Phils.), Inc. and Forte Merchant Finance, Inc. to meet their respective with Macrogen Realty, of which Bitanga is the President, to construct for
161 of the Civil Code and Article 121 of the Family Code cited by the financial obligations with PBCOM, the latter filed Civil Case against the latter the Shoppers Gold Building located in Paraaque City.
FACTS- Cornelio David is an agent of Wise & Co. He was indebted to
RTC apply only where the liability is sought to be enforced against the Fortune Motors (Phils.), Inc., Joseph L. G. Chua, George D. Tan, Edgar L. Respondent commenced civil, structural, and architectural works on the
the company due to a liquidation of accounts indicating his said liability.
conjugal partnership itself. In this case, regardless of whether the loan Rodriguez and Jose C. Alcantara and Civil Case against Forte Merchant construction project. However, Macrogen failed to settle respondents
The company was able to secure a writ of attachment on his property. In
benefited the family of the individual petitioners, they signed as Finance, Inc., Joseph L. G. Chua, George O. Tan and Edgar L. Rodriguez progress billings. Petitioner, through his representatives and agents,
an effort to avoid the execution of the attachment, David had his
sureties, and iBank sought to enforce the loan obligation against them with the Regional Trial Court of Manila, both for Sum of Money with assured respondent that the outstanding account of Macrogen would
attorney (Dionisio Tanglao) sign a power of attorney in his favor. It
as sureties of Yulim. Thus, the appellate court granted the appeal of Writ of Preliminary Attachment where PBCOM was able to obtain a be paid and relying on the assurances made by petitioner, respondent
contained the following proviso: To sign for me (Tanglao) as guarantor
iBank, and denied that of the petitioners. notice of levy on the properties of Fortune Motors (Phils.). When continued the construction project.
for himself (David) in his indebtedness to Wise & Company of Manila,
plaintiff was able to locate Chua's former property situated in
which indebtedness appears in civil case No. 41129, of the Court of First
Hence, this petition. Dasmarias, Makati, Metro Manila which was already transferred to
Instance of Manila, and to mortgage my lot (No. 517-F of the
JALECO Development, Inc., by virtue of the Deed of Exchange. PBCOM Later, respondent suspended work on the construction project since the
subdivision plan Psd-20, being a portion of lot No. 517 of the cadastral
filed Civil Case for annulment of Deed of Exchange with the Regional conditions that it imposed for the continuation thereof, including
survey of Angeles, G. L. R. O. Cad. Rec. No. 124), to guarantee the said
ISSUE: Whether or not the Deed of Assignment executed by the Trial Court of Makati,Metro Manila. A decision was rendered on payment of unsettled accounts, had not been complied with by
obligations to the Wise & Company, Inc., of Manila.
petitioners shall be considered as full and final payment of their September 18, 1986 dismissing said case. Macrogen. Respondent instituted with the Construction Industry
obligation David then executed a compromise agreement with Wise & Co. which Arbitration Commission (CIAC) a case for arbitration against Macrogen
Issue: Whether or not the Deed of Exchange between Jaleco and Chua Realty seeking payment by the latter of its unpaid billings and project
named some of his properties (including the ones he mortgaged to
was used to defraud PBCOM costs. Before the arbitration case could be set for trial, Pyramid and
Tanglao) as security for his indebtedness. As Cornelio David paid only a

CRED TRANS digests GUARANTY & SURETYSHIP (Art 2047-2084) Page 9 of 15

Macrogen entered into a Compromise Agreement, with petitioner It must be stressed that despite having been served a demand letter at renewed after the expiry of said period, PhilGuarantee had no more from JN. If double payment was indeed made, then it is JN which should
acting as signatory for and in behalf of Macrogen Realty. his office, petitioner still failed to point out to the respondent properties legal duty to pay TRB on 10 March 1981. go after TRB, and not PhilGuarantee. Petitioners have no one to blame
Under the Compromise Agreement, Macrogen Realty agreed to pay of Macrogen Realty sufficient to cover its debt as required under Article but themselves, having allowed the foreclosure of the property for the
respondent the total amount of P6,000,000.00 by 2060 of the Civil Code. Such failure on petitioners part forecloses his ISSUE (1/4): Whether the date of default, not the actual date of full value of the loan despite knowledge of PhilGuarantees payment to
installments. Petitioner guaranteed the obligations of Macrogen right to set up the defense of excussion. payment, determines the liability of the guarantor. TRB. Having been aware of such payment, they should have opposed
Realty under the Compromise Agreement by executing a Contract the foreclosure, or at the very least, filed a supplemental pleading with
of Guaranty in favor of respondent, by virtue of which he irrevocably HELD: DATE OF DEFAULT determines the liability of the guarantor! The the trial court informing the same of the foreclosure sale.
and unconditionally guaranteed the full and complete payment of the Worthy of note as well is the Sheriffs return stating that the only guarantee was only up to 17 December 1980. JNs obligation with TRB
principal amount of liability of Macrogen. Upon joint motion of property of Macrogen Realty which he found was its deposit fell due on 30 June 1980, and demand on PhilGuarantee was made by
respondent and Macrogen Realty, the CIAC approved the Compromise of P20,242.23 with the Planters Bank. TRB on 08 October 1980. That payment was actually made only on 10 (E) Prudential Bank vs. IAC G.R. No. 74886 (Dec. 8, 1992)
Agreement. Article 2059(5) of the Civil Code thus finds application and precludes March 1981 does not take it out of the terms of the guarantee. What is
Macrogen Realty failed and refused to pay all the monthly installments petitioner from interposing the defense of excussion. We quote: controlling is that default and demand on PhilGuarantee had taken FACTS: MORA Defendant-appellant Philippine Rayon Mills, Inc. entered
agreed upon in the Compromise Agreement. Hence respondent moved place while the guarantee was still in force. into a contract with Nissho Co., Ltd. of Japan for the importation of
for the issuance of a writ of execution against Macrogen, which CIAC textile machineries under a five-year deferred payment plan. To effect
granted. ISSUE(2/4): Whether PhilGuarantee was correct in paying the guarantee, payment for said machineries, the defendant-appellant applied for a
Art. 2059. This excussion shall not take place: without TRB exhausting the property of JN. commercial letter of credit with the Prudential Bank and Trust Company
in favor of Nissho. By virtue of said application, the Prudential Bank
The sheriff filed a return stating that he was unable to locate any HELD: YES! PhilGuarantee was correct and may demand recovery of opened Letter of Credit. Against this letter of credit, drafts were drawn
property of Macrogen Realty, except its bank deposit of P20,242.33, xxxx what it has paid to TRB from JN. Excussion is a waivable right of a and issued by Nissho, which were all paid by the Prudential Bank. Upon
with the Planters Bank, Buendia Branch. guarantor. Under a contract of guarantee, the guarantor binds himself the arrival of the machineries, the Prudential Bank indorsed the shipping
Respondent then made, a written demand on petitioner, as guarantor of to the creditor to fulfill the obligation of the principal debtor in case the documents to the defendant-appellant which accepted delivery of the
Macrogen to pay the liability or to point out available properties of the latter should fail to do so. The guarantor who pays for a debtor, in turn, same. To enable the defendant-appellant to take delivery of the
(5) If it may be presumed that an execution on the property of the
Macrogen within the Philippines sufficient to cover the obligation principal debtor would not result in the satisfaction of the obligation. must be indemnified by the latter. However, the guarantor cannot be machineries, it executed, by prior arrangement with the Prudential Bank,
guaranteed. It also made verbal demands on petitioner. Yet, compelled to pay the creditor unless the latter has exhausted all the a trust receipt which was signed by Anacleto R. Chi in his capacity as
respondents demands were left unheeded. property of the debtor and resorted to all the legal remedies against the President (sic) of defendant-appellant company. At the back of the trust
debtor. This is what is otherwise known as the benefit of excussion. receipt is a printed form to be accomplished by two sureties who, by the
As the Court of Appeals correctly ruled: While a guarantor enjoys the benefit of excussion, nothing prevents him very terms and conditions thereof, were to be jointly and severally liable
from paying the obligation once demand is made on him. Excussion, to the Prudential Bank should the defendant-appellant fail to pay the
Petitioner filed with the RTC his Answer to respondents Complaint. As a after all, is a right granted to him by law and as such he may opt to total amount or any portion of the drafts issued by Nissho and paid for
special and affirmative defense, petitioner argued that the benefit of We find untenable the claim that the Bitanga cannot be compelled to make use of it or waive it. PhilGuarantees waiver of the right of by Prudential Bank.
