III. GUARANTY AND SURETYSHIP (Articles 2047-2084) debtor.

debtor. In fact, the creditor bank may go against the surety alone without prior demand for payment
• Ong v. PCIB, G.R. No.160466, January 17, 2005 - PIA on the principal debtor.

FACTS: Baliwag Mahogany Corporation (BMC) is a domestic corporation engaged in the

G.R. No. 160466             January 17, 2005
manufacture and export of finished wood products. Alfredo and Susana Ong are its President and
SPOUSES ALFREDO and SUSANA ONG, petitioners, vs. PHILIPPINE COMMERCIAL
Treasurer, respectively.
INTERNATIONAL BANK, respondent.
On April 20, 1992, Philippine Commercial International Bank (now Equitable-Philippine
SUMMARY: Baliwag Mahogany Corporation (BMC) is engaged in production and manufacture of
Commercial International Bank or E-PCIB) filed a case for collection of a sum of money
finished wood products and has Alfredo Ong and Susana Ong as President and Treasurer,
against Spouses Ong. PCIB sought to hold the Spouses liable as sureties on the three (3)
respectively. In 1991, BMC needed additional capital for its business and applied for loans with PCIB
promissory notes they issued to secure some of BMC’s loans, totalling five million pesos
amounting P5M, which the Spouses acted as surety for, executing 3 promissory notes therefor. It
(₱5,000,000).
was stipulated in the promissory notes that PCIB may consider debtor B,C in default and demand
payment of the remaining balance of the loan upon the levy, attachment or garnishment of any of its
properties, or upon BMC’s insolvency, or if it is declared to be in a state of suspension of payments. The complaint alleged that in 1991, BMC needed additional capital for its business and applied
BMC filed a petition for rehabilitation and suspension of payments with SEC after its properties were for various loans, amounting to a total of five million pesos, with PCIB. Spouses acted as
attached by PCIB who then considered BMC in default and sought to collect payment from Spouses sureties for these loans and issued three (3) promissory notes for the purpose. Under the
as sureties. The Spouses moved to dismiss the complaint arguing that since SEC declared BMC, the terms of the notes, it was stipulated that PCIB may consider debtor BMC in default and
principal debtor in a state of suspension of payments, and under a MOA they executed, creditor demand payment of the remaining balance of the loan upon the levy, attachment or
banks agreed to temporarily suspend any pending civil action against BMC, such should be garnishment of any of its properties, or upon BMC’s insolvency, or if it is declared to be in a
extended to the Spouses who acted as BMC’s sureties in their contracts of loan. They rely on Article state of suspension of payments. PCIB granted BMC’s loan applications.
2081 of the Civil Code and aver that if the principal debtor BMC can set up the defense of
suspension of payment of debts and filing of collection suits against PCIB, Spouses Ong as sureties On November 22, 1991, BMC filed a petition for rehabilitation and suspension of payments
should likewise be allowed to avail of these defenses. with the Securities and Exchange Commission (SEC) after its properties were attached by
creditors. PCIB considered debtor BMC in default of its obligations and sought to collect
ISSUE: WON Spouses Ong, as sureties, may set up the defense of suspension of payment of debts payment thereof from Spouses as sureties. In due time, Spouses Ong filed their Answer.
as the principal debtor PCIB did / WON Art 2081 appply
On October 13, 1992, a Memorandum of Agreement was executed by debtor BMC, the Spouses
The SC held that their reliance on Articles 2063 and 2081 of the Civil Code is misplaced as these as President and Treasurer of BMC, and the consortium of creditor banks of BMC (of which
refer to contracts of guaranty and do not apply to suretyship contracts. Spouses are not guarantors respondent bank is included). The MOA took effect upon its approval by the SEC on November
but sureties of BMC’s debts. 27, 1992.3
Difference of guaranty and suretyship:
Thereafter, Spouses Ong moved to dismiss the complaint. They argued that as the SEC
GUARANTOR SURETY declared the principal debtor BMC in a state of suspension of payments and, under the MOA,
the creditor banks, including PCIB, agreed to temporarily suspend any pending civil action
insures the solvency of the debtor an insurer of the debt itself against the debtor BMC, the benefits of the MOA should be extended to the Spouses who
acted as BMC’s sureties in their contracts of loan with PCIB. Spouses Ong averred that PCIB is
contract of guaranty gives rise to a subsidiary directly, equally and absolutely bound barred from pursuing its collection case filed against them.
obligation on the part of the guarantor with the principal debtor for the payment
of the debt and is deemed as an original The trial court denied the motion to dismiss. Spouses Ong appealed to the Court of Appeals
promissor and debtor from the beginning which affirmed the trial court’s ruling that a creditor can proceed against them as surety
independently of its right to proceed against the principal debtor BMC.
Principle of Excussion: Only after the creditor has In a suretyship contract, the benefit of
proceeded against the properties of the principal excussion is not available to the surety SPOUSES ONG: claim that the collection case filed against them by PCIB should be dismissed for:
debtor and the debt remains unsatisfied that a as he is principally liable for the payment 1. MOA provided that during its effectivity, there shall be a suspension of filing or pursuing of
guarantor can be held liable to answer for any unpaid of the debt. collection cases against the BMC and this provision should benefit petitioners as sureties. 
amount 2. Principal debtor BMC has been placed under suspension of payment of debts by the SEC;
they contend that it would prejudice them if the BMC would enjoy the suspension of
payment of its debts while they, who acted only as sureties for some of BMC’s debts,
he obligates himself to pay the debt if
would be compelled to make the payment; petitioners add that compelling them to pay is
the principal debtor will not pay,
contrary to Article 2063 of the Civil Code which provides that a compromise between the
regardless of whether or not the latter is
creditor and principal debtor benefits the guarantor and should not prejudice the latter. 
financially capable to fulfill his obligation
3. Spouses rely on Article 2081 of the Civil Code which provides that: "the guarantor
may set up against the creditor all the defenses which pertain to the principal
Under the suretyship contract entered into by Spouses Ong with PCIB the former obligated debtor and are inherent in the debt; but not those which are purely personal to the
themselves to be solidarily bound with the principal debtor BMC for the payment of its debts to PCIB debtor." Petitioners aver that if the principal debtor BMC can set up the defense of
amounting to five million pesos (₱5,000,000). Under Article 1216 of the Civil Code, PCIB as creditor suspension of payment of debts and filing of collection suits against PCIB, Spouses
may proceed against Spouses Ong as sureties despite the execution of the MOA which provided for Ong as sureties should likewise be allowed to avail of these defenses.
the suspension of payment and filing of collection suits against BMC. The bank’s right to collect
payment from the surety exists independently of its right to proceed directly against the principal ISSUE: WON Art 2063 and 2081 applies to the case at bar / WON Spouses Ong, as sureties, may
set up the defense of suspension of payment of debts as the principal debtor PCIB did
 regardless of whether or not the latter is
RULING: NO. IN VIEW WHEREOF, the petition is DISMISSED for lack of merit. No pronouncement
financially capable to fulfill his obligation
as to costs.
SO ORDERED.
creditor can go directly against the
RATIO:  surety although the principal debtor is
Reliance on Articles 2063 and 2081 of the Civil Code is misplaced as these provisions refer to solvent and is able to pay or no prior
contracts of guaranty. They do not apply to suretyship contracts. Spouses are not guarantors demand is made on the principal debtor.
but sureties of BMC’s debts. There is a sea of difference in the rights and liabilities of a guarantor
and a surety.  Under the suretyship contract entered into by Spouses Ong with PCIB the former obligated
GUARANTOR SURETY themselves to be solidarily bound with the principal debtor BMC for the payment of its debts
to PCIB amounting to five million pesos (₱5,000,000). Under Article 1216 of the Civil Code, PCIB
as creditor may proceed against Spouses Ong as sureties despite the execution of the MOA
insures the solvency of the debtor an insurer of the debt itself
which provided for the suspension of payment and filing of collection suits against BMC. The
bank’s right to collect payment from the surety exists independently of its right to proceed
contract of guaranty gives rise to a subsidiary directly, equally and absolutely bound directly against the principal debtor. In fact, the creditor bank may go against the surety
obligation on the part of the guarantor with the principal debtor for the payment alone without prior demand for payment on the principal debtor.
of the debt and is deemed as an original
promissor and debtor from the beginning
The provisions of the MOA regarding the suspension of payments by BMC and the non-filing
of collection suits by the creditor banks pertain only to the property of the principal debtor
Principle of Excussion: Only after the creditor has In a suretyship contract, the benefit of BMC. Firstly, in the rehabilitation receivership filed by BMC, only the properties of BMC were
proceeded against the properties of the principal excussion is not available to the surety mentioned in the petition with the SEC. Secondly, there is nothing in the MOA that involves the
debtor and the debt remains unsatisfied that a as he is principally liable for the payment liabilities of the sureties whose properties are separate and distinct from that of the debtor
guarantor can be held liable to answer for any unpaid of the debt. BMC. Lastly, it bears to stress that the MOA executed by BMC and signed by the creditor-banks
amount was approved by the SEC whose jurisdiction is limited only to corporations and corporate
assets. It has no jurisdiction over the properties of BMC’s officers or sureties.
he obligates himself to pay the debt if
the principal debtor will not pay, Clearly, the collection suit filed by PCIB against Spouses Ong as sureties can prosper. The trial
court’s denial of petitioners’ motion to dismiss was proper.
• International Finance Corp. v. Imperial Textile Mills, G.R. No.160324, November 15, 2005 - EV By virtue of PPIC’s failure to pay, IFC, together with DBP, applied for the extrajudicial foreclosure of
G.R. No. 160324 November 15, 2005 mortgages. During the auction sale, IFC’s bid was for US$5,250,000.00. The outstanding loan,
INTERNATIONAL FINANCE CORPORATION, Petitioner,  however, amounted to US$8,083,967.00 thus leaving a balance of US$2,833,967.00. PPIC failed to
vs. pay the remaining balance.
IMPERIAL TEXTILE MILLS, INC., Respondent.
*

DECISION Consequently, IFC demanded ITM and Grandtex, as guarantors of PPIC, to pay the outstanding
PANGANIBAN, J.: balance. However, despite the demand made by IFC, the outstanding balance remained unpaid.
The terms of a contract govern the rights and obligations of the contracting parties. When
the obligor undertakes to be "jointly and severally" liable, it means that the obligation is solidary. 
Thereafter, IFC filed a complaint with the RTC of Manila against PPIC and ITM for the payment of
If solidary liability was instituted to "guarantee" a principal obligation, the law deems the contract to
the outstanding balance plus interests and attorney’s fees.
be one of suretyship.
The creditor in the present Petition was able to show convincingly that, although
denominated as a "Guarantee Agreement," the Contract was actually a surety. Notwithstanding the ISSUE: WON ITM is a surety, and thus solidarily liable with PPIC for the payment of the loan?—YES
use of the words "guarantee" and "guarantor," the subject Contract was indeed a surety, because its
terms were clear and left no doubt as to the intention of the parties. The present controversy arose from the two contracts: (1) the Loan Agreement and (2) the
Guarantee Agreement between ITM and Grandtex, on the one hand, and IFC on the other.
Summary:
Petitioner International Finance Corporation (IFC) and Respondent Philippine Polyamide Industrial Petitioner IFC: claims that, under the Guarantee Agreement, ITM bound itself as a surety to PPIC’s
Corporation (PPIC) entered into a loan agreement wherein IFC extended to PPIC a loan of obligations proceeding from the Loan Agreement.
US$7,000,000.00.
Respondent ITM: asserts that, by the terms of the Guarantee Agreement, it was merely a guarantor
A ‘Guarantee Agreement’ was executed with Imperial Textile Mills (ITM), Grandtex and IFC as and not a surety.
parties thereto. ITM and Grandtex agreed to guarantee PPIC’s obligations under the loan
agreement. The premise of the Guarantee Agreement is found in its preambular clause, which reads:
"Whereas,
PPIC paid the first three installments. The remaining installments were rescheduled as requested by "(A) By an Agreement of even date herewith between IFC and PHILIPPINE POLYAMIDE INDUSTRIAL
PPIC. Despite the rescheduling of the installment payments, however, PPIC defaulted. Hence, IFC CORPORATION (herein called the Company), which agreement is herein called the Loan Agreement, IFC agrees
to extend to the Company a loan (herein called the Loan) of seven million dollars ($7,000,000) on the terms therein
served a written notice of default to PPIC demanding the latter to pay the outstanding principal loan set forth, including a provision that all or part of the Loan may be disbursed in a currency other than dollars, but
and all its accrued interests. Despite such notice, PPIC failed to pay the loan and its interests. only on condition that the Guarantors agree to guarantee the obligations of the Company in respect of the Loan as
hereinafter provided.
 "(B) The Guarantors, in order to induce IFC to enter into the Loan Agreement, and in consideration of PPIC paid the installments due on June 1, 1977, December 1, 1977 and June 1, 1978. The
IFC entering into said Agreement, have agreed so to guarantee such obligations of the Company."18
payments due on December 1, 1978, June 1, 1979 and December 1, 1979 were rescheduled as
The obligations of the guarantors are meticulously expressed in the following provision: requested by PPIC. Despite the rescheduling of the installment payments, however, PPIC
"Section 2.01. The Guarantors jointly and severally, irrevocably, absolutely and unconditionally guarantee, as
primary obligors and not as sureties merely, the due and punctual payment of the principal of, and interest and
defaulted. Hence, on April 1, 1985, IFC served a written notice of default to PPIC demanding
commitment charge on, the Loan, and the principal of, and interest on, the Notes, whether at stated maturity or the latter to pay the outstanding principal loan and all its accrued interests. Despite such
upon prematuring, all as set forth in the Loan Agreement and in the Notes." notice, PPIC failed to pay the loan and its interests.

While referring to ITM as a guarantor, the Agreement specifically stated that the corporation was By virtue of PPIC’s failure to pay, IFC, together with DBP, applied for the extrajudicial
"jointly and severally" liable. To put emphasis on the nature of that liability, the Contract further foreclosure of mortgages on the real estate, buildings, machinery, equipment plant and all
stated that ITM was a primary obligor, not a mere surety. Those stipulations meant only one thing: improvements owned by PPIC, located at Calamba, Laguna, with the regional sheriff of Calamba,
that at bottom, and to all legal intents and purposes, it was a surety. Laguna. On July 30, 1985, the deputy sheriff of Calamba, Laguna issued a notice of extrajudicial
sale. IFC and DBP were the only bidders during the auction sale. IFC’s bid was for ₱99,269,100.00
Indubitably therefore, ITM bound itself to be solidarily liable with PPIC for the latter’s which was equivalent to US$5,250,000.00 (at the prevailing exchange rate of ₱18.9084 = US$1.00).
obligations under the Loan Agreement with IFC. ITM thereby brought itself to the level of The outstanding loan, however, amounted to US$8,083,967.00 thus leaving a balance of
PPIC and could not be deemed merely secondarily liable. US$2,833,967.00. PPIC failed to pay the remaining balance.