excussion was still available to him as a guarantor since he had set it up pay Pyramid because the Macrogen Realty has allegedly sufficient excussion cannot prevent it from demanding reimbursement from
prior to any judgment against him. According to petitioner, respondent assets. Reason: The said [petitioner] had not genuinely controverted the petitioners. The law clearly requires the debtor to indemnify the The statement at the dorsal portion of the said trust receipt, which
failed to exhaust all legal remedies to collect from Macrogen the return made by Sheriff Bisnar, who affirmed that, after exerting diligent guarantor what the latter has paid. petitioner describes as a "solidary guaranty clause", reads: In
amount due under the Compromise Agreement, considering that efforts, he was not able to locate any property belonging to the consideration of the PRUDENTIAL BANK AND TRUST COMPANY
Macrogen Realty still had uncollected credits which were more than Macrogen Realty, except for a bank deposit with the Planters Bank at ISSUE(3/4): Whether PhilGuarantees failure to give its express consent complying with the foregoing, we jointly and severally agree and
enough to pay for the same. Given these premise, petitioner could not Buendia, in the amount of P20,242.23. It is axiomatic that the liability of to the alleged extensions granted by TRB to JN had extinguished the undertake to pay on demand to the PRUDENTIAL BANK AND TRUST
be held liable as guarantor. guarantee. COMPANY all sums of money which the said PRUDENTIAL BANK AND
the guarantor arises when the insolvency or inability of the debtor to
ISSUE: WON petitioner cam avail of the benefit of excussion TRUST COMPANY may call upon us to pay arising out of or pertaining
pay the amount of debt is proven by the return of the writ of execution
that had not been unsatisfied HELD: NO! Right is waivable by guarantor. The requirement that the to, and/or in any event connected with the default of and/or non-
HELD: petition denied for lack of merit; CA affirmed; Bitanga (alone; not guarantor should consent to any extension granted by the creditor to fulfillment in any respect of the undertaking of the aforesaid:
including his wife who is not a party to the compromise agreement) is the debtor under Art. 2079 is for the benefit of the guarantor and is PHILIPPINE RAYON MILLS, INC. We further agree that the PRUDENTIAL
liable as per Compromise Agreement or the contract of guaranty. waivable. Indeed, a guarantor is not precluded from waiving his right to BANK AND TRUST COMPANY does not have to take any steps or
(D) JN Devt. vs. Phil Export G.R. No. 151060 (Aug. 31, 2005)
be notified of or to give his consent to extensions obtained by the exhaust its remedy against aforesaid: before making demand on me/us.
NO. Under a contract of guarantee, the guarantor binds himself to the debtor. Such waiver is not contrary to public policy as it is purely (Sgd.) Anacleto R. Chi Philippine Rayon Mills (defendant-appellant)
NB: This case has 4 issues regarding guarantee.
creditor to fulfill the obligation of the principal debtor in case the latter personal and does not affect public interest. In the instant case, ceased operation. However, despite repeated formal demands, its
should fail to do so. The guarantor who pays for a debtor, in turn, must Important Dates: Loan Dec. 13, 1979 Guarantee Dec. 17, 1979 Dec. 17, PhilGuarantees waiver can be inferred from its actual payment to TRB obligation arising from the letter of credit and trust receipt remain
be indemnified by the latter. However, the guarantor cannot be after the latters demand, despite JNs failure to pay the unpaid. Hence the filing of an action for collection of a sum of money
1979 (1 year) TRB Demand Oct. 8, 1980 PhilGuarantee paid TRB Mar. 10,
compelled to pay the creditor unless the latter has exhausted all the renewal/guarantee fee as indicated in the guarantee. against Philippine Rayon Mills and Anacleto Chi.
1981
property of the debtor and resorted to all the legal remedies against the
debtor. This is what is otherwise known as the benefit of excussion ISSUE(4/4): Whether TRBs foreclosure of the real estate mortgage RTC: Dismissed the case as to Chi. Ordered Philippine Rayon Mills to pay
FACTS: On 13 December 1979 Traders Royal Bank (TRB) extend to JN
Development Corporation (JN) an Export Packing Credit Line for P2m. executed as security for the loan agreement had extinguished the amounts due. IAC: Affirmed the RTC in all respects. It held that Chi is
The loan was covered by several securities, including a real estate PhilGuarantees obligation; thus, PhilGuarantees recourse should be not liable on the trust receipt either as surety or as guarantor. This is
Article 2060 of the Civil Code reads: mortgage, and a letter of guarantee from respondent PhilGuarantee. JN directed against TRB, as per the pari-passu provision in the contract of because his signature at the dorsal portion thereof was useless; and
failed to pay the loan to TRB upon its maturity, thus, on 8 October 1980 guarantee. even if he could be bound by such signature as a simple guarantor, he
TRB requested PhilGuarantee to make good its guarantee. cannot, pursuant to Article 2058 of the Civil Code, be compelled to pay
Art. 2060. In order that the guarantor may make use of the benefit of PhilGuarantee paid TRB P934,824.34 on 10 March 1981. Subsequently, HELD: NO! It did not extinguish the obligation. Petitioners cannot until after petitioner has exhausted and resorted all legal remedies
excussion, he must set it up against the creditor upon the latters PhilGuarantee made several demands on JN, but the latter failed to pay. invoke the pari-passu clause in the guarantee, not being parties to the against the principal debtor, Philippine Rayon Mills.
demand for payment from him, and point out to the creditor available JN, proposed to settle the obligation by way of development and sale said agreement. The clause is clearly for the benefit of the guarantor
property of the debtor within Philippine territory, sufficient to cover the of the mortgaged property. PhilGuarantee thus filed a Complaint for and no other. The complaint a quo was filed by PhilGuarantee as ISSUE: W/N Anacleto Chi is merely a simple guarantor; and if so has his
amount of the debt collection of money and damages against herein petitioners. RTC: held guarantor for JN, and its cause of action was premised on its payment liability as such already attach?
that since PhilGuarantees guarantee was good for only one year from of JNs obligation after the latters default. PhilGuarantee was well within
17 December 1979 until 17 December 1980, and since it was not its rights to demand reimbursement for such payment made, regardless W/N Anacleto Chi is solidarily liable with Philippine Rayon Mills?
of whether the creditor, TRB, was subsequently able to obtain payment
CRED TRANS digests GUARANTY & SURETYSHIP (Art 2047-2084) Page 10 of 15
HELD: Chi is not solidarily liable with Philippine Rayon Mills. His for those costs incurred after being judicially required to pay. Interest because its bond referred only to the obligation of the extending beyond that sum up to P3,000.00), it was
obligation is only that of a guarantor. The questioned solidary guaranty and damages, being accessories of the principal obligation, should also Tobacconists in excess of P3,000.00 and up to P5,000.00. pleaded and conclusively proven that in reality, said bonds,
clause yields no other conclusion than that the obligation of Chi is only be paid; these, however, shall run only from the date of the filing of the 6) Hence, Mira Hermanos brought the present action against or the two sureties do not guarantee the same debt.
that of a guarantor. This is further bolstered by the last sentence which complaint. Attorney's fees may even be allowed in appropriate cases. the Manila Tobacconists, Inc,, Provident Insurance Co., and 3) Provident Insurance Co. guarantees only the first P3,000.00
speaks of waiver of exhaustion, which, nevertheless, is ineffective in this SC: Philippine Rayon Mills is principally liable on the 12 drafts and the Manila Compania de Seguros to recover from them jointly and the Manila Compania de Seguros, only the excess over
case because the space therein for the party whose property may not be trust receipt. Anacleto Chi is secondarily liable on the trust receipt. The
and severally the sum of P909.12 with legal interest thereon and above said amount up to P5,000.00. Article 1837 does
exhausted was not filled up. Under Article 2058 of the Civil Code, the Court ordered him to pay the face value thereof if the writ of execution
from the date of the complaint. not apply to this factual situation.
defense of exhaustion (excussion) may be raised by a guarantor before for the enforcement of judgment is returned unsatisfied.
he may be held liable for the obligation. Petitioner likewise admits that
the questioned provision is a solidary guaranty clause, thereby clearly
THE RULING OF THE TRIAL COURT: (G) MANILA SURETY AND FIDELITY, INC. (Plaintiff-appellant)
distinguishing it from a contract of surety. It, however, described the
The trial court ruled in favor of Manila Compania de Seguros. Vs. BATU CONSTRUCTION AND COMPANY, CARLOS N. BAQUIRAN,
guaranty as solidary between the guarantors; this would have been (F) MIRA HERMANOS, INC. (Plaintiff-appellee)
Hence, plaintiff Mira Hermanos appealed the trial courts ruling before GONZALO P. AMBOY and ANDRES TUNAC (Defendants-appellees)
correct if two (2) guarantors had signed it. The clause "we jointly and Vs. MANILA TOBACCONISTS, INC., ET. AL. (Defendants) and
the Court of Appeals. G.R. No. L-9353, May 21, 1957
severally agree and undertake" refers to the undertaking of the two (2) PROVIDENT INSURANCE CO. (Defendant-Appellant)
parties who are to sign it or to the liability existing between themselves. G.R. No. L-48979, September 29, 1943
THE RULING OF THE COURT OF APPEALS: THE CASE:
It does not refer to the undertaking between either one or both of them
The CA affirmed the ruling of the trial court. Hence, Mira Hermanos The case is a petition, which assails the decision of the trial court. The
on the one hand and the petitioner on the other with respect to the THE CASE:
filed the present petition before the Supreme Court. latter rendered a decision, in which it ruled that any amount spent by
liability described under the trust receipt. Elsewise stated, their liability is The case is a petition, which assails the decision of the Court of Appeals.
the Government in the continuation of the work, in excess of the
not divisible as between them, i.e., it can be enforced to its full extent
THE ISSUES: contract price, will be charged against the surety bond furnished by the
against any one of them. Furthermore, any doubt as to the import, or THE FACTS:
1) Whether the bond of P2,000.00 given by the Manila plaintiff.
true intent of the solidary guaranty clause should be resolved against By virtue of a written contract entered into between plaintiff Mira
Compania de Seguros was limited to and responded for
the petitioner. Hermanos, Inc. (Mira Hermanos) and defendant Manila Tobacconists,
the obligation of the Tobacconists only insofar as it THE FACTS:
Inc. (Tobacconists), with the following stipulations:
might exceeds the amount of P3,000.00 secured by the Batu Construction & Company (Batu Construction), a partnership the
The trust receipt, together with the questioned solidary guaranty clause, 1) Mira Hermanos, Inc. agrees to deliver the latters
bond of the Provident Insurance Co. members of which are the other three defendants, requested to post a
is on a form drafted and prepared solely by the petitioner; Chi's merchandise for sale on consignment under certain
surety bond for P8,812 in favor of the Government of the Philippines to
participation therein is limited to the affixing of his signature thereon. It specified terms. 2) Whether or not Provident Insurance Co. is entitled to
secure the faithful performance of the construction of the Bacarra
is, therefore, a contract of adhesion; as such, it must be strictly 2) Manila Tobacconists agree to pay to the former on or the benefit of division provided in Article 1837 of the
Bridge, Project PR-72 (3) in the Province of Ilocos Norte. The
construed against the party responsible for its preparation. The Court before the 20th day of each month, the invoice value of all Old Civil Code.
Government and Batu Construction entered into a construction contract
disagrees with the IAC that solidary guaranty clause was effectively
the merchandise sold during the preceding month. on July 11, 1950.
disregarded simply because it was not signed and witnessed by two (2)
3) Mira Hermanos, Inc. requires the Manila Tobacconists, Inc., Plaintiff Manila Surety and Fidelity, Inc. (Manila Surety) posted the said
persons and acknowledged before a notary public. While indeed, the THE RULING OF THE SUPREME COURT:
a bond of P3,000.00, which would be executed by a bond, with the following agreements:
clause ought to have been signed by two (2) guarantors, the fact that it The Supreme Court affirmed the judgment of the trial court, with
bonding company to secure the fulfillment of the latters 1) Defendants would indemnify Manila Surety for any
was only Chi who signed the same did not make his act an idle the only modification that it shall be entered against the
obligation under the contract. damage, loss, costs, or charges, or expenses, or attorneys
ceremony or render the clause totally meaningless. By his signing, Chi defendants Manila Tobacconists, Inc., and Provident Insurance Co.
fees that the latter may sustain as a consequence of having
became the sole guarantor. jointly and severally. It ordered appellants to pay the costs of suit.
The following events thereafter transpired: become surety upon the said bond.
The attestation by witnesses and the acknowledgement before a notary 1) Manila Tobacconists, Inc, secured the said bond from THE BASIS OF THE SUPREME COURT RULING: 2) The attorneys fees shall not be less that 15% of the total
public are not required by law to make a party liable on the instrument. Provident Insurance Co. REGARDING THE FIRST ISSUE: Whether the bond of P2,000.00 amount claimed in any action which Manila Surety may
The rule is that contracts shall be obligatory in whatever form they may 2) In October 1940, the volume of the business of the given by the Manila Compania de Seguros was limited to and institute against the defendants.
have been entered into, provided all the essential requisites for their Tobacconists increased so that the merchandise received responded for the obligation of the Tobacconists only insofar as it 3) Such indemnity shall be paid to Manila Surety as soon as it
validity are present; however, when the law requires that a contract be by it on consignment from Mira Hermanos exceeded might exceeds the amount of P3,000.00 secured by the bond of the has become liable for the payment of any amount.
in some form in order that it may be valid or enforceable, or that it be P3,000.00 in value. Hence, the latter required the former to Provident Insurance Co.
proved in a certain way, that requirement is absolute and indispensable. post an additional bond of P2,000.00. This was secured by HELD: Yes. The bond of P2,000.00 given by the Manila Compania On May 30, 1951, due to the unsatisfactory progress of the work of the
With respect to a guaranty, which is a promise to answer for the debt or the defendant Manila Compania de Seguros from Provident de Seguros was limited to and responded for the obligation of the bridge, the Director of Public Works, with the approval of the Secretary
default of another, the law merely requires that it, or some note or Insurance. Tobacconists only insofar as it might exceeds the amount of of Public Works and Communications, annulled the construction
memorandum thereof, be in writing. P3,000.00 secured by the bond of the Provident Insurance Co. contract referred to and notified the plaintiff Manila Surety that the
3) On June 1, 1941, a final and complete liquidation was made
1) The said issue of fact raised by and between the two surety Government would hold it liable for any amount incurred for the
of the transactions between Mira Hermanos and the
Otherwise, it would be unenforceable unless ratified. While the companies before the trial court and decided by the latter completion of the bridge, in excess of the contract price.
Tobacconists, as a result of which there was found a
acknowledgement of a surety before a notary public is required to make in favor of the appellee Manila Compania de Seguros is no On December 19, 1951, Ricardo Fernandez and 105 other persons
the same a public document, under Article 1358 of the Civil Code, a balance due from the latter to the former of P2,272.79. This
longer raised before the Supreme Court. The issued had brought an action in the trial court of Laoag, Ilocos Norte, against the
contract of guaranty does not have to appear in a public document. indebtedness was recognized by the Tobacconists but was
already been resolved. defendants/partners as well as Manila Surety for the collection of
Excussion is not a condition sine qua non for the institution of an action unable to pay the same. unpaid wages amounting to P5,960.10. Manila Surety also filed a writ of
against a guarantor. In Southern 4) Mira Hermanos made a demand upon the two surety attachment on the properties of Batu Construction and the defendant-
REGARDING THE SECOND ISSUE: Whether or not Provident
companies for the payment of said sum. Provident partnership.