The Court does not find any ambiguity in the provisions of the Guarantee Agreement. When qualified Consequently, IFC demanded ITM and Grandtex, as guarantors of PPIC, to pay the
by the term "jointly and severally," the use of the word "guarantor" to refer to a "surety" does not outstanding balance. However, despite the demand made by IFC, the outstanding balance
violate the law. As Article 2047 provides, a suretyship is created when a guarantor binds itself remained unpaid.
solidarily with the principal obligor. Likewise, the phrase in the Agreement -- "as primary obligor and
not merely as surety" -- stresses that ITM is being placed on the same level as PPIC. Those words Thereafter, on May 20, 1988, IFC filed a complaint with the RTC of Manila against PPIC and ITM
emphasize the nature of their liability, which the law characterizes as a suretyship. for the payment of the outstanding balance plus interests and attorney’s fees.

The use of the word "guarantee" does not ipso facto make the contract one of guaranty. This Court RTC: held PPIC liable for the payment of the outstanding loan plus interests. It also ordered
has recognized that the word is frequently employed in business transactions to describe the PPIC to pay IFC its claimed attorney’s fees. However, the trial court relieved ITM of its
intention to be bound by a primary or an independent obligation. The very terms of a contract govern obligation as guarantor. Hence, the trial court dismissed IFC’s complaint against ITM.
the obligations of the parties or the extent of the obligor’s liability. Thus, this Court has ruled in favor
of suretyship, even though contracts were denominated as a "Guarantor’s Undertaking" or a
26
Thus, apropos the decision dismissing the complaint against ITM, IFC appealed to the CA.
"Continuing Guaranty.”
CA: reversed the Decision of the trial court, insofar as the latter exonerated ITM from any
We note that the CA denied solidary liability, on the theory that the parties would not have executed obligation to IFC. According to the appellate court, ITM bound itself under the "Guarantee
a Guarantee Agreement if they had intended to name ITM as a primary obligor. The appellate court Agreement" to pay PPIC’s obligation upon default. ITM was not discharged from its
opined that ITM’s undertaking was collateral to and distinct from the Loan Agreement. On this point, obligation as guarantor when PPIC mortgaged the latter’s properties to IFC. The CA, however,
the Court stresses that a suretyship is merely an accessory or a collateral to a principal obligation. held that ITM’s liability as a guarantor would arise only if and when PPIC could not pay. Since
Although a surety contract is secondary to the principal obligation, the liability of the surety is direct, PPIC’s inability to comply with its obligation was not sufficiently established, ITM could not
primary and absolute; or equivalent to that of a regular party to the undertaking. A surety becomes immediately be made to assume the liability. 
liable to the debt and duty of the principal obligor even without possessing a direct or personal Dispositive portion of the CA decision:
interest in the obligations constituted by the latter. "WHEREFORE, the appeal is PARTIALLY GRANTED. The decision of the trial court is MODIFIED to read as
 

follows:
"1. Philippine Polyamide Industrial Corporation is ORDERED to pay [Petitioner] International Finance Corporation,
Thus, the SC held that Imperial Textile Mills, Inc. is a surety to Philippine Polyamide Industrial the following amounts:
Corporation. ITM is ordered to pay International Finance Corporation the same amounts adjudged ‘(a) US$2,833,967.00 with accrued interests as provided in the Loan Agreement;
against PPIC in the assailed Decision. ‘(b) Interest of 12% per annum on accrued interest, which shall be counted from the date of filing of the instant
action up to the actual payment;
‘(c) ₱73,340.00 as attorney’s fees;
‘(d) Costs of suit.’
FACTS: "2. The guarantor Imperial Textile Mills, Inc. together with Grandtex is HELD secondarily liable to pay the amount
On December 17, 1974, Petitioner International Finance Corporation (IFC) and Respondent herein adjudged to [Petitioner] International Finance Corporation."
Philippine Polyamide Industrial Corporation (PPIC) entered into a loan agreement wherein IFC The assailed Resolution denied both parties’ respective Motions for Reconsideration.
extended to PPIC a loan of US$7,000,000.00, payable in sixteen (16) semi-annual installments
of US$437,500.00 each, beginning June 1, 1977 to December 1, 1984, with interest at the rate The September 30, 2003 Resolution of the CA denied reconsideration. Hence, this Petition.
of 10% per annum on the principal amount of the loan advanced and outstanding from time to
time. The interest shall be paid in US dollars semi-annually on June 1 and December 1 in each year ISSUE:
and interest for any period less than a year shall accrue and be pro-rated on the basis of a 360-day WON ITM is a surety, and thus solidarily liable with PPIC for the payment of the loan?—YES
year of twelve 30-day months.
HELD: the Petition is granted; CA decision modified in the sense that Imperial Textile Mills, Inc. is
On December 17, 1974, a ‘Guarantee Agreement’ was executed with x x x Imperial Textile declared a surety to Philippine Polyamide Industrial Corporation. ITM is ordered to pay
Mills, Inc. (ITM), Grand Textile Manufacturing Corporation (Grandtex) and IFC as parties International Finance Corporation the same amounts adjudged against PPIC in the assailed
thereto. ITM and Grandtex agreed to guarantee PPIC’s obligations under the loan agreement. Decision.
RATIO: "The creditor may proceed against any one of the solidary debtors or some or all of them
Main Issue: Liability of Respondent Under the Guarantee ITM Agreement simultaneously. The demand made against one of them shall not be an obstacle to those which may
subsequently be directed against the others, so long as the debt has not been fully collected."
The present controversy arose from the following Contracts: (1) the Loan Agreement dated Pursuant to this provision, petitioner (as creditor) was justified in taking action directly against
December 17, 1974, between IFC and PPIC; and (2) the Guarantee Agreement dated December respondent.
17, 1974, between ITM and Grandtex, on the one hand, and IFC on the other.
No Ambiguity in the Undertaking
Petitioner IFC: claims that, under the Guarantee Agreement, ITM bound itself as a surety to The Court does not find any ambiguity in the provisions of the Guarantee Agreement. When
PPIC’s obligations proceeding from the Loan Agreement. qualified by the term "jointly and severally," the use of the word "guarantor" to refer to a
"surety" does not violate the law. As Article 2047 provides, a suretyship is created when a
23

guarantor binds itself solidarily with the principal obligor. Likewise, the phrase in the
Respondent ITM: for its part, asserts that, by the terms of the Guarantee Agreement, it was
Agreement -- "as primary obligor and not merely as surety" -- stresses that ITM is being
merely a guarantor and not a surety. Moreover, any ambiguity in the Agreement should be
placed on the same level as PPIC. Those words emphasize the nature of their liability, which
construed against IFC -- the party that drafted it.
the law characterizes as a suretyship.

Language of the Contract

The use of the word "guarantee" does not ipso facto make the contract one of guaranty. This
The premise of the Guarantee Agreement is found in its preambular clause, which reads:
Court has recognized that the word is frequently employed in business transactions to
describe the intention to be bound by a primary or an independent obligation. The very terms
"Whereas, of a contract govern the obligations of the parties or the extent of the obligor’s liability. Thus,
"(A) By an Agreement of even date herewith between IFC and PHILIPPINE POLYAMIDE this Court has ruled in favor of suretyship, even though contracts were denominated as a
INDUSTRIAL CORPORATION (herein called the Company), which agreement is herein called the "Guarantor’s Undertaking" or a "Continuing Guaranty.”
26

Loan Agreement, IFC agrees to extend to the Company a loan (herein called the Loan) of seven
million dollars ($7,000,000) on the terms therein set forth, including a provision that all or part of the
Contracts have the force of law between the parties, who are free to stipulate any matter not contrary
Loan may be disbursed in a currency other than dollars, but only on condition that the Guarantors
to law, morals, good customs, public order or public policy. None of these circumstances are
agree to guarantee the obligations of the Company in respect of the Loan as hereinafter provided.
present, much less alleged by respondent. Hence, this Court cannot give a different meaning to the
"(B) The Guarantors, in order to induce IFC to enter into the Loan Agreement, and in consideration
plain language of the Guarantee Agreement.
of IFC entering into said Agreement, have agreed so to guarantee such obligations of the Company."
The obligations of the guarantors are meticulously expressed in the following provision:
"Section 2.01. The Guarantors jointly and severally, irrevocably, absolutely and unconditionally Indeed, the finding of solidary liability is in line with the premise provided in the "Whereas"
guarantee, as primary obligors and not as sureties merely, the due and punctual payment of the clause of the Guarantee Agreement. The execution of the Agreement was a condition
principal of, and interest and commitment charge on, the Loan, and the principal of, and interest on, precedent for the approval of PPIC’s loan from IFC. Consistent with the position of IFC as
the Notes, whether at stated maturity or upon prematuring, all as set forth in the Loan Agreement creditor was its requirement of a higher degree of liability from ITM in case PPIC committed a
and in the Notes." breach. ITM agreed with the stipulation in Section 2.01 and is now estopped from feigning
ignorance of its solidary liability. The literal meaning of the stipulations control when the
terms of the contract are clear and there is no doubt as to the intention of the parties.
The Agreement uses "guarantee" and "guarantors," prompting ITM to base its argument on
those words. This Court is not convinced that the use of the two words limits the Contract to
a mere guaranty. The specific stipulations in the Contract show otherwise. We note that the CA denied solidary liability, on the theory that the parties would not have executed
a Guarantee Agreement if they had intended to name ITM as a primary obligor. The appellate court
opined that ITM’s undertaking was collateral to and distinct from the Loan Agreement. On this point,
Solidary Liability Agreed to by ITM
the Court stresses that a suretyship is merely an accessory or a collateral to a principal
While referring to ITM as a guarantor, the Agreement specifically stated that the corporation
obligation. Although a surety contract is secondary to the principal obligation, the liability of
was "jointly and severally" liable. To put emphasis on the nature of that liability, the Contract
the surety is direct, primary and absolute; or equivalent to that of a regular party to the
further stated that ITM was a primary obligor, not a mere surety. Those stipulations meant
undertaking. A surety becomes liable to the debt and duty of the principal obligor even
only one thing: that at bottom, and to all legal intents and purposes, it was a surety.
without possessing a direct or personal interest in the obligations constituted by the latter.

Indubitably therefore, ITM bound itself to be solidarily liable with PPIC for the latter’s
ITM’s Liability as Surety
obligations under the Loan Agreement with IFC. ITM thereby brought itself to the level of
PPIC and could not be deemed merely secondarily liable.
With the present finding that ITM is a surety, it is clear that the CA erred in declaring the
former secondarily liable. A surety is considered in law to be on the same footing as the
Initially, ITM was a stranger to the Loan Agreement between PPIC and IFC. ITM’s liability
principal debtor in relation to whatever is adjudged against the latter. Evidently, the
commenced only when it guaranteed PPIC’s obligation. It became a surety when it bound itself
dispositive portion of the assailed Decision should be modified to require ITM to pay the
solidarily with the principal obligor. Thus, the applicable law is as follows:
amount adjudged in favor of IFC.

"Article 2047. By guaranty, a person, called the guarantor binds himself to the creditor to fulfill the
Other issues: 
obligation of the principal in case the latter should fail to do so.
In addition to the main issue, ITM raised procedural infirmities allegedly justifying the
"If a person binds himself solidarily with the principal debtor, the provisions of Section 4, Chapter 3,
denial of the present Petition. Before the trial court and the CA, IFC had allegedly instituted different
Title I of this Book shall be observed. In such case the contract shall be called suretyship.”
arguments that effectively changed the corporation’s theory on appeal, in violation of this Court’s
previous pronouncements. ITM further claims that the main issue in the present case is a question
37

The aforementioned provisions refer to Articles 1207 to 1222 of the Civil Code on "Joint and Solidary of fact that is not cognizable by this Court. These contentions deserve little consideration.
Obligations." Relevant to this case is Article 1216, which states:
 Alleged Change of Theory on Appeal:Petitioner’s arguments before the trial court (that ITM
was a "primary obligor") and before the CA (that ITM was a "surety") were related and intertwined in
the action to enforce the solidary liability of ITM under the Guarantee Agreement. We emphasize
that the terms "primary obligor" and "surety" were premised on the same stipulations in Section 2.01
of the Agreement. Besides, both terms had the same legal consequences. There was therefore
effectively no change of theory on appeal. At any rate, ITM failed to show to this Court a disparity
between IFC’s allegations in the trial court and those in the CA. Bare allegations without proof
deserve no credence.
As to the issue that only questions of law may be raised in a Petition for Review, the 39

Court has recognized exceptions, one of which applies to the present case. The assailed Decision
was based on a misapprehension of facts, which particularly related to certain stipulations in the
Guarantee Agreement -- stipulations that had not been disputed by the parties. This circumstance
compelled the Court to review the Contract firsthand and to make its own findings and conclusions
accordingly.

• E. Zobel, Inc. v. Court of Appeals, G.R. No. 113931, May 6, 1998 – MARKO guaranty, on the other hand, is a collateral undertaking to pay the debt of another in case the latter
does not pay the debt. 
G.R. No. 113931 May 6, 1998
E. ZOBEL, INC., petitioner, vs.
Strictly speaking, guaranty and surety are nearly related, and many of the principles are common to
THE COURT OF APPEALS, CONSOLIDATED BANK AND TRUST CORPORATION, and
both. However, under our civil law, they may be distinguished thus:
SPOUSES RAUL and ELEA R. CLAVERIA, respondents.