Insurance Co. is entitled to the benefit of division provided in
Motors, Inc. vs. Barbosa, this Court stated: Although an ordinary Insurance paid only the sum of P1,363.67 which is 60% of Article 1837 of the Old Civil Code.
personal guarantor not a mortgagor or pledgor may demand the the amount owned by the Tobacconists to Mira Hermanos, HELD: No. Provident Insurance Co. is not entitled to the benefit of
aforementioned exhaustion, the creditor may, prior thereto, secure a alleging that the remaining 40% should be paid by the division provided in Article 1837 of the Old Civil Code. Defendant Andres Tunac contended that:
judgment against said guarantor, who shall be entitled, however, to a other surety, Manila Compania de Seguros. 1) Article 1837 of the Old Civil Code refers to several sureties 1) He has not put up an indemnity bond in favor of plaintiff
deferment of the execution of said judgment against him until after the 5) Manila Compania de Seguros refused to pay the balance. It Manila Surety. He contended that he had never entered
of only one debtor for the same debt.
properties of the principal debtor shall have been exhausted to satisfy into any indemnity agreement with the surety company
contended that so long as the liability of the Tobacconists 2) In the instant case , although the two bonds on their face
the obligation involved in the case. Chi's liability is limited to the because the partnership or the Batu Construction was
did not exceed P3,000.00, it was not bound to pay anything appear to guarantee the same debt co-extensively up to
principal obligation in the trust receipt plus all the accessories thereof
including judicial costs; with respect to the latter, he shall only be liable P2,000.00 (that of the Provident Insurance Co. along
CRED TRANS digests GUARANTY & SURETYSHIP (Art 2047-2084) Page 11 of 15
 fulfilling its obligations in accordance to the terms of the an insurer of the debt, while a guarantor is the insurer of the Manila Compania de Seguros obtained from the Universal Trading REGARDING THE FIRST ISSUE: Whether or not the document executed
construction contract. the solvency of the debtor. Company and Tuason, Tuason & Co., a solidary note for the sum of by Albina Tuason in favor or Manila Compania de Seguros (assuming
2) The Republic of the Philippines had no authority to annul 2) Plaintiffs cause of action does not fall under Paragraph 2 of P9,663 executed by said companies in its favor. and making hers the obligation of Tuason, Tuason & Co.) was a
the contact at its own initiative. Article 2071 of the new Civil Code because there is not Before signing the note, plaintiff Tuason, Tuason & Co., in turn, cause novation of the contract by substitution of the debtor, and would relieve
3) The trial court of Laoag, Ilocos Norte had no jurisdiction to proof of the defendants insolvency. The fact that the the Universal Trading Company and its president Antonio Machuca, Tuason, Tuason & Co. from all obligations in favor of Manila Compania
personally, to sign a document (Exhibit B), wherein they bound de Seguros.
hear and decide the case because defendants were not in contract was annulled because of lack of progress in the
themselves solidarily liable to pay, reimburse, and refund to the HELD: No. The document executed by Albina Tuason in favor or
imminent danger of insolvency. construction of the bridge is no proof of such insolvency.
company all such sums or amounts of money as it, or its representative, Manila Compania de Seguros (assuming and making hers the obligation
4) The signing by defendant Carlos N. Baquiran of the 3) Such cause of action does not also fall under Paragraph 3
may pay or become bound to pay, upon its obligation with manila of Tuason, Tuason & Co.) was not a novation of the contract by
indemnity agreement for and in behalf of the partnership of Article 2071 of the new Civil Code because the Compania de Seguros, whether or not it shall have actually paid such substitution of the debtor, and would not relieve Tuason, Tuason & Co.
Batu Construction did not bind the latter to the plaintiff as defendants have not bound themselves to relieve the sum or sums or any part thereof. from all obligations in favor of Manila Compania de Seguros.
the partnership is not bound. plaintiff from the guaranty within a specified period which The Universal Trading Company was declared insolvent. Hence, Manila 1) Manila Compania de Seguros accepted the document only
5) Defendant Tunac is not also bound because he is not a already has expired. It is by the reason that the surety Compania de Seguros brought an action in the lower court against as an additional security for its credit and not as a novation
party to the said agreement. bond does not fix any period of time and the indemnity Tuason, Tuason & Co. to recover the value of the naote for P9,9,663. It of the contract.
6) The action brought by the construction workers was agreement stipulates one year extendible or renewable obtained final judgment therein, which was affirmed by the Supreme 2) In the document Albina Tuason declares that she assumes
maliciously filed against him in order to annoy him and until the bond be completely cancelled by the person or Court on appeal, for the total sum of P12,197.27, which includes the and makes hers the obligation to pay the amount of said
damage his professional reputation as an engineer in Ilocos entity in whose behalf the bond was executed or by a Court value of the note with interest therein.
judgment to Manila Compania de Seguros within one year
Norte. of competent jurisdiction. In the present case, Tuason, Tuason, Inc. brought this action to recover
and mortgages a property described in the document as
7) The writ of attachment was not proper because he and the from Antonion Machuca the following amounts, totaling P15,353.19:
security for this obligation.
1) The sum of P12,197.27 which it was sentence to pay in the
construction partnership was not found to be insolvent. 3) The action brought by the plaintiff is that which surety, who
REGARDING THE SECOND ISSUE: Whether Batu Construction and case filed against it by Manila Compania de Seguros.
8) He prays that the complaint be dismissed as to him and the pays the debt of the debtor, is entitled to bring to recover
the partnership is liable to pay Manila Surety. 2) Attorneys fees amounting to P3,000.00
defendant Batu Construction, with costs against plaintiff. the amount thus paid.
HELD: Yes. Batu Construction and the partnership is liable to pay 3) Courts costs and sheriffs fees amounting to P155
The other defendants also held the same contentions. Manila Surety. 4) Interest in the sum of P1,180.46
1) Plaintiffs cause of action comes under Paragraph 1 of 5) Interest on the sum of P15,535.65
REGARDING THE SECOND ISSUE: Whether the plaintiff has the right
THE RULING OF THE TRIAL COURT: Article 2071 of the new Civil Code because the action 6) Interest on the sum of P16,535.65 at the rate of 10% per
to recover of the defendant the sum of P9,663, the value of the note
The trial court rendered a decision in favor of Batu Construction brought by Ricardo Fernandez and 105 persons in the annum executed by the plaintiff in favor of Manila Compania de Seguros, which
and the partnership. It dismissed the complaint filed by Manila Court of Laoag, is in connection with the Bacarra Bridge.
the plaintiff is under obligation to pay by virtue of final judgment.
Surety. Hence, the latter filed the present petition before the Supreme 2) In Paragraph 1 of Article 2071 of the new Civil Code THE RULING OF THE LOWER COURT: HELD: Yes. The plaintiff has the right to recover of the defendant the
Court. provides that the guarantor of surety be sued for payment The lower court rendered judgment against defendant Antonio sum of P9,663, the value of the note executed by the plaintiff in favor of
of an amount for which the surety bond was put up to Machuca. It ordered that defendant pay the above describe sum of Manila Compania de Seguros, which the plaintiff is under obligation to
THE ISSUES: secure the fulfillment of the obligation undertaken by the money totaling P15,353.19. Hence, defendant appealed the ruling of pay by virtue of final judgment.
1) Whether the last paragraph of Article 2071 of the new principal debtor. the lower court before the Supreme Court. However, defendant is not liable to pay the plaintiff the expenses
Civil Code taken from Article 1843 of the old Civil Code THE ISSUES: incurred by it in the litigation between it and Manila Compania de
3) The suit for the payment of the unpaid wages is a suit for
may be availed of by a surety. 1) Whether or not the document executed by Albina Seguros. That litigation was originated by the plaintiff having failed to
the payment of an amount for which the surety bond was
2) Whether Batu Construction and the partnership is liable Tuason in favor or Manila Compania de Seguros fulfil its obligation with Manila Compania de Seguros, and it cannot
put up or posted to secure the faithful performance of the
to pay Manila Surety. (assuming and making hers the obligation of Tuason, charge the defendant with expenses which it was compelled to make by
obligation undertaken by the principal debtors (the
Tuason & Co.) was a novation of the contract by reason of its own fault.
defendants) in favor or the creditor, the Government of the
substitution of the debtor, and would relieve Tuason,
Philippines.
THE RULING OF THE SUPREME COURT: Tuason & Co. from all obligations in favor of Manila
The Supreme Court reversed and set aside the decision of the trial Compania de Seguros. (I) KUENZLE AND STREIFF (Plaintiff-appellant)
court of Laoag. It ordered that: 2) Whether the plaintiff has the right to recover of the Vs. JOSE TAN SUNCO ET AL (Defendants-Appellees)
TUASON, TUASON, INC. (Plaintiff-appellee)
1) The case be remanded to the said court for determination defendant the sum of P9,663, the value of the note G.R. No. L-5208, December 1, 1909
Vs. (H) TUASON, TUASON, INC. (Plaintiff-appellee)
of the amount of security that would protect plaintiff executed by the plaintiff in favor of Manila Compania
Vs. ANTONIO MACHUCA (Defendant-appellant)
Manila Surety from any proceedings by the creditor or from THE CASE:
G.R. No. L-22177, December 2, 1924 de Seguros, which the plaintiff is under obligatioin to
the danger of insolvency of the defendants. The case is an action to set aside four judgments rendered by a justice
pay by virtue of final judgment.
2) The defendants put up such amount of security as may be of the peace of the City of Manila upon the ground that they were
THE CASE:
procured by collusion and fraud, to the injury and damage of the
established by competent evidence, without The case is a petition which assails the decision of the trial court, which
plaintiff.
pronouncement as to costs. ordered respondent Antonio Machuca a sum of money to plaintiff THE RULING OF THE SUPREME COURT:
Tuason, Tuason and Company. The Supreme Court modified the rulling of the lower court. It
THE FACTS:
ordered that:
1) Respondent Tan Sunco was a surety for Chung Chu Sing for
THE BASIS OF THE SUPREME COURT RULING: THE FACTS: 1) The defendant be liable to pay the plaintiff the sum of
the payment by the latter of the purchase price of certain
REGARDING THE FIRST ISSUE: Whether the last paragraph of The Universal Trading Company imported sundry goods, which were P9,663, with interest thereon at the rate of 10 percent per
deposited in the customhouse of the Insular Custom, and consigned merchandise purchased by the latter and A. Keller and Co.
Article 2071 of the new Civil Code taken from Article 1843 of the annum from July 19, 1923, when the complaint was filed
old Civil Code may be availed of by a surety. through the Bank of the Philippine Islands. In order that it be allowed to 2) The time within which said merchandise was to be paid for
until full payment thereof.
HELD: Yes. The last paragraph of Article 2071 of the new Civil withdraw such goods, the former executed a bond in the sum of under the terms of the purchase had expired long before
2) The defendant also be liable to pay the sume of P1,653.65
Code taken from Article 1843 of the old Civil Code may be availed P9,663.00 by Manila Compania de Seguros. said four judgments were obtained from the court. The
for attorneys fees, without special pronouncement as to
of by a surety. Subsequently, the Bank of the Philippine Islands claimed the value of debt remained unpaid.
costs.
1) The contract entered into by Manila Surety and Batu the goods, and the Insular Collector of Customs obligated Manila 3) The total debt was composed of four invoices of varying
Construction is a surety, and not a guarantee. A surety is Compania de Seguros to pay the sum of P9,663, the amount of the amounts P395.50, P450, P565, and P320.20.
bond. Before paying this amount to the Insular Collector of Customs,
THE BASIS OF THE SUPREME COURT RULING:
CRED TRANS digests GUARANTY & SURETYSHIP (Art 2047-2084) Page 12 of 15
 4) An action had been commenced against the said debtor, 1) The methods employed by Sunco to realize his end were (PCI Capital) which, upon the latters request, were secured by several The CA affirmed the ruling of the RTC. It ruled that:
Chung Chu Sing, by the present plaintiff for the recovery of unusual but not of themselves fraudulent. Letters of Guarantee issued by petitioner Trade and Investment 1) The moratorium request had the effect of an extension
the indebtedness due it. 2) The evidence adduced by plaintiff is entirely insufficient to Development Corporation of the Philippines (TIDCORP). granted to a debtor, which extension was without the
5) Shortly before judgment was secured in that action, the establish such fraud and collusion as would justify a Then Philippine Export and Foreign Loan Guarantee Corporation, a consent of the guarantor, and thus released the surety
said Tan Sunco began four separate actions against the decision setting aside the judgment assailed. government owned and controlled corporation created for the companies from their respective liabilities under the issued
following purposes: surety bonds under Article 2079 of the Civil Code.
said debtor upon the said invoices in the court of the
1) Among others, guaranteeing with prior concurrence of the
justice of the peace of the City of Manila. 2) Regarding the appeal of Balderrama, he is liable with
REGARDING THE SECOND ISSUE: Whether or not Sunco (the Monetary Board, subject to the rules and regulations that
6) Soon thereafter, Tan Sunco and the said debtor appeared ASPAC and PICO to pay TIDCORP the attorneys fees.
surety) had the right to defend himself against any proceedings of the Monetary Board may prescribe.
before the court, and the debtor then and there confessed
the creditor and from the danger of insolvency of the debtor. 2) Approve foreign loans, in whole or in part, granted to any TIDCORP and Balderrama filed separate motions for reconsideration,
judgment in favor of said Tan Sunco in each one of said
HELD: Yes. Sunco (the surety) had the right to defend himself entity, enterprise or corporation organized or licensed to which were denied by the CA. Hence, the both petitioner TIDCORP and
actions.
against any proceedings of the creditor and from the danger of engage in business in the Philippines. respondent Balderrama filed the present petition before the Supreme
7) Tan Sunco obtained against the debtor four separate
insolvency of the debtor. Court.
judgments, and that immediately upon the recovery of said 1) Article 1838 of the old Civil Code provides for the Under the Letters of Guarantee, the TIDCORP irrevocably and
judgments, the plaintiff Sunco caused to be levied enforcement of the right of the surety against the debtor unconditionally guaranteed full payment of ASPACs loan obligations to THE MAIN ISSUE: Whether or not the bonding companies liabilities to
thereunder executions upon all the property of the said after he has paid the debts. Banque Indosuez and PCI Capital in the event of default by the latter. TIDCORP under the Surety Bonds have been extinguished by the
debtor. 2) Article 1843 also provides for his protection before he has The three (3) letters of guarantee amounted to US $250,000.00, US payment extensions granted by Banque Indosuez and PCI Capital to
8) The latters properties were not sufficient to pay the $250,000.00, and US $2,000,000.00. ASPAC, PICO, and ASPACs TIDCORP under the Restructuring Agreement.
paid but after he has become liable to do so. The one gives
judgments under which the levies were made. a right of action after payment, the other a protective President, respondent Nicolas Balderrama executed several Deeds of
9) The action at bar was commenced and the sales under said Undertaking, binding themselves to jointly and severally pay TIDCORP
remedy before payment.
executions were enjoined pending the determination for whatever damages or liabilities it may incur under the THE RULING OF THE SUPREME COURT:
thereof. aforementioned Letters of Guarantee. The Supreme Court granted the petition. It ordered that:
On the other hand, ASPAC entered into surety agreements with 1) The Decision and Resolution of the Court of Appeals be
bonding companies Paramount, Phoenix, Mega Pacific and Fortune. modified.
REGARDING THE THIRD ISSUE: Whether or not Sunco has the right
THE CONTENTION OF THE PLAINTIFF: There were three (3) surety bonds amounting to P2,752,000.00, 2) Respondents Philippine Phoenix Surety and Insurance, Inc.,
to execute the judgments against the property of the principal
1) The said four judgments ought to be set wholly aside on P1,845,000.00, P1,849,000.00, P11,970,000.00, and P5,030,000.00. Mega Pacific Insurance Corporation, Fortune Life and
debtor prior to paying the obligation as surety.
account of their having been obtained, as he claims, by ASPAC defaulted on its loan obligations to Banque Indosuez and PCI
HELD: No. Sunco does not have the right to execute the General Insurance Company be obliged to fulfill their
collusion and fraud, because the debtor did not owe Capital, prompting them to demand payment from TIDCORP under the
judgments against the property of the principal debtor prior to respective obligations to petitioner TIDCOR under the
Letters of Guarantee. The demand letter of Banque Indosuez was sent
anything to Sunco at the time the four judgments were paying the obligation as surety. Surety Bonds.
to TIDCORP. The latter, in turn, demanded payment from Paramount,
secured. 1) While the surety has the right to obtain as he did the 3) The obligations arising from the Surety Bonds issued by
Phoenix, Mega Pacific, and Fortune under the Surety Bonds. However,
2) Sunco had not yet paid the sums for which he had become judgments against the principal debtor, he ought not to be Paramount Insurance Corporation and covered by its
this was done to no avail.
surety and in connection with which he obtained the allowed to realize said judgments to the point of actual Compromise Agreement with TIDCORP be discounted.