Topic: Guaranty and Suretyship (Arts. 2047-2084) Surety Guaranty

-is usually bound with his principal by the same -the contract of guaranty is the guarantor's own
This petition for review on certiorari seeks the reversal of the decision  1 of the Court of Appeals instrument, executed at the same time, and on separate undertaking, in which the principal
dated July 13, 1993 which affirmed the Order of the Regional Trial Court of Manila, Branch 51, the same consideration. He is an original does not join. It is usually entered into before or
denying petitioner's Motion to Dismiss the complaint, as well as the Resolution  2 dated February 15, promissor and debtor from the beginning, and is after that of the principal, and is often supported
1994 denying the motion for reconsideration thereto. held, ordinarily, to know every default of his on a separate consideration from that supporting
principal. Usually, he will not be discharged, the contract of the principal. The original
either by the mere indulgence of the creditor contract of his principal is not his contract, and
Summary: to the principal, or by want of notice of the he is not bound to take notice of its non-
Respondent Sps. Claveria, doing business under the name of “Agro Brokers”, obtained a loan for default of the principal, no matter how much performance. He is often discharged by the
P2.8M from respondent Consolidated Bank(Now, SOLIDBANK), in the amount of P2M to finance the he may be injured thereby. mere indulgence of the creditor to the principal,
purchase of 2 maritime barges and 1 tugboat which would be used in their molasses business. The and is usually not liable unless notified of the
loan was granted subject to the condition that respondent spouses execute a chattel mortgage over default of the principal. 
the three (3) vessels to be acquired and that a continuing guarantee be executed by Ayala
International Philippines, Inc., now herein petitioner E. Zobel, Inc., in favor of SOLIDBANK.
Respondent spouses defaulted in the payment of the entire obligation upon maturity. Hence, Simply put, a surety is distinguished from a guaranty in that a guarantor is the insurer of the solvency
SOLIDBANK filed a complaint for sum of money with a prayer for a writ of preliminary attachment, of the debtor and thus binds himself to pay if the principal is unable to pay while a surety is the
against respondents spouses and petitioner. Petitioner moved to dismiss the complaint on the insurer of the debt, and he obligates himself to pay if the principal does not pay. 
ground that its liability as guarantor of the loan was extinguished pursuant to Article 2080 of the Civil
Code of the Philippines. It argued that it has lost its right to be subrogated to the first chattel Based on the aforementioned definitions, it appears that the contract executed by petitioner in favor
mortgage in view of SOLIDBANK's failure to register the chattel mortgage with the appropriate of SOLIDBANK, albeit denominated as a "Continuing Guaranty," is a contract of surety. The terms of
government agency. SOLIDBANK opposed the motion contending that Article 2080 is not applicable the contract categorically obligates petitioner as "surety" to induce SOLIDBANK to extend credit to
because petitioner is not a guarantor but a surety. respondent spouses. This can be seen in the following stipulation 1.
1
For and in consideration of any existing indebtedness to you of AGRO BROKERS, a single proprietorship owned by MR. RAUL P.
Two issues to be resolved: (1) WON petitioner under the “Continuing Guaranty” obligated itself to
CLAVERIA, of legal age, married and with business address . . . (hereinafter called the Borrower), for the payment of which
SOLIDBANK as a guarantor or a surety - YES; and (2) WON Art. 2080 of the New Civil Code is the undersigned is now obligated to you as surety and in order to induce you, in your discretion, at any time or from time to
applicable – NO. time hereafter, to make loans or advances or to extend credit in any other manner to, or at the request or for the account of the
Borrower, either with or without purchase or discount, or to make any loans or advances evidenced or secured by any notes, bills
receivable, drafts, acceptances, checks or other instruments or evidences of indebtedness . . . upon which the Borrower is or may
The SC held that petitioner is liable and that Art. 2080 is not applicable in the case at bar. become liable as maker, endorser, acceptor, or otherwise, the undersigned agrees to guarantee, and does hereby guarantee,
the punctual payment, at maturity or upon demand, to you of any and all such instruments, loans, advances, credits and/or
other obligations herein before referred to, and also any and all other indebtedness of every kind which is now or may
hereafter become due or owing to you by the Borrower , together with any and all expenses which may be incurred by you in
A contract of surety is an accessory promise by which a person binds himself for another already collecting all or any such instruments or other indebtedness or obligations hereinbefore referred to, and or in enforcing any rights
bound, and agrees with the creditor to satisfy the obligation if the debtor does not.  A contract of hereunder, and also to make or cause any and all such payments to be made strictly in accordance with the terms and provisions of
any agreement (g), express or implied, which has (have) been or may hereafter be made or entered into by the Borrower in reference
One need not look too deeply at the contract to determine the nature of the undertaking and the Clearly therefore, defendant E. Zobel, Inc. signed as surety. Even though the title of the document is
intention of the parties. The contract clearly disclose that petitioner assumed liability to SOLIDBANK, "Continuing Guaranty", the Court's interpretation is not limited to the title alone but to the contents
as a regular party to the undertaking and obligated itself as an original promissor. It bound itself and intention of the parties more specifically if the language is clear and positive. The obligation of
jointly and severally to the obligation with the respondent spouses. In fact, SOLIDBANK need not the defendant Zobel being that of a surety, Art. 2080 New Civil Code will not apply as it is only for
resort to all other legal remedies or exhaust respondent spouses' properties before it can hold those acting as guarantor. In fact, in the letter of January 31, 1986 of the defendants (spouses and
petitioner liable for the obligation. Zobel) to the plaintiff it is requesting that the chattel mortgage on the vessels and tugboat be waived
and/or rescinded by the bank inasmuch as the said loan is covered by the Continuing Guaranty by
Zobel in favor of the plaintiff thus thwarting the claim of the defendant now that the chattel mortgage
Having thus established that petitioner is a surety, Article 2080 of the Civil Code, relied upon by
is an essential condition of the guaranty. In its letter, it said that because of the Continuing Guaranty
petitioner, finds no application to the case at bar. But even assuming that Article 2080 is applicable,
in favor of the plaintiff the chattel mortgage is rendered unnecessary and redundant.
SOLIDBANK's failure to register the chattel mortgage did not release petitioner from the obligation.
In the Continuing Guaranty executed in favor of SOLIDBANK, petitioner bound itself to the contract
irrespective of the existence of any collateral. It even released SOLIDBANK from any fault or With regard to the claim that the failure of the plaintiff to register the chattel mortgage with the proper
negligence that may impair the contract. government agency, i.e. with the Office of the Collector of Customs or with the Register of Deeds
makes the obligation a guaranty, the same merits a scant consideration and could not be taken by
this Court as the basis of the extinguishment of the obligation of the defendant corporation to the
Facts:
plaintiff as surety. The chattel mortgage is an additional security and should not be considered as
MARTINEZ, J.:
payment of the debt in case of failure of payment. The same is true with the failure to register,
extinction of the liability would not lie.
Respondent spouses Raul and Elea Claveria, doing business under the name "Agro Brokers,"
applied for a loan with petitioner Consolidated Bank and Trust Corporation (now
WHEREFORE, the Motion to Dismiss is hereby denied and defendant E. Zobel, Inc., is ordered to
SOLIDBANK) in the amount of Two Million Eight Hundred Seventy Five Thousand Pesos
file its answer to the complaint within ten (10) days from receipt of a copy of this Order.”
(P2,875,000.00) to finance the purchase of two (2) maritime barges and one tugboat which
would be used in their molasses business. The loan was granted subject to the condition that
respondent spouses execute a chattel mortgage over the three (3) vessels to be acquired and Petitioner moved for reconsideration but was denied.
that a continuing guarantee be executed by Ayala International Philippines, Inc., now herein
petitioner E. Zobel, Inc., in favor of SOLIDBANK. The respondent spouses agreed to the
Thereafter, petitioner questioned said Orders before the respondent CA, through a petition
arrangement. Consequently, a chattel mortgage and a Continuing Guaranty were executed.
for certiorari, alleging that the trial court committed grave abuse of discretion in denying the motion
to dismiss.
Respondent spouses defaulted in the payment of the entire obligation upon maturity. Hence,
on January 31, 1991, SOLIDBANK filed a complaint for sum of money with a prayer for a writ
CA: Denied the petition finding no grave abuse of discretion. MR likewise denied. Hence, the present
of preliminary attachment, against respondents spouses and petitioner. The case was
case.
docketed as Civil Case No. 91-55909 in the Regional Trial Court of Manila.

Petitioner: Argue that the respondent CA erred in its finding: (1) that Article 2080 of the New Civil
Petitioner moved to dismiss the complaint on the ground that its liability as guarantor of the
Code which provides: "The guarantors, even though they be solidary, are released from their
loan was extinguished pursuant to Article 2080 of the Civil Code of the Philippines. It argued
obligation whenever by some act of the creditor they cannot be subrogated to the rights, mortgages,
that it has lost its right to be subrogated to the first chattel mortgage in view of SOLIDBANK's
and preferences of the latter," is not applicable to petitioner; (2) that petitioner's obligation to
failure to register the chattel mortgage with the appropriate government agency.
respondent SOLIDBANK under the continuing guaranty is that of a surety; and (3) that the failure of
respondent SOLIDBANK to register the chattel mortgage did not extinguish petitioner's liability to
SOLIDBANK opposed the motion contending that Article 2080 is not applicable because respondent SOLIDBANK.
petitioner is not a guarantor but a surety.
ISSUE/S: (1) WON petitioner under the “Continuing Guaranty” obligated itself to SOLIDBANK as a
TC: Dismissed the complaint for lack of merit. guarantor or a surety - YES;

“The document referred to as "Continuing Guaranty" dated August 21, 1985 (Exh. 7) states as (2) WON Art. 2080 of the New Civil Code is applicable – NO.
follows:
RULING: WHEREFORE, the decision of the respondent Court of Appeals is hereby
For and in consideration of any existing indebtedness to you of Agro Brokers, a single proprietorship AFFIRMED. Costs against the petitioner.
owned by Mr. Raul Claveria for the payment of which the undersigned is now obligated to you as
surety and in order to induce you, in your discretion, at any other manner, to, or at the request or for
RATIO:
the account of the borrower, . . .

First Issue:
The provisions of the document are clear, plain and explicit.

A contract of surety is an accessory promise by which a person binds himself for another
already bound, and agrees with the creditor to satisfy the obligation if the debtor does not .  A
thereto, regardless of any law, regulation or decree, now or hereafter in effect which might in any manner affect any of the terms or contract of guaranty, on the other hand, is a collateral undertaking to pay the debt of another in case
provisions of any such agreements(s) or your right with respect thereto as against the Borrower, or cause or permit to be invoked any the latter does not pay the debt. 
alteration in the time, amount or manner of payment by the Borrower of any such instruments, obligations or indebtedness
Strictly speaking, guaranty and surety are nearly related, and many of the principles are common to . . . If default be made in the payment of any of the instruments, indebtedness or other obligation
both. However, under our civil law, they may be distinguished thus: hereby guaranteed by the undersigned, or if the Borrower, or the undersigned should die, dissolve,
fail in business, or become insolvent, . . ., or if any funds or other property of the Borrower, or of the
undersigned which may be or come into your possession or control or that of any third party acting in
Surety Guaranty your behalf as aforesaid should be attached of distrained, or should be or become subject to any
-is usually bound with his principal by the same -the contract of guaranty is the guarantor's own mandatory order of court or other legal process, then, or any time after the happening of any such
instrument, executed at the same time, and on separate undertaking, in which the principal event any or all of the instruments of indebtedness or other obligations hereby guaranteed shall, at
the same consideration. He is an original does not join. It is usually entered into before or your option become (for the purpose of this guaranty) due and payable by the undersigned forthwith
promissor and debtor from the beginning, and is after that of the principal, and is often supported without demand of notice, and full power and authority are hereby given you, in your discretion, to
held, ordinarily, to know every default of his on a separate consideration from that supporting sell, assign and deliver all or any part of the property upon which you may then have a lien
principal. Usually, he will not be discharged, the contract of the principal. The original hereunder at any broker's board, or at public or private sale at your option, either for cash or for
either by the mere indulgence of the creditor contract of his principal is not his contract, and credit or for future delivery without assumption by you of credit risk, and without either the demand,
to the principal, or by want of notice of the he is not bound to take notice of its non- advertisement or notice of any kind, all of which are hereby expressly waived. At any sale
default of the principal, no matter how much performance. He is often discharged by the hereunder, you may, at your option, purchase the whole or any part of the property so sold, free from
he may be injured thereby. mere indulgence of the creditor to the principal, any right of redemption on the part of the undersigned, all such rights being also hereby waived and
and is usually not liable unless notified of the released. In case of any sale and other disposition of any of the property aforesaid, after deducting
default of the principal.  all costs and expenses of every kind for care, safekeeping, collection, sale, delivery or otherwise,
you may apply the residue of the proceeds of the sale and other disposition thereof, to the payment
Simply put, a surety is distinguished from a guaranty in that a guarantor is the insurer of the or reduction, either in whole or in part, of any one or more of the obligations or liabilities hereunder of
solvency of the debtor and thus binds himself to pay if the principal is unable to pay while a the undersigned whether or not except for disagreement such liabilities or obligations would then be
surety is the insurer of the debt, and he obligates himself to pay if the principal does not pay.  due, making proper allowance or interest on the obligations and liabilities not otherwise then due,
and returning the overplus, if any, to the undersigned; all without prejudice to your rights as against
the undersigned with respect to any and all amounts which may be or remain unpaid on any of the
Based on the aforementioned definitions, it appears that the contract executed by petitioner in obligations or liabilities aforesaid at any time (s).
favor of SOLIDBANK, albeit denominated as a "Continuing Guaranty," is a contract of surety.
The terms of the contract categorically obligates petitioner as "surety" to induce SOLIDBANK
to extend credit to respondent spouses. This can be seen in the following stipulations. x x x           x x x          x x x

For and in consideration of any existing indebtedness to you of AGRO BROKERS, a single Should the Borrower at this or at any future time furnish, or should be heretofore have furnished,
proprietorship owned by MR. RAUL P. CLAVERIA, of legal age, married and with business address . another surety or sureties to guarantee the payment of his obligations to you, the undersigned
. . (hereinafter called the Borrower), for the payment of which the undersigned is now obligated to hereby expressly waives all benefits to which the undersigned might be entitled under the provisions
you as surety and in order to induce you, in your discretion, at any time or from time to time of Article 1837 of the Civil Code (beneficio division), the liability of the undersigned under any and all
hereafter, to make loans or advances or to extend credit in any other manner to, or at the request or circumstances being joint and several.
for the account of the Borrower, either with or without purchase or discount, or to make any loans or
advances evidenced or secured by any notes, bills receivable, drafts, acceptances, checks or other The use of the term "guarantee" does not ipso facto mean that the contract is one of guaranty.
instruments or evidences of indebtedness . . . upon which the Borrower is or may become liable Authorities recognize that the word "guarantee" is frequently employed in business transactions to
as maker, endorser, acceptor, or otherwise, the undersigned agrees to guarantee, and does describe not the security of the debt but an intention to be bound by a primary or independent
hereby guarantee, the punctual payment, at maturity or upon demand, to you of any and all obligation.  As aptly observed by the trial court, the interpretation of a contract is not limited to the
such instruments, loans, advances, credits and/or other obligations herein before referred to, title alone but to the contents and intention of the parties.
and also any and all other indebtedness of every kind which is now or may hereafter become
due or owing to you by the Borrower, together with any and all expenses which may be incurred
by you in collecting all or any such instruments or other indebtedness or obligations hereinbefore 2nd Issue:
referred to, and or in enforcing any rights hereunder, and also to make or cause any and all such
payments to be made strictly in accordance with the terms and provisions of any agreement (g), Having thus established that petitioner is a surety, Article 2080 of the Civil Code, relied upon
express or implied, which has (have) been or may hereafter be made or entered into by the by petitioner, finds no application to the case at bar. In Bicol Savings and Loan Association
Borrower in reference thereto, regardless of any law, regulation or decree, now or hereafter in effect vs. Guinhawa, we have ruled that Article 2080 of the New Civil Code does not apply where the
which might in any manner affect any of the terms or provisions of any such agreements(s) or your liability is as a surety, not as a guarantor.
right with respect thereto as against the Borrower, or cause or permit to be invoked any alteration in
the time, amount or manner of payment by the Borrower of any such instruments, obligations or
indebtedness; . . . But even assuming that Article 2080 is applicable, SOLIDBANK's failure to register the chattel
mortgage did not release petitioner from the obligation. In the Continuing Guaranty executed
in favor of SOLIDBANK, petitioner bound itself to the contract irrespective of the existence of
One need not look too deeply at the contract to determine the nature of the undertaking and the any collateral. It even released SOLIDBANK from any fault or negligence that may impair the
intention of the parties. The contract clearly disclose that petitioner assumed liability to contract. The pertinent portions of the contract so provides:
SOLIDBANK, as a regular party to the undertaking and obligated itself as an original
promissor. It bound itself jointly and severally to the obligation with the respondent spouses.
In fact, SOLIDBANK need not resort to all other legal remedies or exhaust respondent . . . the undersigned (petitioner) who hereby agrees to be and remain bound upon this guaranty,
spouses' properties before it can hold petitioner liable for the obligation. This can be gleaned irrespective of the existence, value or condition of any collateral, and notwithstanding any
from a reading of the stipulations in the contract, to wit: such change, exchange, settlement, compromise, surrender, release, sale, application,
renewal or extension, and notwithstanding also that all obligations of the Borrower to you
outstanding and unpaid at any time(s) may exceed the aggregate principal sum herein above
prescribed.
This is a Continuing Guaranty and shall remain in full force and effect until written notice undersigned, or of the Borrower, or of the accession to any such partnership of any one or more new
shall have been received by you that it has been revoked by the undersigned, but any such partners.
notice shall not be released the undersigned from any liability as to any instruments, loans,
advances or other obligations hereby guaranteed, which may be held by you, or in which you may
In fine, we find the petition to be without merit as no reversible error was committed by respondent
have any interest, at the time of the receipt of such notice. No act or omission of any kind on your
Court of Appeals in rendering the assailed decision.
part in the premises shall in any event affect or impair this guaranty, nor shall same be affected by
any change which may arise by reason of the death of the undersigned, of any partner (s) of the

• Tacao v. Court of Appeals, G.R. No. 127405, October 4, 2000 - YODH of kitchen wares in Wisconsin, U.S.A. Under the joint venture, Belo acted as capitalist, Tocao as
G.R. No. 127405 October 4, 2000 president and general manager, and Anay as head of the marketing department and later, vice-
MARJORIE TOCAO and WILLIAM T. BELO, petitioners, vs. COURT OF APPEALS and NENITA president for sales.
A. ANAY, respondents.
YNARES-SANTIAGO, J.: Anay organized the administrative staff and sales force while Tocao hired and fired employees,
determined commissions and/or salaries of the employees, and assigned them to different branches.
The parties agreed that Belo’s name should not appear in any documents relating to their
SUMMARY: Respondent Anay met with petitioner William Belo. Belo then introduced Anay to transactions with West Bend Company. Instead, they agreed to use Anay’s name in securing
Petitioner Tocao. All three of them decided to enter into a join venture for the importation and local distributorship of cookware from that company.
distribution of kitchenware. The Company was called Geminesse Enterprise a sole proprietorship
registered in Marjorie Tocao’s name. The parties agreed further that Anay would be entitled to: (1) ten percent (10%) of the annual net profits of the
business; (2) overriding commission of six percent (6%) of the overall weekly production; (3) thirty percent (30%) of
Belo agreed to finance the venture while Anay acted as the head for the marketing department. the sales she would make; and (4) two percent (2%) for her demonstration services. The agreement was not
reduced to writing on the strength of Belo’s assurances that he was sincere, dependable and honest when it came
Anay would be entitled to: (1) ten percent (10%) of the annual net profits of the business; (2) to financial commitments.
overriding commission of six percent (6%) of the overall weekly production; (3) thirty percent (30%)
of the sales she would make; and (4) two percent (2%) for her demonstration services. The Anay having secured the distributorship of cookware products from the West Bend Company and
agreement was not reduced to writing on the strength of Belo’s assurances that he was sincere, organized the administrative staff and the sales force, the cookware business took off
dependable and honest when it came to financial commitments. successfully. They operated under the name of Geminesse Enterprise, a sole proprietorship
registered in Marjorie Tocao’s name, with office at 712 Rufino Building, Ayala Avenue, Makati City.
The West Bend Company then invited Anay to a distributor/dealer meeting in Wisconsin, USA.
Tocao then endorsed Anay to the Visa Section of the US embassy with the following letter: Belo made good his monetary commitments to Anay. Thereafter, Roger Muencheberg of West
Bend Company invited Anay to the distributor/dealer meeting in West Bend, Wisconsin,
"Ms. Nenita D. Anay (sic), who has been patronizing and supporting West Bend Co. for twenty (20) years now, acquired
the distributorship of Royal Queen cookware for Geminesse Enterprise, is the Vice President Sales Marketing and  a U.S.A., from July 19 to 21, 1987 and to the southwestern regional convention in Pismo Beach,
business partner of our company, will attend in response to the invitation." (Italics supplied.) 3 California, U.S.A., from July 25-26, 1987. Anay accepted the invitation with the consent of Marjorie
Tocao who, as president and general manager of Geminesse Enterprise, even wrote a letter to the
Later, Tocao then wrote a letter to the Cubao Sales office stating that Anay was no longer the vice Visa Section of the U.S. Embassy in Manila on July 13, 1987. A portion of the letter reads:
president of Geminesse Enterprise. Anay then filed for damages against Tocao and Belo. Belo’s
defense was that he denied contributing capital to the business or receiving a share in its profits as "Ms. Nenita D. Anay (sic), who has been patronizing and supporting West Bend Co. for twenty (20)
he merely served as a guarantor of Marjorie Tocao, who was new in the business. years now, acquired the distributorship of Royal Queen cookware for Geminesse Enterprise, is the Vice
President Sales Marketing and a business partner of our company, will attend in response to the
invitation." (Italics supplied.)3
Issue: WON Belo was a mere guarantor. No.
Anay arrived from the U.S.A. in mid-August 1987, and immediately undertook the task of saving the business on account of the
SC: On the other hand, petitioner Belo’s denial that he financed the partnership rings hollow in unsatisfactory sales record in the Makati and Cubao offices. On August 31, 1987, she received a plaque of appreciation from the
the face of the established fact that he presided over meetings regarding matters affecting the administrative and sales people through Marjorie Tocao 4 for her excellent job performance. On October 7, 1987, in the presence of
Anay, Belo signed a memo 5 entitling her to a thirty-seven percent (37%) commission for her personal sales "up Dec 31/87." Belo
operation of the business. Moreover, his having authorized in writing on October 7, 1987, on a explained to her that said commission was apart from her ten percent (10%) share in the profits.
stationery of his own business firm, Wilcon Builders Supply, that private respondent should receive
thirty-seven (37%) of the proceeds of her personal sales, could not be interpreted otherwise than On October 9, 1987, Anay learned that Marjorie Tocao had signed a letter 6 addressed to the
that he had a proprietary interest in the business. His claim that he was merely a guarantor is Cubao sales office to the effect that she was no longer the vice-president of Geminesse
belied by that personal act of proprietorship in the business. Moreover, if he was indeed a Enterprise. The following day, October 10, she received a note from Lina T. Cruz, marketing
guarantor of future debts of petitioner Tocao under Article 2053 of the Civil Code,20 he should have manager, that Marjorie Tocao had barred her from holding office and conducting
presented documentary evidence therefor. While Article 2055 of the Civil Code simply provides demonstrations in both Makati and Cubao offices.7 Anay attempted to contact Belo. She wrote
that guaranty must be "express," Article 1403, the Statute of Frauds, requires that "a special him twice to demand her overriding commission for the period of January 8, 1988 to February 5,
promise to answer for the debt, default or miscarriage of another" be in writing. 21 1988 and the audit of the company to determine her share in the net profits. When her letters were
not answered, Anay consulted her lawyer, who, in turn, wrote Belo a letter. Still, that letter was not
answered.
FACTS: Former marketing adviser of Technolux in Bangkok, Thailand private respondent Nenita
A. Anay met petitioner William T. Belo, then the vice-president for operations of Ultra Clean Water Anay still received her five percent (5%) overriding commission up to December 1987. The following
Purifier, through her former employer in Bangkok. year, 1988, she did not receive the same commission although the company netted a gross sales of
P13,300,360.00.
Belo introduced Anay to petitioner Marjorie Tocao, who conveyed her desire to enter into a joint
venture with her for the importation and local distribution of kitchen cookwares. Belo On April 5, 1988, Nenita A. Anay filed Civil Case No. 88-509, a complaint for sum of money with
volunteered to finance the joint venture and assigned to Anay the job of marketing the product damages8 against Marjorie D. Tocao and William Belo before the Regional Trial Court of Makati,
considering her experience and established relationship with West Bend Company, a manufacturer Branch 140.
 (a) there was an intention to create a partnership; (b) a common fund was established through
In her complaint, Anay prayed that defendants be ordered to pay her, jointly and severally, the contributions consisting of money and industry, and (c) there was a joint interest in the profits. The
following: (1) P32,00.00 as unpaid overriding commission from January 8, 1988 to February 5, 1988; testimony of Elizabeth Bantilan, Anay’s cousin and the administrative officer of Geminesse Enterprise
from August 21, 1986 until it was absorbed by Royal International, Inc., buttressed the fact that a
(2) P100,000.00 as moral damages, and (3) P100,000.00 as exemplary damages. The plaintiff also partnership existed between the parties. The letter of Roger Muencheberg of West Bend Company
prayed for an audit of the finances of Geminesse Enterprise from the inception of its business stating that he awarded the distributorship to Anay and Marjorie Tocao because he was convinced that
operation until she was "illegally dismissed" to determine her ten percent (10%) share in the net with Marjorie’s financial contribution and Anay’s experience, the combination of the two would be
profits. She further prayed that she be paid the five percent (5%) "overriding commission" on the invaluable to the partnership, also supported that conclusion. Belo’s claim that he was merely a
remaining 150 West Bend cookware sets before her "dismissal." "guarantor" has no basis since there was no written evidence thereof as required by Article 2055 of the
Civil Code. Moreover, his acts of attending and/or presiding over meetings of Geminesse Enterprise
DEFENSE: plus his issuance of a memo giving Anay 37% commission on personal sales belied this. On the
contrary, it demonstrated his involvement as a partner in the business.
In their answer,9 Marjorie Tocao and Belo asserted that the "alleged agreement" with Anay that was
"neither reduced in writing, nor ratified," was "either unenforceable or void or inexistent." As far The trial court further held that the payment of commissions did not preclude the existence of the
as Belo was concerned, his only role was to introduce Anay to Marjorie Tocao. There could not have partnership inasmuch as such practice is often resorted to in business circles as an impetus to
been a partnership because, as Anay herself admitted, Geminesse Enterprise was the sole bigger sales volume. It did not matter that the agreement was not in writing because Article 1771 of
proprietorship of Marjorie Tocao. Because Anay merely acted as marketing demonstrator of the Civil Code provides that a partnership may be "constituted in any form." The fact that Geminesse
Geminesse Enterprise for an agreed remuneration, and her complaint referred to either her Enterprise was registered in Marjorie Tocao’s name is not determinative of whether or not the
compensation or dismissal, such complaint should have been lodged with the Department of Labor and business was managed and operated by a sole proprietor or a partnership. What was registered with
not with the regular court.
the Bureau of Domestic Trade was merely the business name or style of Geminesse Enterprise.
Petitioners further alleged that Anay filed the complaint on account of "ill-will and resentment "
because Marjorie Tocao did not allow her to "lord it over in the Geminesse Enterprise." Anay had acted The trial court finally held that a partner who is excluded wrongfully from a partnership is an innocent
like she owned the enterprise because of her experience and expertise. Hence, petitioners were the partner. Hence, the guilty partner must give him his due upon the dissolution of the partnership as
ones who suffered actual damages "including unreturned and unaccounted stocks of Geminesse well as damages or share in the profits "realized from the appropriation of the partnership business
Enterprise," and "serious anxiety, besmirched reputation in the business world, and various damages and goodwill." An innocent partner thus possesses "pecuniary interest in every existing contract that
not less than P500,000.00." They also alleged that, to "vindicate their names," they had to hire counsel was incomplete and in the trade name of the co-partnership and assets at the time he was
for a fee of P23,000.00.
wrongfully expelled."
Belo denied that Anay was supposed to receive a share in the profit of the business. He,
Petitioners’ appeal to the Court of Appeals 11 was dismissed, but the amount of damages awarded by the trial
however, admitted that the two had agreed that Anay would receive a three to four percent (3-4%)
share in the gross sales of the cookware. He denied contributing capital to the business or court were reduced to P50,000.00 for moral damages and P50,000.00 as exemplary damages. Their Motion for
Reconsideration was denied by the Court of Appeals for lack of merit. 12 Petitioners Belo and Marjorie Tocao are
receiving a share in its profits as he merely served as a guarantor of Marjorie Tocao , who
now before this Court on a petition for review on certiorari, asserting that there was no business partnership
was new in the business. He attended and/or presided over business meetings of the venture in his between them and herein private respondent Nenita A. Anay who is, therefore, not entitled to the damages
capacity as a guarantor but he never participated in decision-making. He claimed that he wrote the awarded to her by the Court of Appeals.
memo granting the plaintiff thirty-seven percent (37%) commission upon her dismissal from the
business venture at the request of Tocao, because Anay had no other income.
Petitioners Tocao and Belo contend that the Court of Appeals erroneously held that a partnership
For her part, Marjorie Tocao denied having entered into an oral partnership agreement with Anay. existed between them and private respondent Anay because Geminesse Enterprise "came into
However, she admitted that Anay was an expert in the cookware business and hence, they agreed to being" exactly a year before the "alleged partnership" was formed, and that it was very unlikely that
grant her the following commissions: thirty-seven percent (37%) on personal sales; five percent (5%) on petitioner Belo would invest the sum of P2,500,000.00 with petitioner Tocao contributing nothing,
gross sales; two percent (2%) on product demonstrations, and two percent (2%) for recruitment of without any "memorandum whatsoever regarding the alleged partnership."13
personnel. Marjorie denied that they agreed on a ten percent (10%) commission on the net profits.
Marjorie claimed that she got the capital for the business out of the sale of the sewing machines used in ISSUES:
her garments business and from Peter Lo, a Singaporean friend-financier who loaned her the funds
with interest. Because she treated Anay as her "co-equal," Marjorie received the same amounts of
commissions as her. However, Anay failed to account for stocks valued at P200,000.00. WON there was a Partnership (Yes. Irrelevant)
WON Belo was a mere Guarantor (No.)
On April 22, 1993, the trial court rendered a decision the dispositive part of which is as follows:
RULING:
"WHEREFORE, in view of the foregoing, judgment is hereby rendered:
WHEREFORE, the instant petition for review on certiorari is DENIED. The partnership among petitioners and private respondent is ordered
1. Ordering defendants to submit to the Court a formal account as to the partnership affairs for the years 1987 and 1988 dissolved, and the parties are ordered to effect the winding up and liquidation of the partnership pursuant to the pertinent provisions of the Civil
Code. This case is remanded to the Regional Trial Court for proper proceedings relative to said dissolution. The appealed decisions of the
pursuant to Art. 1809 of the Civil Code in order to determine the ten percent (10%) share of plaintiff in the net profits of Regional Trial Court and the Court of Appeals are AFFIRMED with MODIFICATIONS, as follows ---
the cookware business;
1. Petitioners are ordered to submit to the Regional Trial Court a formal account of the partnership affairs for the years 1987 and 1988, pursuant
2. Ordering defendants to pay five percent (5%) overriding commission for the one hundred and fifty (150) cookware sets to Article 1809 of the Civil Code, in order to determine private respondent’s ten percent (10%) share in the net profits of the partnership;
available for disposition when plaintiff was wrongfully excluded from the partnership by defendants;
2. Petitioners are ordered, jointly and severally, to pay private respondent five percent (5%) overriding commission for the one hundred and fifty
(150) cookware sets available for disposition since the time private respondent was wrongfully excluded from the partnership by petitioners;
3. Ordering defendants to pay plaintiff overriding commission on the total production which for the period covering
January 8, 1988 to February 5, 1988 amounted to P32,000.00; 3. Petitioners are ordered, jointly and severally, to pay private respondent overriding commission on the total production which, for the period
covering January 8, 1988 to February 5, 1988, amounted to P32,000.00;
4. Ordering defendants to pay P100,000.00 as moral damages and P100,000.00 as exemplary damages, and
4. Petitioners are ordered, jointly and severally, to pay private respondent moral damages in the amount of P50,000.00, exemplary damages in
the amount of P50,000.00 and attorney’s fees in the amount of P25,000.00.
5. Ordering defendants to pay P50,000.00 as attorney’s fees and P20,000.00 as costs of suit.
SO ORDERED." SO ORDERED.