The Government of the Republic of the Philippines, specifically the
judgments. collection of the same until he has satisfied or cause to be Minister of Finance, requested the members of the international
satisfied the obligation the payment of which he assumes. banking community to grant government financial institutions such as
THE ISSUES: 2) This limitation is to prevent a great opportunity for TIDCORP, a 90-day roll over from their foreign debts beginning October THE BASIS OF THE SUPREME COURT RULING:
1) Whether or not there was collusion or fraud committed collusion and improper practices between the surety and 17, 1983. Hence, TIDCORP and various creditor banks such as Banque REGARDING THE MAIN ISSUE: Whether or not the bonding
by the principal debtor or the surety. his principal would be offered, which might result to the Indosuez and PCI Capital, forged a Restructuring Agreement, extending companies liabilities to TIDCORP under the Surety Bonds have been
2) Whether or not Sunco (the surety) had the right to injury and prejudice of the creditor who holds the claim the maturity dates of the Letters of Guarantee. However, the bonding extinguished by the payment extensions granted by Banque Indosuez
defend himself against any proceedings of the creditor against them. companies did not give their consent to the payment extensions. and PCI Capital to TIDCORP under the Restructuring Agreement.
and from the danger of insolvency of the debtor. TIDCORP fully settled its obligations under the Letters of Guarantee, and HELD: No. The bonding companies liabilities to TIDCORP under the
3) Whether or not Sunco has the right to execute the filed a collection case against ASPAC, PICO, and Balderrama on accounts Surety Bonds have not been extinguished by the payment extensions
of their obligations under the Deeds of Undertaking and the bonding granted by Banque Indosuez and PCI Capital to TIDCORP under the
judgments against the property of the principal debtor
(J).TRADE AND INVESTMENT DEVELOPMENT CORPORATION OF companies on account of their obligations under the Surety Bonds. Restructuring Agreement.
prior to paying the obligation as surety.
THE PHILIPPINES (Petitioner) REASONS:
Vs. ASIA PACES CORPORATION, ET. AL (Respondents) THE RULIING OF THE TRIAL COURT: 1) A payment extension, in Article 2079 of the Civil Code,
G.R. No. 187403, February 12, 2014 The RTC partially granted TIDCORPs complaint and ruled that: refers to a payment extension granted by the creditor
THE RULING OF THE SUPREME COURT:
The Supreme Court affirmed the judgment of the lower court. It 1) ASPAC, PICO, and Balderrama be held jointly and severally to the principal debtor without the consent of the
ordered that: THE CASE: liable to TIDCROP in the sum of P277,891,359.66 pursuant guarantor or surety.
1) The appellant Kuenzle and Streiff pay the costs of suit. The case is a petition for review on certiorari, which assails the Decision to the Deeds of Undertaking. In this case, the Surety Bonds are surety
2) Sunco be prevented from executing said judgments against and Resolution of the Court of Appeals. The CA upheld the ruling of the 2) The bonding companies Paramount, Phoenix, Mega Pacific, contracts which secure the debt of ASPAC, the
the property of the judgment debtor until he has paid the Regional Trial Court of Makati in favor of respondents Philippine and Fortune be absolved from liabilities on the ground that principal debtor, under the Deeds of Bonds
Phoenix Surety and Insurance, Inc. and others. the moratorium request and the consequent payment are suretyship contracts which secure the
debt for which he stands surety.
extensions granted in TIDCORPs favor was made without debts of ASPAC, the principal debtor under
THE FACTS:
their consent. Such absence of consent extinguished their the Deeds of Undertaking to pay TIDCORP
On January 19, 1981, respondents Asia Paces Corporation (ASPAC) and
THE BASIS OF THE SUPREME COURT RULING: obligations under the Surety Bonds. (the creditor), the damages and liabilities it
Paces Industrial Corporation (PICO) entered into a sub-contracting
REGARDING THE FIRST ISSUE: Whether or not there was collusion may incur under the Letters of Guarantee,
agreement with the Electrical Projects Company of Libya (ELPCO) as
or fraud committed by the principal debtor or by the surety. Aggrieved on the RTCs ruling in absolving the bonding companies from within the bounds of the bonds respective
main contractor, for the construction and erection of a double circuit
HELD: No. There was no collusion or fraud committed by the liabilities, TIDCORP filed an appeal before the Court of Appeals. coverage reports and amounts.
bundle phase conductor transmission line in the country of Libya.
principal debtor. The defendant Sunco availed himself of the right Balderrama also filed a separate appeal. No payment extension was, however, granted
To finance its working capital requirements, ASPAC obtained loans from
to enforce the action against the debtor.
foreign banks Banque Indosuez and PCI Capital (Hongkong) Limited by TIDCORP in favor of ASPAC in this regard.
THE RULING OF THE COURT OF APPEALS:
CRED TRANS digests GUARANTY & SURETYSHIP (Art 2047-2084) Page 13 of 15
 Hence, Article 2079 of the Civil Code should Issue: Whether or not the claims against SICI was extinguished from the If the suretyship contract was made upon the condition that the Meanwhile, with the implementation of the writ of preliminary
not be applied with respect to the bonding death of Santos principal shall furnish the creditor additional security, and the attachment resulting in the impounding of purported properties
companies liabilities to TIDCORP under the security being furnished under these conditions is afterwards of FBPC, the trial court was deluged with third-party claims
Surety Bonds. released by the creditor, the surety is wholly discharged, without contesting the propriety of the attachment. In the end, the Bank
Held: As a general rule, the death of either the creditor or the debtor
regard to the value of the securities released, for such a transaction relinquished possession of all the attached properties to the
does not extinguish the obligation. Obligations are transmissible to the amounts to an alteration of the main contract. third-party claimants except for 2 insignificant items as it could
2) The payment extensions granted by Banque Indosuez heirs, except when the transmission is prevented by the law, the FACTS: barely cope with the yearly premiums on the attachment bonds.
and PCI Capital pertain to TIDCORPs own debt under stipulations of the parties, or the nature of the obligation. Only
RESPONDENT SOLID BANK CORPORATION AGREED TO EXTEND Tohs allegations
the Letters of Guarantee wherein TIDCORP irrevocably obligations that are personal10 or are identified with the persons
an omnibus line credit facility worth P10 million in favor of o They were part of incorporation and Luis Toh had
and unconditionally guaranteed full payment of themselves are extinguished by death.
respondent First Business Paper Corporation (FBPC). The terms been one of the signatories for checking account
ASPACs loan obligations to the banks in the event of and conditions of the agreement as well as the checklist of with Solid Bank.
ASPACs default. documents necessary to open the credit line were stipulated in a o They were asked to sign papers in blank and the
Section 5 of Rule 8612 of the Rules of Court expressly allows the
The Letters of Guarantee secured ASPACs loan letter-advise continuing guaranty could have been one of them
prosecution of money claims arising from a contract against the estate
agreements to the banks. Therefore, TIDCORP of a deceased debtor. Evidently, those claims are not actually o One of the requirements was a continuing guaranty o It was impossible for them to have freely and
acted as a guarantor, with ASPAC as the extinguished. What is extinguished is only the obligees action or suit signed by spouses Li [President and GM] and Toh consciously executed the surety in May when they
principal debtor, and the banks as creditors. filed before the court, which is not then acting as a probate court. [Chairman and VP] have already divested their shares in March 1993.
It is not disputed that the credit facility as well as its terms and Also, Luis was removed as authorized 2 days after the
conditions was not cancelled or terminated, and that there was no surety.
In the present case, whatever monetary liabilities or obligations Santos prior notice of such fact as required in the letter-advise if any was o They also resigned in June of that year and obtained
III. EXTINGUISHMENT had under his contracts with respondent were not intransmissible by done. from Li their exclusion from several surety
their nature, by stipulation, or by provision of law. Hence, his death did A continuing guaranty was signed 30 days after the letter advise agreements with various banks (supported by
A.STRONGHOLD INSURANCE COMPANY, INC., vs. REPUBLIC-ASAHI not result in the extinguishment of those obligations or liabilities, which o The terms of the instrument defined the contract evidence)
GLASS CORPORATION merely passed on to his estate. Death is not a defense that he or his arising therefrom as a surety agreement and Trial Court: FBPC liable but spouses Toh not liable because they
G.R. No. 147561 June 22, 2006 estate can set up to wipe out the obligations under the performance provided for the solidary liability of the signatories did not voluntarily execute the surety
bond. Consequently, petitioner as surety cannot use his death to escape thereto for and in consideration of loans or CA: Liable because there is not showing that they did not
its monetary obligation under its performance bond. advances and credit in any other manner to, or at voluntarily and freely executed the surety.