The trial court held that there was indeed an "oral partnership agreement between the plaintiff
and the defendants," based on the following: RATIO:
ON PARTNERSHIP (SKIP) and infused the amount into the partnership of distributing cookware with private respondent as the
managing partner.
The issue of whether or not a partnership exists is a factual matter which are within the exclusive domain of both
the trial and appellate courts. This Court cannot set aside factual findings of such courts absent any showing that ON EMPLOYER-EMPLOYEE RELATIONSHIP
there is no evidence to support the conclusion drawn by the court a quo.14 In this case, both the trial court and the
Court of Appeals are one in ruling that petitioners and private respondent established a business partnership. This
Court finds no reason to rule otherwise.
The business venture operated under Geminesse Enterprise did not result in an employer-employee
relationship between petitioners and private respondent. While it is true that the receipt of a
To be considered a juridical personality, a partnership must fulfill these requisites: (1) two or more persons bind percentage of net profits constitutes only prima facie evidence that the recipient is a partner in the
themselves to contribute money, property or industry to a common fund; and (2) intention on the part of the business,25 the evidence in the case at bar controverts an employer-employee relationship between
partners to divide the profits among themselves. 15 It may be constituted in any form; a public instrument is the parties. In the first place, private respondent had a voice in the management of the affairs of the
necessary only where immovable property or real rights are contributed thereto. 16 This implies that since a contract cookware distributorship, 26 including selection of people who would constitute the administrative staff
of partnership is consensual, an oral contract of partnership is as good as a written one. Where no immovable and the sales force. Secondly, petitioner Tocao’s admissions militate against an employer-employee
property or real rights are involved, what matters is that the parties have complied with the requisites of a
partnership. The fact that there appears to be no record in the Securities and Exchange Commission of a public
relationship. She admitted that, like her who owned Geminesse Enterprise, 27 private respondent
instrument embodying the partnership agreement pursuant to Article 1772 of the Civil Code 17 did not cause the received only commissions and transportation and representation allowances 28 and not a fixed
nullification of the partnership. The pertinent provision of the Civil Code on the matter states: salary.29 Petitioner Tocao testified:

Art. 1768. The partnership has a juridical personality separate and distinct from that of each of the partners, even in case "Q: Of course. Now, I am showing to you certain documents already marked as Exhs. ‘X’ and ‘Y.’ Please go over this. Exh. ‘Y’ is denominated
of failure to comply with the requirements of article 1772, first paragraph. `Cubao overrides’ 8-21-87 with ending August 21, 1987, will you please go over this and tell the Honorable Court whether you ever came across
this document and know of your own knowledge the amount ---

Petitioners admit that private respondent had the expertise to engage in the business of distributorship of A: Yes, sir this is what I am talking about earlier. That’s the one I am telling you earlier a certain percentage for promotions, advertising,
incentive.
cookware. Private respondent contributed such expertise to the partnership and hence, under the law, she was the
industrial or managing partner. It was through her reputation with the West Bend Company that the partnership was Q: I see. Now, this promotion, advertising, incentive, there is a figure here and words which I quote: ‘Overrides Marjorie Ann Tocao P21,410.50’
able to open the business of distributorship of that company’s cookware products; it was through the same efforts this means that you have received this amount?

that the business was propelled to financial success. Petitioner Tocao herself admitted private respondent’s A: Oh yes, sir.
indispensable role in putting up the business when, upon being asked if private respondent held the positions of
Q: I see. And, by way of amplification this is what you are saying as one representing commission, representation, advertising and promotion?
marketing manager and vice-president for sales, she testified thus:
A: Yes, sir.
"A: No, sir at the start she was the marketing manager because there were no one to sell yet, it’s only me there then her
and then two (2) people, so about four (4). Now, after that when she recruited already Oscar Abella and Lina Torda-Cruz Q: I see. Below your name is the words and figure and I quote ‘Nita D. Anay P21,410.50’, what is this?
these two (2) people were given the designation of marketing managers of which definitely Nita as superior to them A: That’s her overriding commission.
would be the Vice President." 18
Q: Overriding commission, I see. Of course, you are telling this Honorable Court that there being the same P21,410.50 is merely by coincidence?
By the set-up of the business, third persons were made to believe that a partnership had indeed been forged A: No, sir, I made it a point that we were equal because the way I look at her kasi, you know in a sense because of her expertise in the business
between petitioners and private respondents. Thus, the communication dated June 4, 1986 of Missy Jagler of West she is vital to my business. So, as part of the incentive I offer her the same thing.
Bend Company to Roger Muencheberg of the same company states:
Q: So, in short you are saying that this you have shared together, I mean having gotten from the company P21,140.50 is your way of indicating
that you were treating her as an equal?
"Marge Tocao is president of Geminesse Enterprises. Geminesse will finance the operations. Marge does not have
cookware experience. Nita Anay has started to gather former managers, Lina Torda and Dory Vista. She has also A: As an equal.
gathered former demonstrators, Betty Bantilan, Eloisa Lamela, Menchu Javier. They will continue to gather other key
Q: As an equal, I see. You were treating her as an equal?
people and build up the organization. All they need is the finance and the products to sell." 19
A: Yes, sir.
BELO WAS NOT MERELY A GUARANTOR Q: I am calling again your attention to Exh. ‘Y’ ‘Overrides Makati the other one is ---

A: That is the same thing, sir.

On the other hand, petitioner Belo’s denial that he financed the partnership rings hollow in the
Q: With ending August 21, words and figure ‘Overrides Marjorie Ann Tocao P15,314.25’ the amount there you will acknowledge you have
face of the established fact that he presided over meetings regarding matters affecting the received that?
operation of the business. Moreover, his having authorized in writing on October 7, 1987, on a
A: Yes, sir.
stationery of his own business firm, Wilcon Builders Supply, that private respondent should receive
thirty-seven (37%) of the proceeds of her personal sales, could not be interpreted otherwise than Q: Again in concept of commission, representation, promotion, etc.?

that he had a proprietary interest in the business. His claim that he was merely a guarantor is A: Yes, sir.
belied by that personal act of proprietorship in the business. Moreover, if he was indeed a Q: Okey. Below your name is the name of Nita Anay P15,314.25 that is also an indication that she received the same amount?
guarantor of future debts of petitioner Tocao under Article 2053 of the Civil Code,20 he should have
A: Yes, sir.
presented documentary evidence therefor. While Article 2055 of the Civil Code simply provides
that guaranty must be "express," Article 1403, the Statute of Frauds, requires that "a special Q: And, as in your previous statement it is not by coincidence that these two (2) are the same?

promise to answer for the debt, default or miscarriage of another" be in writing. 21 A: No, sir.

Q: It is again in concept of you treating Miss Anay as your equal?

Petitioner Tocao, a former ramp model,22 was also a capitalist in the partnership. She claimed that
A: Yes, sir." (Italics supplied.)30
she herself financed the business. Her and petitioner Belo’s roles as both capitalists to the
partnership with private respondent are buttressed by petitioner Tocao’s admissions that petitioner
If indeed petitioner Tocao was private respondent’s employer, it is difficult to believe that they shall
Belo was her boyfriend and that the partnership was not their only business venture together. They
receive the same income in the business. In a partnership, each partner must share in the profits
also established a firm that they called "Wiji," the combination of petitioner Belo’s first name, William,
and losses of the venture, except that the industrial partner shall not be liable for the losses. 31 As an
and her nickname, Jiji.23 The special relationship between them dovetails with petitioner Belo’s claim
industrial partner, private respondent had the right to demand for a formal accounting of the
that he was acting in behalf of petitioner Tocao. Significantly, in the early stage of the business
business and to receive her share in the net profit.32
operation, petitioners requested West Bend Company to allow them to "utilize their banking and
trading facilities in Singapore" in the matter of importation and payment of the cookware
The fact that the cookware distributorship was operated under the name of Geminesse Enterprise, a
products.24 The inevitable conclusion, therefore, was that petitioners merged their respective capital
sole proprietorship, is of no moment. What was registered with the Bureau of Domestic Trade on
August 19, 1987 was merely the name of that enterprise. 33 While it is true that in her undated
application for renewal of registration of that firm name, petitioner Tocao indicated that it would be "x x x. The right to choose with whom a person wishes to associate himself is the very foundation and essence of that
partnership. Its continued existence is, in turn, dependent on the constancy of that mutual resolve, along with each
engaged in retail of "kitchenwares, cookwares, utensils, skillet," 34 she also admitted that the partner’s capability to give it, and the absence of cause for dissolution provided by the law itself. Verily, any one of the
enterprise was only "60% to 70% for the cookware business," while 20% to 30% of its business partners may, at his sole pleasure, dictate a dissolution of the partnership at will. He must, however, act in good faith, not
activity was devoted to the sale of water sterilizer or purifier. 35 Indubitably then, the business name that the attendance of bad faith can prevent the dissolution of the partnership but that it can result in a liability for
damages." 41
Geminesse Enterprise was used only for practical reasons - it was utilized as the common name for
petitioner Tocao’s various business activities, which included the distributorship of cookware.
An unjustified dissolution by a partner can subject him to action for damages because by the
mutual agency that arises in a partnership, the doctrine of delectus personae allows the partners
Petitioners underscore the fact that the Court of Appeals did not return the "unaccounted and
to have the power,  although not necessarily the right  to dissolve the partnership.42
unremitted stocks of Geminesse Enterprise amounting to P208,250.00." 36 Obviously a ploy to offset
the damages awarded to private respondent, that claim, more than anything else, proves the
In this case, petitioner Tocao’s unilateral exclusion of private respondent from the partnership
existence of a partnership between them. In Idos v. Court of Appeals, this Court said:
is shown by her memo to the Cubao office plainly stating that private respondent was, as of
October 9, 1987, no longer the vice-president for sales of Geminesse Enterprise.43 By that
"The best evidence of the existence of the partnership, which was not yet terminated (though in the
memo, petitioner Tocao effected her own withdrawal from the partnership and considered herself as
winding up stage), were the unsold goods and uncollected receivables, which were presented to the
having ceased to be associated with the partnership in the carrying on of the business.
trial court. Since the partnership has not been terminated, the petitioner and private complainant
Nevertheless, the partnership was not terminated thereby; it continues until the winding up of
remained as co-partners. x x x."37
the business.44
It is not surprising then that, even after private respondent had been unceremoniously booted out of
The winding up of partnership affairs has not yet been undertaken by the partnership.1âwphi1 This
the partnership in October 1987, she still received her overriding commission until December 1987.
is manifest in petitioners’ claim for stocks that had been entrusted to private respondent in the
pursuit of the partnership business.
Undoubtedly, petitioner Tocao unilaterally excluded private respondent from the partnership to reap
for herself and/or for petitioner Belo financial gains resulting from private respondent’s efforts to The determination of the amount of damages commensurate with the factual findings upon which it is based is
make the business venture a success. Thus, as petitioner Tocao became adept in the business primarily the task of the trial court. 45 The Court of Appeals may modify that amount only when its factual findings are
operation, she started to assert herself to the extent that she would even shout at private respondent diametrically opposed to that of the lower court, 46 or the award is palpably or scandalously and unreasonably
in front of other people. 38 Her instruction to Lina Torda Cruz, marketing manager, not to allow private excessive.47 However, exemplary damages that are awarded "by way of example or correction for the public
respondent to hold office in both the Makati and Cubao sales offices concretely spoke of her good,"48 should be reduced to P50,000.00, the amount correctly awarded by the Court of Appeals. Concomitantly,
perception that private respondent was no longer necessary in the business operation, 39 and resulted the award of moral damages of P100,000.00 was excessive and should be likewise reduced to P50,000.00.
in a falling out between the two. However, a mere falling out or misunderstanding between Similarly, attorney’s fees that should be granted on account of the award of exemplary damages and petitioners’
evident bad faith in refusing to satisfy private respondent’s plainly valid, just and demandable claims, 49 appear to
partners does not convert the partnership into a sham organization.40 The partnership exists have been excessively granted by the trial court and should therefore be reduced to P25,000.00.
until dissolved under the law. Since the partnership created by petitioners and private respondent
has no fixed term and is therefore a partnership at will predicated on their mutual desire and
consent, it may be dissolved by the will of a partner. Thus:
• Astro Electronics Corp. v. Phil. Export and Foreign Loan Guarantee Corporation, G.R. No. 136729, Under the Negotiable Instruments Law, persons who write their names on the face of promissory
September 23, 2003 - MONA notes are makers, promising that they will pay to the order of the payee or any holder according to
[G.R. No. 136729. September 23, 2003.] its tenor.
ASTRO ELECTRONICS CORP. and PETER ROXAS, Petitioners, v. PHILIPPINE EXPORT AND FOREIGN Thus, even without the phrase "personal capacity," Roxas will still be primarily liable as a joint and
LOAN GUARANTEE CORPORATION, Respondent. several debtor under the notes considering that his intention to be liable as such is manifested by the
DECISION
AUSTRIA-MARTINEZ, J.
fact that he affixed his signature on each of the promissory notes twice which necessarily would
imply that he is undertaking the obligation in two different capacities, official and personal. A closer
examination of the signatures affixed by Roxas on the promissory notes readily reveals that portions
SUMMARY: Astro was granted several loans by Philtrust amounting to P3,000,000.00 with interest of his signatures covered portions of the typewritten words "personal capacity" indicating with
and secured by three promissory notes, signed by petitioner Roxas twice, as President of Astro and certainty that the typewritten words were already existing at the time Roxas affixed his signatures.
in his personal capacity. Roxas also signed a Continuing Suretyship Agreement in favor of Philtrust  
Bank, as President of Astro and as surety. Thereafter, Philguarantee, with the consent of Astro, The three promissory notes uniformly provide:
guaranteed in favor of Philtrust the payment of 70% of Astro’s loan, subject to the condition that "FOR VALUE RECEIVED, I/We jointly, severally and solidarily, promise to pay to
upon payment by Philguarantee of said amount, it shall be proportionally subrogated to the rights of PHILTRUST BANK or order . . ."
Philtrust against Astro.  
As a result of Astro’s failure to pay its loan obligations, despite demands, Philguarantee paid 70% of An instrument which begins with "I", "We", or "Either of us" promise to pay, when signed by two or
the guaranteed loan to Philtrust. Subsequently, Philguarantee filed against Astro and Roxas a more persons, makes them solidarily liable. Also, the phrase "joint and several" binds the makers
complaint for sum of money with the RTC. Roxas disclaims any liability on the instruments, alleging jointly and individually to the payee so that all may be sued together for its enforcement, or the
that he merely signed the same in blank and the phrases "in his personal capacity" and "in his official creditor may select one or more as the object of the suit
capacity" were fraudulently inserted without his knowledge. Roxas is the President of Astro and reasonably, a businessman who is presumed to take ordinary
  care of his concerns. Absent any countervailing evidence, it cannot be gainsaid that he will not sign
ISSUE: WON Roxas should be jointly and severally liable (solidary) with Astro for the sum awarded a document without first informing himself of its contents and consequences.
by the RTC – YES Such continuing suretyship agreement even re-enforced his solidary liability to Philtrust because as
RULING: Roxas signed twice: first, as president of Astro and second, in his personal capacity. In a surety, he bound himself jointly and severally with Astro’s obligation.
signing his name aside from being the President of Astro, Roxas became a co-maker of the  
promissory notes and cannot escape any liability arising from it. Roxas’ acquiescence is not necessary for subrogation to take place because the instant case is one
  of legal subrogation that occurs by operation of law, and without need of the debtor’s knowledge.
Further, Philguarantee, as guarantor, became the transferee of all the rights of Philtrust as against
Roxas and Astro because the "guarantor who pays is subrogated by virtue thereof to all the rights manifested by the fact that he affixed his signature on each of the promissory notes twice
which the creditor had against the debtor." which necessarily would imply that he is undertaking the obligation in two different
  capacities, official and personal.
 
FACTS: Unnoticed by both the TC and the CA, a closer examination of the signatures affixed by Roxas
  on the promissory notes readily reveals that portions of his signatures covered portions of
Astro was granted several loans by the Philippine Trust Company (Philtrust) amounting to the typewritten words "personal capacity" indicating with certainty that the typewritten words
P3,000,000.00 with interest and secured by three promissory notes: PN No. PFX-254 dated were already existing at the time Roxas affixed his signatures thus demolishing his claim that
December 14, 1981 for P600,000.00, PN No. PFX-258 also dated December 14, 1981 for the typewritten words were just inserted after he signed the promissory notes. If what he
P400,000.00 and PN No. 15477 dated August 27, 1981 for P2,000,000.00. In each of these claims is true, then portions of the typewritten words would have covered portions of his
promissory notes, it appears that petitioner Roxas signed twice, as President of Astro and in signatures, and not vice versa.
his personal capacity. Roxas also signed a Continuing Suretyship Agreement in favor of  
Philtrust Bank, as President of Astro and as surety. As to the third promissory note, the copy submitted is not clear so that this Court could not discern
  the same observations on the notes.
Thereafter, Philguarantee, with the consent of Astro, guaranteed in favor of Philtrust the  
payment of 70% of Astro’s loan, subject to the condition that upon payment by Philguarantee Nevertheless, the following discussions equally apply to all three promissory notes.
of said amount, it shall be proportionally subrogated to the rights of Philtrust against Astro.  
  The three promissory notes uniformly provide:
As a result of Astro’s failure to pay its loan obligations, despite demands, Philguarantee paid "FOR VALUE RECEIVED, I/We jointly, severally and solidarily, promise to pay to
70% of the guaranteed loan to Philtrust. Subsequently, Philguarantee filed against Astro and PHILTRUST BANK or order . . ."
Roxas a complaint for sum of money with the RTC of Makati.  
  An instrument which begins with "I", "We", or "Either of us" promise to pay, when signed by
In his Answer, Roxas disclaims any liability on the instruments, alleging, inter alia, that he two or more persons, makes them solidarily liable. Also, the phrase "joint and several" binds
merely signed the same in blank and the phrases "in his personal capacity" and "in his the makers jointly and individually to the payee so that all may be sued together for its
official capacity" were fraudulently inserted without his knowledge. enforcement, or the creditor may select one or more as the object of the suit. Having signed
  under such terms, Roxas assumed the solidary liability of a debtor and Philtrust Bank may choose to
RTC: After trial, the RTC rendered its decision in favor of Philguarantee with the following dispositive enforce the notes against him alone or jointly with Astro.
portion:  
WHEREFORE, in view of all the foregoing, the Court hereby renders judgment in favor or (sic) the Roxas’ claim that the phrases "in his personal capacity" and "in his official capacity" were inserted on
plaintiff and against the defendants Astro Electronics Corporation and Peter T. Roxas, ordering the then the notes without his knowledge was correctly disregarded by the RTC and the CA. It is not disputed
(sic) to pay, jointly and severally, the plaintiff the sum of P3,621,187.52 representing the total obligation that Roxas does not deny that he signed the notes twice. As aptly found by both the trial and
of defendants in favor of plaintiff Philguarantee as of December 31, 1984 with interest at the stipulated appellate court, Roxas did not offer any explanation why he did so. It devolves upon Roxas to
rate of 16% per annum and stipulated penalty charges of 16% per annum computed from January 1, overcome the presumptions that private transactions are presumed to be fair and regular and
1985 until the amount is fully paid. With costs. SO ORDERED.
 
that a person takes ordinary care of his concerns. Aside from his self-serving allegations,
The trial court observed that if Roxas really intended to sign the instruments merely in his capacity as Roxas failed to prove the truth of such allegations. Thus, said presumptions prevail over his
President of Astro, then he should have signed only once in the promissory note. claims. Bare allegations, when unsubstantiated by evidence, documentary or otherwise, are not
  equivalent to proof under our Rules of Court.
CA: On appeal, the Court of Appeals affirmed the RTC decision agreeing with the trial court that  
Roxas failed to explain satisfactorily why he had to sign twice in the contract and therefore the Roxas is the President of Astro and reasonably, a businessman who is presumed to take
presumption that private transactions have been fair and regular must be sustained. ordinary care of his concerns. Absent any countervailing evidence, it cannot be gainsaid that
  he will not sign a document without first informing himself of its contents and consequences.
ISSUE: WON Roxas should be jointly and severally liable (solidary) with Astro for the sum awarded Clearly, he knew the nature of the transactions and documents involved as he not only executed
by the RTC - YES these notes on two different dates but he also executed, and again, signed twice, a "Continuing
  Suretyship Agreement" notarized on July 31, 1981, wherein he guaranteed, jointly and severally with
RULING: WHEREFORE, finding no error with the decision of the Court of Appeals dated December Astro the repayment of P3,000,000.00 due to Philtrust. Such continuing suretyship agreement
10, 1998, the same is hereby AFFIRMED in toto. SO ORDERED. even re-enforced his solidary liability to Philtrust because as a surety, he bound himself
  jointly and severally with Astro’s obligation. Roxas cannot now avoid liability by hiding under the
RATIO: The answer is in the affirmative. convenient excuse that he merely signed the notes in blank and the phrases "in his personal
  capacity" and "in his official capacity" were fraudulently inserted without his knowledge.
Astro’s loan with Philtrust Bank is secured by three promissory notes. These promissory  
notes are valid and binding against Astro and Roxas. As it appears on the notes, Roxas signed Lastly, Philguarantee has all the right to proceed against petitioner. It is subrogated to the
twice: first, as president of Astro and second, in his personal capacity. In signing his name rights of Philtrust to demand for and collect payment from both Roxas and Astro since it
aside from being the President of Astro, Roxas became a co-maker of the promissory notes already paid the value of 70% of Roxas and Astro Electronics Corp.’s loan obligation, in
and cannot escape any liability arising from it. compliance with its contract of "Guarantee" in favor of Philtrust.
   
Under the Negotiable Instruments Law, persons who write their names on the face of Subrogation is the transfer of all the rights of the creditor to a third person, who substitutes
promissory notes are makers, promising that they will pay to the order of the payee or any him in all his rights. It may either be legal or conventional. Legal subrogation is that which takes
holder according to its tenor. place without agreement but by operation of law because of certain acts. Instances of legal
  subrogation are those provided in Article 1302 of the Civil Code. Conventional subrogation, on the
Thus, even without the phrase "personal capacity," Roxas will still be primarily liable as a other hand, is that which takes place by agreement of the parties.
joint and several debtor under the notes considering that his intention to be liable as such is  
Roxas’ acquiescence is not necessary for subrogation to take place because the instant case Philtrust as against Roxas and Astro because the "guarantor who pays is subrogated by
is one of legal subrogation that occurs by operation of law, and without need of the debtor’s virtue thereof to all the rights which the creditor had against the debtor."
 

knowledge. Further, Philguarantee, as guarantor, became the transferee of all the rights of
• Spouses Toh v. Solidbank, G.R. No. 154183, August 7, 2003 - JESS
G.R. No. 154183. August 7, 2003. *

SPOUSES VICKY TAN TOH and LUIS TOH, petitioners, vs. SOLID BANK CORPORATION, FIRST BUSINESS
PAPER CORPORATION, KENNETH NG LI and MA. VICTORIA NG LI, respondents.
TOPIC: III. GUARANTY AND SURETYSHIP (Articles 2047-2084)
Ponente: Bellosillo, J.

Under Art. 2055 of the Civil Code, the liability of a surety is measured by the terms of his contract, and while he is
liable to the full extent thereof, his accountability is strictly limited to that assumed by its terms.

Evidently, they constitute illicit extensions prohibited under Art. 2079 of the Civil Code, “[a]n extension granted to
the debtor by the creditor without the consent of the guarantor extinguishes the guaranty.”

SUMMARY:
- Respondent Solid Bank Corporation agreed to extend an “omnibus line” credit facility worth P10M
in favor of respondent FBPC.
- Among the documents essential for credit facility was the Continuing Guaranty for any and all
amounts signed by Spouses Toh- Chairman of Board, VP; Spouses Li- President, and General
Manager of FBPC, this was signed on May 10 1993.

- Terms of the instrument defined the contract arising therefrom as a surety agreement and
provided for solidary liability of the signatories thereto for and in consideration of “loans/
advances” and “credit in any other manner to, or at the request/ for the account” of FBPC
- The Continuing Guaranty set forth no maximum limit on the indebtedness that respondent
FBPC may incur and for which the sureties may be liable, stating that the credit facility
“covers any and all existing indebtedness of, and such other loans and credit facilities which
may hereafter be granted to FIRST BUSINESS PAPER CORPORATION.”
- The surety also contained a de facto acceleration clause if “default be made in the payment
of any of the instruments, indebtedness, or other obligation” guaranteed by petitioners and
respondents. So as to strengthen this security, the Continuing Guaranty waived rights of the
sureties against delay or absence of notice or demand on the part of respondent Bank, and
gave future consent to the Bank’s action to “extend or change the time payment, and/or the
manner, place or terms of payment,” including renewal, of the credit facility or any part thereof
in such manner and upon such terms as the Bank may deem proper without notice to or further
assent from the sureties.

1993 June 16- FBPC started to avail of the credit facility, opened 13 letters of credit, obtained loans
totaling P15,227,510, and executed a series of trust receipts over goods allegedly purchased from
proceeds of loans.

1994 Jan 13- Bank received info that respondent-spouses Li had fraudulently departed from their
conjugal home [absconded], hence, the next day, Bank served demand letter upon FBPC and
petitioner Toh invoking the acceleration clause in trust receipts of FBPC and claimed payment for
P10,539,758.68 as unpaid overdue accounts on letters of credit PLUS interests AND penalties
within 24 hours from receipt thereof; bank also invoked the Continuing Guaranty executed by
petitioner-spouses Toh who were the only parties known, to be within national jurisdiction to answer
sureties for the credit facility of FBPC

Bank filed complaint for sum of money with ex parte application for a writ of preliminary attachment
against FBPC, spouses Li, and spouses Toh.