Facts: Republic-Asahi entered with Jose Santos Jr., proprietor of JDS the request or for the account of FBPC. o The Court of Appeals ratiocinated that the provisions
Construction, for the construction of roadways and drainage system, o The Continuing Guaranty set forth no maximum limit of the surety agreement did not indicate that
which was supposed to be completed within a period of 240 days. In on the indebtedness that respondent FBPC may incur Spouses Luis and Vicky Toh x x x signed the
order to guarantee the faithful and satisfactory performance of its and for which the sureties may be liable, stating that instrument in their capacities as Chairman of the
undertakings JDS post a performance bond of P795,000.00 with the credit facility covers any and all existing Board and Vice-President, respectively, of FBPC
B. SPOUSES VICKY TAN TOH and LUIS TOH, petitioners, vs. SOLID
Petitioner Stronghold Insurance Co., Inc. (SICI). Respondent called the indebtedness of, and such other loans and credit only. Hence, the court a quo deduced, [a]bsent
BANK CORPORATION, FIRST BUSINESS PAPER CORPORATION,
attention of JDS to the alleged alarmingly slow pace of the construction, facilities which may hereafter be granted to FIRST any such indication, it was error for the trial court to
KENNETH NG LI and MA. VICTORIA NG LI, respondents
which resulted in the fear that the construction will not be finished BUSINESS PAPER CORPORATION. have presumed that the appellees indeed signed the
within the stipulated period. However, such was unheeded by JDS. o The surety also contained a de facto acceleration same not in their personal capacities.
NATURE: Petition for review on certiorari under Rule 45 [Originally
Dissatisfied with the progress of the work, Republic-Asahi extrajudicially clause if default be made in the payment of any of o There was also no written revocation so the Guaranty
Special Civil Action but party requested to convert it to petition for review]
rescinded the contract, but such rescission shall not be construed as a the instruments, indebtedness, or other obligation remained in full force and effect
waiver of respondents right to recover damages from JDS and latters guaranteed by petitioners and respondents. ISSUE # 1: Whether or not Spouses Toh were bound by the surety
SUMMARY: Spouses Toh executed a continuing guaranty in favor of Solid
sureties. Thus, because of the failure to comply with the provisions of o So as to strengthen this security, the Continuing (Court said that it should have been yes, but later on decided NO)
Bank for the credit facility with certain conditions granted by the bank to
the contract, it had to hire another contractor to finish the project, for Guaranty waived rights of the sureties against delay RATIO # 1:
First Business Paper Corporation. Spouses Li, who are also with the
which it incurred additional expenses. Thereafter, respondent sent a or absence of notice or demand on the part of This Court holds that the Continuing Guaranty is a valid and
spouses Toh under the guaranty, ran away without paying the loan of
letter to petitioner SICI filing its claim under the bond. Respondent then respondent Bank, and gave future consent to the binding contract of petitioner-spouses as it is a public document
FBPC. Solid Bank then tried to proceed against Toh. Toh said that they
sent again another letter reiterating the same demand but was Banks action to extend or change the time that enjoys the presumption of authenticity and due execution.
were only signing in capacity as stockholders and did not intend to
unheeded. This prompted respondent to file a complaint against JDS payment, and/or the manner, place or terms of We are bound by the consistent finding of the courts a quo that
guaranty after being removed as Chairman of the Board(Luis) and Vice
and SICI for payment representing additional expenses and damages. payment, petitioner- spouses Luis Toh and Vicky Tan Toh voluntarily
President (Vicky). Also, they alleged that they were just asked to sign
According to the Sheriffs Return, summons were duly served on SICI, The effectivity of the Continuing Guaranty was not contingent affixed their signature[s] on the surety agreement and were thus
blank pieces of paper. The lower court found that spouses Toh should not
however, Jose Santos Jr. died the previous year, and JDS was no longer upon any event or cause other than the written revocation at some given point in time willing to be liable under those
be held liable but CA reversed and found them to have voluntarily
at its address, and such whereabouts were unknown. SICI filed its thereof with notice to the Bank that may be executed by the forms
entered into the guaranty. The SC upheld the finding of CA but absolved
answer, alleging that the respondents money claims have been sureties. Similarly, there is no basis for petitioners to limit their
the spouses because of the acts of Solid Bank in extending the credit
extinguished by the death of Santos. Even if this were not the case, it FBPC opened thirteen (13) letters of credit and obtained loans responsibility thereon so long as they were corporate officers and
beyond the conditions set forth in the original contract. According to
had been released from liability under the performance bond because totaling P15,227,510.00. As the letters of credit were secured, stockholders of FBPC. Nothing in the Continuing Guaranty
them, to hold Tohs liable would be injustice since Solid Bank clearly
there was no liquidation, with the active participation and involvement, FBPC through its officers Kenneth Ng Li, Ma. Victoria Ng Li and restricts their contractual undertaking to such condition or
extended the credit line without even exercising diligence and following
pursuant to procedural due process, of herein surety and Santos, hence Redentor Padilla as signatories executed a series of trust receipts eventuality.
the terms of the contract.
there was no ascertainment of the corresponding liabilities of Santos over the goods allegedly purchased from the proceeds. Verily, if petitioners intended not to be charged as sureties after
and SICI under the performance bond. Thus, such liquidation would be 6 months after (Jan 1994), bank received information that their withdrawal from FBPC, they could have simply terminated
DOCTRINE:
impossible since Santos is already dead. The complaint against JDS and Spouses Li had fraudulently departed from their conjugal home. the agreement by serving the required notice of revocation upon
Any doubt on the terms and conditions of the surety agreement
SICI was dismissed on the ground that the claim against JDS did not The bank then served a demand letter upon FBPC and spouses the bank as expressly allowed therein.
should be resolved in favor of the surety.
survive the death of Santos. On Motion for Reconsideration, the Toh invoking the acceleration clause and demanded to be paid But as we bind the spouses Luis Toh and Vicky Tan Toh to the
Art 2055 The liability of a surety is measured by the terms of his
dismissal of the case was reconsidered and the case was reinstated, within 24 hours surety agreement they signed so must we also hold respondent
contract, and while he is liable to the full extent thereof, his
however, the case against Santos remains undisturbed. On appeal, the On 17 January 1994 respondent Bank filed a complaint for sum of Bank to its representations in the letter- advise of 16 May
accountability is strictly limited to that assumed by its terms.
Court of Appeals ruled that SICIs obligation under the surety money with ex parte application for a writ of preliminary 1993. Particularly, as to the extension of the due dates of the
Art 2079. An extension granted to the debtor by the creditor
agreement was not extinguished by the death of Santos. Consequently attachment against FBPC, spouses Kennet Ng Li and Ma. Victoria letters of credit, we cannot exclude from the Continuing Guaranty
without the consent of the guarantor extinguishes the guaranty.
Respondent could still go after SICI for the bond. Hence, this petition. Ng Li, and spouses Luis Toh and Vicky Tan Toh
CRED TRANS digests GUARANTY & SURETYSHIP (Art 2047-2084) Page 14 of 15
 the preconditions of the Bank that were plainly stipulated in the were replaced on 12 May 1993 and other adjustments in the C. PHILIPPINE NATIONAL BANK vs. MANILA SURETY and FIDELITY collected, thereby allowing such funds to be taken and
letter-advise. corporate structure of FBPC ensued in the month of June 1993, CO., INC. and THE COURT OF APPEALS exhausted by other creditors to the prejudice of the surety,
o Fairness and justice dictate our doing so, for the bank which the Bank did not investigate although such were made July 30, 1965 and held that the Bank's negligence resulted in exoneration
itself liberally applies the provisions of cognate known to it. of Manila Surety
agreements whenever convenient to enforce its By the same token, there is no explanation on record for the utter Summary: ATACO constituted PNB as its assignee and attorney-in-fact Bank contends the power of attorney obtained from
contractual rights, such as, when it harnessed a worthlessness of the trust receipts in favor of the Bank when to receive and collect from the Bureau of Public Works the amount to ATACO was merely in additional security in its favor, and
provision in the trust receipts executed by these documents ought to have added more security to the pay for the asphalt delivered to it under a trust receipt guaranteed by that it was the duty of the surety, and not that of the
respondent FBPC to declare its entire indebtedness indebtedness of FBPC. Manila Surety. PNB was able to regularly collect. However, due to creditor, to see to it that the obligor fulfills his obligation,
as due and demandable and thereafter to exact o Bank security officer saw 2 delivery vans coming out of unexplained reasons, PNB was not able to collect until the investigators and that the creditor owed the surety no duty of active
payment thereof from petitioners as sureties the compound which took the last supplies. found out that more money were payable to ATACO from BPW. The diligence to collect any, sum from the principal debtor.