Petitioner Spouses Toh main contention: Continuing Guaranty is not legally valid and binding
against them for having been executed long after they had withdrawn from FBPC; and surety
agreement has been extinguished by material alterations

Respondent Bank main contention: The notarization of Continuing Guaranty discredits the
uncorroborated assertions against authenticity and due execution thereof, and TC decision in civil
case finding surety agreement to be valid and binding is now res judicata for failure of petitioners to
appeal therefrom.
ISSUES: FACTS:
WON the extensions of letters of credit made by Bank are covered by the waiver stipulated in the - RESPONDENT SOLID BANK CORPORATION AGREED TO EXTEND an “omnibus line” credit
Continuing Guaranty (No) facility worth P10 million in favor of respondent First Business Paper Corporation (FBPC).
 The terms and conditions of the agreement as well as the checklist of documents
WON Spouses Toh are solidarily liable with bank by signing the Continuing Guaranty (No) necessary to open the credit line were stipulated in a “letter-advise” of the Bank dated May
WON Spouses Toh are relieved from their obligations as sureties of respondent FBPC (Yes) 16 1993 addressed to FBPC and to its President, respondent Kenneth Ng Li. 1

HELD: FBPC liable to pay Bank the principal of P10,539,758.68 + 12% interest per annum until fully  The “letter-advise”  was effective upon “compliance with the documentary requirements.”
2 3

paid, but absolving petitioner Toh of any liability of Bank

- The documents essential for the credit facility and submitted for this purpose were the:
An extension of the period for enforcing the indebtedness does not by itself bring about the (a) Board Resolution/ excerpts of the Board of Directors Meeting, duly ratified by a Notary Public,
discharge of the sureties unless the extra time is not permitted within the terms of the waiver, authorizing the loan and security arrangement as well as designating the officers to negotiate and
i.e., where there is no payment or there is deficient settlement of the marginal deposit and the 25% sign for FBPC specifically stating authority to mortgage, pledge and/or assign the properties of the
consideration, in which case the illicit extension releases the sureties. Under Art. 2055 of the Civil corporation;
Code, the liability of a surety is measured by the terms of his contract, and while he is liable (b) Agreement to purchase Domestic Bills; and,
to the full extent thereof, his accountability is strictly limited to that assumed by its terms (c) Continuing Guaranty for any and all amounts signed by petitioner-spouses Luis Toh and Vicky
Tan Toh, and respondent-spouses Kenneth and Ma. Victoria Ng Li.   4

- The foregoing extensions of the letters of credit made by respondent Bank without spouses Luis Toh and Vicky Tan Toh were then Chairman of the Board and Vice-
observing the rigid restrictions for exercising the privilege are not covered by the waiver President, respectively, of FBPC
stipulated in the Continuing Guaranty. Evidently, they constitute illicit extensions prohibited under respondent-spouses Kenneth Ng Li and Ma. were President and General Manager,
Art. 2079 of the Civil Code, “[a]n extension granted to the debtor by the creditor without the consent Victoria Ng Li respectively, of the same corporation.5

of the guarantor extinguishes the guaranty.” This act of the Bank is not mere failure or delay on its
part to demand payment after the debt has become due, as was the case in unpaid 5 letters of credit - It is not disputed that the credit facility as well as its terms and conditions was not cancelled or
which the Bank did not extend, defer or put off, but comprises conscious, separate and binding terminated, and that there was no prior notice of such fact as required in the “letter-advise,” if any
agreements to extend the due date, as was admitted by the Bank itself was done.
- As a result of these illicit extensions, petitioner-spouses Luis Toh and Vicky Tan Toh are
relieved of their obligations as sureties of respondent FBPC under Art. 2079 of the Civil - On 10 May 1993, more than 30 days from date of the “letter-advise,” petitioner-spouses Luis Toh
Code. and Vicky Tan Toh and respondent-spouses Kenneth Ng Li and Ma. Victoria Ng Li signed the
- Further, we note several suspicious circumstances that militate against the enforcement of the required Continuing Guaranty, which was embodied in a public document prepared solely by
Continuing Guaranty against the accommodation sureties. respondent Bank.  6

1. Firstly, the guaranty was executed more than 30 days from the original acceptance period  The terms of the instrument defined the contract arising therefrom as a surety agreement
as required in the “letter-advise.” and provided for the solidary liability of the signatories thereto for and in consideration of
2. Thereafter, barely 2 days after the Continuing Guaranty was signed, corporate agents of “loans or advances” and “credit in any other manner to, or at the request or for the
FBPC were replaced on 12 May 1993 and other adjustments in the corporate structure of account” of FBPC.
FBPC ensued in the month of June 1993, which the Bank did not investigate although  The Continuing Guaranty set forth no maximum limit on the indebtedness that
such were made known to it. respondent FBPC may incur and for which the sureties may be liable, stating that the
- The consequence of these omissions is to discharge the surety, petitioners herein, under credit facility “covers any and all existing indebtedness of, and such other loans and credit
Art. 2080 of the Civil Code,  or at the very least, mitigate the liability of the surety up to the
59 facilities which may hereafter be granted to FIRST BUSINESS PAPER CORPORATION.”
value of the property or lien released—  The surety also contained a de facto acceleration clause if “default be made in the
If the creditor x x x has acquired a lien upon the property of a principal, the creditor at once becomes charged payment of any of the instruments, indebtedness, or other obligation” guaranteed by
with the duty of retaining such security, or maintaining such lien in the interest of the surety, and any release petitioners and respondents. So as to strengthen this security, the Continuing Guaranty
or impairment of this security as a primary resource for the payment of a debt, will discharge the surety to the waived rights of the sureties against delay or absence of notice or demand on the part of
extent of the value of the property or lien released x x x x [for] there immediately arises a trust relation
between the parties, and the creditor as trustee is bound to account to the surety for the value of the security respondent Bank, and gave future consent to the Bank’s action to “extend or change the
in his hands.60
time payment, and/or the manner, place or terms of payment,” including renewal, of the
credit facility or any part thereof in such manner and upon such terms as the Bank may
- For the same reason, the grace period granted by respondent Bank represents unceremonious deem proper without notice to or further assent from the sureties.
abandonment and forfeiture of the 15% marginal deposit and the 25% partial payment as fixed in the  The effectivity of the Continuing Guaranty was not contingent upon any event/ cause other
“letter-advise.” These payments are unmistakably additional securities intended to protect both than the written revocation thereof with notice to the Bank that may be executed by the
respondent Bank and the sureties in the event that the principal debtor FBPC becomes insolvent sureties.
during the extension period. Compliance with these requisites was not waived by petitioners in
the Continuing Guaranty. For this unwarranted exercise of discretion, respondent Bank bears - On 16 June 1993 respondent FBPC started to avail of the credit facility and procure letters of
the loss; due to its unauthorized extensions to pay granted to FBPC, petitioner-spouses Luis credit.  
7

Toh and Vicky Tan Toh are discharged as sureties under the Continuing Guaranty. - On 17 November 1993 FBPC opened 13 letters of credit and obtained loans totaling
P15,227,510.
- The foregoing omission or negligence of respondent Bank in failing to safe-keep the - As the letters of credit were secured, FBPC through its officers Kenneth Ng Li, Ma. Victoria Ng Li
security provided by the marginal deposit and the 25% requirement results in the material and Redentor Padilla as signatories executed a series of trust receipts over the goods allegedly
alteration of the principal contract and consequently releases the surety. 61
purchased from the proceeds of the loans. 9

- On 13 January 1994 respondent Bank received information that respondent-spouses

Kenneth Ng Li and Ma. Victoria Ng Li had fraudulently departed from their conjugal home.   10
- On 14 January 1994 the Bank served a demand letter upon FBPC and petitioner Luis Toh invoking FBPC’s indebtedness as sureties without the requisite investigation of their personal solvency and
the acceleration clause  in the trust receipts of FBPC and claimed payment for P10,539,758.68 as
11
capability to undertake such risk.  
32

unpaid overdue accounts on the letters of credit plus interests and penalties within 24 hours from - The lower court also believed that the Bank knew of petitioners’ divestment of their shares in
receipt thereof.  The Bank also invoked the Continuing Guaranty executed by petitioner-spouses
12
FBPC and their subsequent resignation as officers thereof as these facts were obvious from the
Luis Toh and Vicky Tan Toh who were the only parties known, to be within national jurisdiction to numerous public documents that detailed the changes and substitutions in the list of authorized
answer as sureties for the credit facility of FBPC. 13
signatories for transactions between FBPC and the Bank, including the many trust receipts being
- On 17 January 1994 respondent Bank filed a complaint for sum of money with ex signed by persons other than petitioners,  as well as the designation of new FBPC officers which
33

parte application for a writ of preliminary attachment against FBPC, spouses Kenneth Ng Li and Ma. came to the notice of the Bank’s Vice-President Jose Chan Jr. and other officers. 34

Victoria Ng Li, and spouses Luis Toh and Vicky Tan Toh, docketed as Civil Case No. 64047 of RTC- - On 26 September 1996 the RTC-Br. 161 of Pasig City denied reconsideration of its Decision. 35

Br. 161, Pasig City.  Alias summonses were served upon FBPC and spouses Luis Toh and Vicky
14

Tan Toh but not upon Kenneth Ng Li and Ma. Victoria Ng Li who had apparently absconded. 15
- On 9 October 1996 respondent Bank appealed the Decision to the CA, docketed as CA-G.R. CV
No. 55957.  Petitioner-spouses did not move for reconsideration nor appeal the finding of the trial
36

- Meanwhile, with the implementation of the writ of preliminary attachment resulting in the court that they voluntarily executed the Continuing Guaranty.
impounding of purported properties of FBPC, the trial court was deluged with third-party claims
contesting the propriety of the attachment.  In the end, the Bank relinquished possession of all the
16
CA:
attached properties to the third-party claimants except for 2 insignificant items as it allegedly could - The appellate court modified the Decision of the TC and held that by signing the Continuing
barely cope with the yearly premiums on the attachment bonds. 17
Guaranty, petitioner-spouses became solidarily liable with FBPC to pay respondent Bank the
amount of P10,539,758.68 as principal with 12% interest per annum from finality of the judgment
- Petitioner-spouses Luis Toh and Vicky Tan Toh filed a joint answer to the complaint where they until completely paid.  
37

admitted being part of FBPC from its incorporation on 29 August 1991, which was then known as - The CA ratiocinated that the provisions of the surety agreement did not “indicate that Spouses Luis
“MNL Paper, Inc.,” until its corporate name was changed to “First Business Paper and Vicky Toh x x x signed the instrument in their capacities as Chairman of the Board and Vice-
Corporation.”  They also acknowledged that on 6 March 1992 Luis Toh was designated as one of the
18
President, respectively, of FBPC only.”  Hence, the court a quo deduced, “[a]bsent any such
38

authorized corporate signatories for transactions in relation to FBPC’s checking account with indication, it was error for the TC to have presumed that the appellees indeed signed the same not in
respondent Bank.  Meanwhile, for failing to file an answer, respondent FBPC was declared in
19
their personal capacities.”  
39

default.
20
- The appellate court also ruled that as petitioners failed to execute any written revocation of the
Continuing Guaranty with notice to respondent Bank, the instrument remained in full force and
Spouses Toh: effect when the letters of credit were availed of by respondent FBPC. 40

- Petitioner-spouses however could not be certain whether to deny or admit the due - Finally, the CA rejected petitioners’ argument that there were “material alterations” in the
execution and authenticity of the Continuing Guaranty.  They could only allege that they were
21
provisions of the “letter-advise,” i.e., that only domestic letters of credit were opened when the credit
made to sign papers in blank and the Continuing Guaranty could have been one of them. facility was for importation of papers and other materials, and that marginal deposits were not paid,
- Still, as petitioners asserted, it was impossible and absurd for them to have freely and consciously contrary to the requirements stated in the “letter-advise.”  
41

executed the surety on 10 May 1993, the date appearing on its face  since beginning March of that
22
- The simple response of the appellate court to this challenge was:
year they had already divested their shares in FBPC and assigned them in favor of respondent 1. The “letter-advise” itself authorized the issuance of domestic letters of credit, and
Kenneth Ng Li although the deeds of assignment were notarized only on 14 June 1993.   23

2. The several waivers extended by petitioners in the Continuing Guaranty, which included
- Petitioners also contended that through FBPC Board Resolution dated 12 May 1993 petitioner changing the time and manner of payment of the indebtedness, justified the action of
Luis Toh was removed as an authorized signatory for FBPC and replaced by respondent- respondent Bank not to charge marginal deposits. 42

spouses Kenneth Ng Li and Ma. Victoria Ng Li and Redentor Padilla for all the transactions of FBPC
with respondent Bank.  They even resigned from their respective positions in FBPC as reflected
24
- Petitioner-spouses moved for reconsideration of the Decision, and after respondent Bank’s comment, filed a
in the 12 June 1993 Secretary’s Certificate submitted to the SEC  as petitioner Luis Toh was
25
lengthy Reply with Motion for Oral Argument.  
43

succeeded as Chairman by respondent Ma. Victoria Ng Li, while one Mylene C. Padilla took the - On 2 July 2002 reconsideration of the Decision was denied on the ground that no new matter was raised to
place of petitioner Vicky Tan Toh as Vice-President. 26
warrant the reversal or modification thereof.  Hence, this Petition for Review.
44

- Finally, petitioners averred that sometime in June 1993 they obtained from respondent Kenneth Ng
Li their exclusion from the several surety agreements they had entered into with different Petitioner-spouses Luis Toh and Vicky Tan Toh:
banks, i.e., Hongkong and Shanghai Bank, China Banking Corporation, Far East Bank and Trust - Argue that the CA denied them due process when it did not grant their motion for reconsideration
Company, and herein respondent Bank.  As a matter of record, these other banks executed
27
and without “bother[ing] to consider [their] Reply with Motion for Oral Argument.” 
written surety agreements that showed respondent Kenneth Ng Li as the only surety of - They maintain that the Continuing Guaranty is not legally valid and binding against them for
FBPC’s indebtedness. 28
having been executed long after they had withdrawn from FBPC.
- Lastly, they claim that the surety agreement has been extinguished by the material alterations
thereof and of the “letter-advise” which were allegedly brought about by
TC: (a) the provision of an acceleration clause in the trust receipts;
- On 16 May 1996 the TC promulgated its Decision in Civil Case No. 64047 finding respondent (b) the flight of their co-sureties, respondent-spouses Kenneth Ng Li and Ma. Victoria Ng Li;
FBPC liable to pay respondent Solid Bank Corporation the principal of P10,539,758.68 plus 12% (c) the grant of credit facility despite the non-payment of marginal deposits in an amount beyond the
interest per annum from finality of the Decision until fully paid, but absolving petitioner-spouses credit limit of P10 million pesos
Luis Toh and Vicky Tan Toh of any liability to respondent Bank.   29
(d) the inordinate delay of the Bank in demanding the payment of the indebtedness;
- The court a quo found that petitioners “voluntarily affixed their signature[s]” on the Continuing (e) the presence of ghost deliveries and fictitious purchases using the Bank’s letters of credit and
Guaranty and were thus “at some given point in time willing to be liable under those forms,”  although
30
trust receipts;
it held that petitioners were not bound by the surety contract since the letters of credit it was (f) the extension of the due dates of the letters of credit without the required 25% partial payment per
supposed to secure were opened long after petitioners had ceased to be part of FBPC. 31
extension;
- TC described the Continuing Guaranty as effective only while petitioner-spouses were (g) the approval of another letter of credit, L/C 93-0042, even after respondent-spouses Kenneth Ng
stockholders and officers of FBPC since respondent Bank compelled petitioners to underwrite Li and Ma. Victoria Ng Li had defaulted on their previous obligations; and,
(h) the unmistakable pattern of fraud.
Respondent Solid Bank: point in time willing to be liable under those forms.”  In the absence of clear, convincing and
46