o We cannot disregard the provisions of the letter The consequence of these omissions is to discharge latter allowed another creditor to collect funds due to ATACO under the WON Manila Suretys obligation as surety has already been
advise in sizing up the panoply of commercial the surety, petitioners herein, under Art. 2080 of the same purchase order. Court ruled that PNB was negligent in having extinguished pursuant to Art. 2080. YES.
obligations between the parties. Civil Code, or at the very least, mitigate the liability stopped collecting from BPW before ATACOs debt is fully collected, CA did not hold the Bank answerable for negligence in
The stipulations violated: of the surety up to the value of the property or lien thereby allowing funds to be taken by other creditors to the prejudice failing to collect from the principal debtor but for its neglect
o Domestic letters of credit be supported by fifteen released of the surety. in collecting the sums due to the debtor from the Bureau,
percent (15%) marginal deposit extendible three (3) If the creditor x x x has acquired a lien contrary to its duty as holder of an exclusive and
times for a period of thirty (30) days for each upon the property of a principal, the Doctrine: Extinguishment of liability of surety: ART. 2080. The irrevocable power of attorney to make such collections,
extension, subject to twenty-five percent (25%) creditor at once becomes charged with guarantors, even though they be solidary, are released from their since an agent is required to act with the care of a good
partial payment per extension. the duty of retaining such security, or obligation whenever by come act of the creditor they cannot be father of a family and becomes liable for the damages
An extension of the period for enforcing the indebtedness does maintaining such lien in the interest of subrogated to the rights, mortgages and preferences of the latter. which the principal may suffer through his non-
not by itself bring about the discharge of the sureties unless the the surety, and any release or performance
extra time is not permitted within the terms of the waiver impairment of this security as a FACTS: Certainly, the Bank could not expect that the Bank would
o Under Art. 2055 of the Civil Code, the liability of a primary resource for the payment of a PNB had opened a letter of credit and advanced thereon $120,000.00 to diligently perform its duty under its power of attorney, but
surety is measured by the terms of his contract, and debt, will discharge the surety to the Edgington Oil Refinery for 8,000 tons of hot asphalt. Of this amount, because they could not have collected from the Bureau
while he is liable to the full extent thereof, his extent of the value of the property or 2,000 tons worth P279,000.00 were released and delivered to Adams & even if they had attempted to do so. It must not be
accountability is strictly limited to that assumed by its lien released x x x x [for] there Taguba Corporation (known as ATACO) under a trust receipt forgotten that the Bank's power to collect was expressly
terms. immediately arises a trust relation guaranteed by Manila Surety & Fidelity Co. u made irrevocable, so that the Bureau could very well refuse
It is admitted in the Complaint of respondent Bank before the trial between the parties, and the creditor To pay for the asphalt, ATACO constituted the Bank its to make payments to the principal debtor itself, and
court that several letters of credit were irrevocably extended for as trustee is bound to account to the assignee and attorney-in-fact to receive and collect from a fortiori reject any demands by the surety.
ninety (90) days with alarmingly flawed and inadequate surety for the value of the security in the Bureau of Public Works (Bureau) the amount out of Even if the assignment with power of attorney from the
considerationthe indispensable marginal deposit of fifteen his hands funds payable to the assignor under Purchase Order No. principal debtor were considered as mere additional
percent (15%) and the twenty- five percent (25%) prerequisite for For the same reason, the grace period granted by respondent 71947. The conditions of this assignment are as follows: security still, by allowing the assigned funds to be
each extension of thirty (30) days. It bears stressing that the Bank represents unceremonious abandonment and forfeiture of 1. The same shall remain irrevocable until the said exhausted without notifying the surety, the Bank deprived
requisite marginal deposit and security for every thirty (30)-day the fifteen percent (15%) marginal deposit and the twenty-five credit accommodation is fully liquidated. the former of any possibility of recoursing against that
extension specified in the letter-advise were not set aside or percent (25%) partial payment as fixed in the letter-advise. 2. The PHILIPPINE NATIONAL BANK is hereby security. The Bank thereby exonerated the surety, pursuant
abrogated nor was there any prior notice of such fact, if any was These payments are unmistakably additional securities intended appointed as our Attorney-in-Fact for us and in our to Article 2080.
done. to protect both respondent Bank and the sureties in the event name, place and stead, to collect and to receive the The appellant points out to its letter of demand addressed
o These irregular extensions were candidly admitted by that the principal debtor FBPC becomes insolvent during the payments to be made by virtue of the aforesaid to the Bureau and its letter to ATACO informing the debtor
Victor Ruben L. Tuazon, an account officer and extension period. Purchase Order, with full power and authority to of its outstanding balance. SUch has no bearing on the
manager of respondent Bank o For this unwarranted exercise of discretion, execute and deliver on our behalf, receipt for all issue whether the Bank has exercised due diligence in
The foregoing extensions of the letters of credit made by respondent Bank bears the loss; due to its payments made to it; to endorse for deposit or collecting from the Bureau since the letter was addressed
respondent Bank without observing the rigid restrictions for unauthorized extensions to pay granted to FBPC, encashment checks, money order and treasury to ATACO, and the funds were to come from elsewhere.
exercising the privilege are not covered by the waiver stipulated petitioner-spouses Luis Toh and Vicky Tan Toh are warrants which said Bank may receive, and to apply As to the letter of demand on the Public Works office, it
in the Continuing Guaranty. Evidently, they constitute illicit discharged as sureties under the Continuing said payments to the settlement of said credit does not appear that any reply thereto was made; nor that
extensions prohibited under Art. 2079 Guaranty. accommodation. the demand was pressed, nor that the debtor or the surety
o An extension granted to the debtor by the creditor Finally, the foregoing omission or negligence of respondent Bank 3. This power of attorney shall also remain irrevocable were ever apprised that payment was not being made. The
without the consent of the guarantor extinguishes in failing to safe-keep the security provided by the marginal until our total indebtedness to the said Bank have fact remains that because of the Bank's inactivity the other
the guaranty deposit and the twenty-five percent (25%) requirement results in been fully liquidated. creditors were enabled to collect P173,870.31, when the
This act of the Bank is not mere failure or delay on its part to the material alteration of the principal contract, i.e., the letter- ATACO delivered to the Bureau, and the latter accepted, balance due to Bank was only P158,563.18. The finding of
demand payment after the debt has become due, as was the case advise, and consequently releases the surety asphalt to the total value of P431,466.52. Of this amount negligence is thus not only conclusive on us but fully
in unpaid five (5) letters of credit which the Bank did not extend, o As has been said, if the suretyship contract was the Bank regularly collected. Thereafter, for unexplained supported by the evidence.
defer or put off, but comprises conscious, separate and binding made upon the condition that the principal shall reasons, the Bank ceased to collect, until its investigators Even if the CA erred on the second reason it advanced in
agreements to extend the due date, as was admitted by the Bank furnish the creditor additional security, and the found that more moneys were payable to ATACO from the support of the decision now under appeal, because the
itself security being furnished under these conditions is Public Works office, because the latter had allowed mother rules on application of payments, giving preference to
As a result of these illicit extensions, petitioner-spouses Luis Toh afterwards released by the creditor, the surety is creditor to collect funds due to ATACO under the same secured obligations are only operative in cases where there
and Vicky Tan Toh are relieved of their obligations as sureties of wholly discharged, without regard to the value of the purchase order. Its demands on the principal debtor and are several distinct debts, and not where there is only one
respondent FBPC under Art. 2079 of the Civil Code. securities released, for such a transaction amounts to the Surety having been refused, the Bank sued both to that is partially secured, the error is of no importance, since
Further, we note several suspicious circumstances that militate an alteration of the main contract. recover the balance plus interests and costs. the principal reason based on the Bank's negligence
against the enforcement of the Continuing Guaranty against the DISPOSITION: Reversed and Set Aside CA decision. Reinstated Trial TC: Ordered Manila Surety to pay PNB the balance. Manila furnishes adequate support to the decision of the CA that
accommodation sureties. Firstly, the guaranty was executed more Court decision. Surety appealed. the surety was thereby released.
than thirty (30) days from the original acceptance period as CA: The Bank to have been negligent in having stopped
required in the letter-advise.Thereafter, barely two (2) days after collecting from the Bureau the moneys falling due in favor DISPOSITIVE: WHEREFORE, the appealed decision is affirmed, with
the Continuing Guaranty was signed, corporate agents of FBPC of the principal debtor, ATACO, before the debt was fully costs against appellant Philippine National Bank.
CRED TRANS digests GUARANTY & SURETYSHIP (Art 2047-2084) Page 15 of 15