- Maintains on the other hand that the CA is presumed to have passed upon all points raised by more than preponderant evidence to the contrary, our ruling cannot be otherwise.
petitioners’ Reply with Motion for Oral Argument as this pleading formed part of the records of the
appellate court. - Similarly, there is no basis for petitioners to limit their responsibility thereon so long as they were
- It also debunks the claim of petitioners that they were inexperienced and ignorant parties who were corporate officers and stockholders of FBPC. Nothing in the Continuing Guaranty restricts their
taken advantage of in the Continuing Guaranty since petitioners are astute businessmen who are contractual undertaking to such condition or eventuality. In fact the obligations assumed by
very familiar with the “ins” and “outs” of banking practice. them therein subsist “upon the undersigned, the heirs, executors, administrators, successors and
- The Bank further argues that the notarization of the Continuing Guaranty discredits the assigns of the undersigned, and shall inure to the benefit of, and be enforceable by you, your
uncorroborated assertions against the authenticity and due execution thereof, and that successors, transferees and assigns,” and that their commitment “shall remain in full force and effect
the Decision of the TC in the civil case finding the surety agreement to be valid and binding is until written notice shall have been received by [the Bank] that it has been revoked by the
now res judicata for failure of petitioners to appeal therefrom. undersigned.”
- As a final point, the Bank refers to the various waivers made by petitioner-spouses in the - Verily, if petitioners intended not to be charged as sureties after their withdrawal from
Continuing Guaranty to justify the extension of the due dates of the letters of credit. FBPC, they could have simply terminated the agreement by serving the required notice of
revocation upon the Bank as expressly allowed therein.  In Garcia v. CA  we ruled—
47 48

ISSUES: Regarding the petitioner’s claim that he is liable only as a corporate officer of WMC, the surety agreement
(1) WON Spouses Toh were deprived of their right to due process (NO) shows that he signed the same not in representation of WMC or as its president but in his personal capacity.
He is therefore personally bound. There is no law that prohibits a corporate officer from binding himself
personally to answer for a corporate debt. While the limited liability doctrine is intended to protect the
(2) WON the Continuing Guaranty is a valid and binding contract of petitioner-Spouses Toh (YES) stockholder by immunizing him from personal liability for the corporate debts, he may nevertheless divest
himself of this protection by voluntarily binding himself to the payment of the corporate debts. The petitioner
(3) WON the extensions of letters of credit made by Bank are covered by the waiver stipulated in the cannot therefore take refuge in this doctrine that he has by his own acts effectively waived.
Continuing Guaranty (No)
- But as we bind the spouses Luis Toh and Vicky Tan Toh to the surety agreement they signed so
(4) WON Spouses Toh are solidarily liable with bank by signing the Continuing Guaranty (No) must we also hold respondent Bank to its representations in the “letter-advise” of 16 May
WON Spouses Toh are relieved from their obligations as sureties of respondent FBPC (Yes) 1993. Particularly, as to the extension of the due dates of the letters of credit, we cannot exclude
from the Continuing Guaranty the preconditions of the Bank that were plainly stipulated in the “letter-
advise.” Fairness and justice dictate our doing so, for the Bank itself liberally applies the provisions
HELD: of cognate agreements whenever convenient to enforce its contractual rights, such as, when it
WHEREFORE, the instant Petition for Review is GRANTED. The Decision of the CA dated 12 December harnessed a provision in the trust receipts executed by respondent FBPC to declare its entire
2001 in CA-G.R. CV No. 55957, Solid Bank Corporation v. First Business Paper Corporation, Kenneth Ng Li, Ma. indebtedness as due and demandable and thereafter to exact payment thereof from petitioners as
Victoria Ng Li, Luis Toh and Vicky Tan Toh, holding petitioner-spouses Luis Toh and Vicky Tan Toh solidarily liable
with First Business Paper Corporation to pay Solid Bank Corporation the amount of P10,539,758.68 as principal
sureties.  In the same manner, we cannot disregard the provisions of the “letter-advise” in sizing up
49

with 12% interest per annum until fully paid, and its Resolution of 2 July 2002 denying reconsideration thereof are the panoply of commercial obligations between the parties herein.
REVERSED and SET ASIDE.
- Insofar as petitioners stipulate in the Continuing Guaranty that respondent Bank “may at any time,
The Decision dated 16 May 1996 of RTC-Br. 161 of Pasig City in Civil Case No. 64047, Solid or from time to time, in [its] discretion x x x extend or change the time payment,” this provision even
Bank Corporation v. First Business Paper Corporation, Kenneth Ng Li, Ma. Victoria Ng Li, Luis Toh if understood as a waiver is confined per se to the grant of an extension and does not surrender the
and Vicky Tan Toh, finding First Business Paper Corporation liable to pay respondent Solid prerequisites therefor as mandated in the “letter-advise.” In other words, the authority of the Bank
Bank Corporation the principal of P10,539,758.68 plus 12% interest per annum until fully paid, to defer collection contemplates only authorized extensions, that is, those that meet the
but absolving petitioner-spouses Luis Toh and Vicky Tan Toh of any liability to respondent terms of the “letter-advise.”
Solid Bank Corporation is REINSTATED and AFFIRMED. No costs.
SO ORDERED. - Certainly, while the Bank may extend the due date at its discretion pursuant to the Continuing
      Guaranty, it should nonetheless comply with the requirements that domestic letters of credit be
RULING: supported by 15% marginal deposit extendible 3 times for a period of 30 days for each extension,
(1) WON Spouses Toh were deprived of their right to due process (NO) subject to 25% partial payment per extension. This reading of the Continuing Guaranty is consistent
- To begin with, we find no merit in petitioners’ claim that the CA deprived them of their right to due with Philippine National Bank v. CA  that any doubt on the terms and conditions of the surety
50

process when the court a quo did not address specifically and explicitly their Reply with Motion for agreement should be resolved in favor of the surety.
Oral Argument. While the Resolution of the appellate court of 2 July 2002 made no mention thereof
in disposing of their arguments on reconsideration, it is presumed that “all matters within an issue (3) WON the extensions of letters of credit made by Bank are covered by the waiver stipulated
raised in a case were laid before the court and passed upon it.”  In the absence of evidence to the
45 in the Continuing Guaranty (No)
contrary, we must rule that the court a quo discharged its task properly. Moreover, a reading of the - Furthermore, the assurance of the sureties in the Continuing Guaranty that “[n]o act or omission of
assailed Resolution clearly makes reference to a “careful review of the records,” which undeniably any kind on [the Bank’s] part in the premises shall in any event affect or impair this guaranty”  must 51

includes the Reply with Motion for Oral Argument, hence there is no reason for petitioners to also be read “strictissimi juris” for the reason that petitioners are only accommodation
asseverate otherwise. sureties, i.e., they received nothing out of the security contract they signed.  Thus said, the acts or
52

omissions of the Bank conceded by petitioners as not affecting nor impairing the surety contract
(2) WON the Continuing Guaranty is a valid and binding contract of petitioner-Spouses Toh refer only to those occurring “in the premises,” or those that have been the subject of the waiver in
(YES) the Continuing Guaranty, and stretch to no other. Stated otherwise, an extension of the period for
- This Court holds that the Continuing Guaranty is a valid and binding contract of petitioner-spouses enforcing the indebtedness does not by itself bring about the discharge of the sureties
as it is a public document that enjoys the presumption of authenticity and due execution. unless the extra time is not permitted within the terms of the waiver, i.e., where there is no
Although petitioners as appellees may raise issues that have not been assigned as errors by payment or there is deficient settlement of the marginal deposit and the 25% consideration, in which
respondent Bank as party-appellant, i.e., unenforceability of the surety contract, we are bound by the case the illicit extension releases the sureties. Under Art. 2055 of the Civil Code, the liability of a
consistent finding of the courts a quo that petitioner-spouses Luis Toh and Vicky Tan Toh surety is measured by the terms of his contract, and while he is liable to the full extent
“voluntarily affixed their signature[s]” on the surety agreement and were thus “at some given thereof, his accountability is strictly limited to that assumed by its terms.
 FBPC ensued in the month of June 1993, which the Bank did not investigate although
- It is admitted in the Complaint of respondent Bank before the TC that several letters of credit were such were made known to it.
irrevocably extended for 90 days with alarmingly flawed and inadequate consideration—the
indispensable marginal deposit of 15% and the 25% prerequisite for each extension of 30 days. It - By the same token, there is no explanation on record for the utter worthlessness of the trust
bears stressing that the requisite marginal deposit and security for every 30-day extension receipts in favor of the Bank when these documents ought to have added more security to
specified in the “letter-advise” were not set aside or abrogated nor was there any prior notice the indebtedness of FBPC. The Bank has in fact no information whether the trust receipts were
of such fact, if any was done. indeed used for the purpose for which they were obtained.  To be sure, the goods subject of the
56

trust receipts were not entirely lost since the security officer of respondent Bank who
- Moreover, these irregular extensions were candidly admitted by Victor Ruben L. Tuazon, an conducted surveillance of FBPC even had the chance to intercept the surreptitious transfer of
account officer and manager of respondent Bank and its lone witness in the civil case— the items under trust: “We saw 2 delivery vans with Plates Nos. TGH 257 and PAZ 928 coming out
Q: You extended it even if there was no marginal deposit? of the compound x x x [which were] taking out the last supplies stored in the compound.”  In addition, 57

A: Yes. the attached properties of FBPC, except for 2 of them, were perfunctorily abandoned by respondent
Q: And even if partial payment is less than 25%? Bank although the bonds therefor were considerably reduced by the trial court. 58

A: Yes x x x x
Q: You have repeatedly extended despite the insufficiency partial payment requirement?
A: I would say yes.
53
- The consequence of these omissions is to discharge the surety, petitioners herein, under
Art. 2080 of the Civil Code,  or at the very least, mitigate the liability of the surety up to the
59

- The foregoing extensions of the letters of credit made by respondent Bank without value of the property or lien released—
observing the rigid restrictions for exercising the privilege are not covered by the waiver If the creditor x x x has acquired a lien upon the property of a principal, the creditor at once becomes charged
with the duty of retaining such security, or maintaining such lien in the interest of the surety, and any release
stipulated in the Continuing Guaranty. Evidently, they constitute illicit extensions prohibited under or impairment of this security as a primary resource for the payment of a debt, will discharge the surety to the
Art. 2079 of the Civil Code, “[a]n extension granted to the debtor by the creditor without the consent extent of the value of the property or lien released x x x x [for] there immediately arises a trust relation
of the guarantor extinguishes the guaranty.” This act of the Bank is not mere failure or delay on its between the parties, and the creditor as trustee is bound to account to the surety for the value of the security
part to demand payment after the debt has become due, as was the case in unpaid 5 letters of credit in his hands.60

which the Bank did not extend, defer or put off, but comprises conscious, separate and binding
agreements to extend the due date, as was admitted by the Bank itself— - For the same reason, the grace period granted by respondent Bank represents unceremonious
Q How much was supposed to be paid on 14 September 1993, the original LC of P1,655,675.13? abandonment and forfeiture of the 15% marginal deposit and the 25% partial payment as fixed in the
: “letter-advise.” These payments are unmistakably additional securities intended to protect both
A: Under LC 93-0017 first matured on 14 September 1993. We rolled it over, extended it to December respondent Bank and the sureties in the event that the principal debtor FBPC becomes insolvent
13, 1993 but they made partial payment that is why we extended it.
Q The question to you now is how much was paid? How much is supposed to be paid on September
during the extension period. Compliance with these requisites was not waived by petitioners in
: 14, 1993 on the basis of the original amount of P1,655,675.13? the Continuing Guaranty. For this unwarranted exercise of discretion, respondent Bank bears
A: Whenever this obligation becomes due and demandable except when you roll it over so there is the loss; due to its unauthorized extensions to pay granted to FBPC, petitioner-spouses Luis
novation there on the original obligations  (italics supplied).
55 Toh and Vicky Tan Toh are discharged as sureties under the Continuing Guaranty.

(4) WON Spouses Toh are solidarily liable with bank by signing the Continuing Guaranty (No) - Finally, the foregoing omission or negligence of respondent Bank in failing to safe-keep the
WON Spouses Toh are relieved from their obligations as sureties of respondent FBPC (Yes) security provided by the marginal deposit and the 25% requirement results in the material
alteration of the principal contract, i.e., the “letter-advise,” and consequently releases the
- As a result of these illicit extensions, petitioner-spouses Luis Toh and Vicky Tan Toh are surety.  This inference was admitted by the Bank through the testimony of its lone witness that
61

relieved of their obligations as sureties of respondent FBPC under Art. 2079 of the Civil “[w]henever this obligation becomes due and demandable, except when you roll it over, (so) there is
Code. novation there on the original obligations.” As has been said, “if the suretyship contract was made
upon the condition that the principal shall furnish the creditor additional security, and the security
- Further, we note several suspicious circumstances that militate against the enforcement of the being furnished under these conditions is afterwards released by the creditor, the surety is wholly
Continuing Guaranty against the accommodation sureties. discharged, without regard to the value of the securities released, for such a transaction amounts to
3. Firstly, the guaranty was executed more than 30 days from the original acceptance period an alteration of the main contract.” 62

as required in the “letter-advise.”

4. Thereafter, barely 2 days after the Continuing Guaranty was signed, corporate agents of
FBPC were replaced on 12 May 1993 and other adjustments in the corporate structure of

• Filipinas Textile Mills v. Court of Appeals, G.R. No. 119800, November 12, 2003 - ALVIN Villanueva contended that the comprehensive surety agreement is null and void for lack of consent
G.R. No. 119800. Nov. 12, 2003 of Filtex and SIHI. He also alleged that SIHI materially altered the terms and conditions of the
FILIPINAS TEXTILE MILLS, INC. and BERNARDINO VILLANUEVA, Petitioners, vs. CA and comprehensive surety agreement by granting Filtex an extension of the period for payment thereby
STATE INVESTMENT HOUSE, INC. Respondents. releasing him from his obligation as surety.
Summary: Filtex applied to SIHI for domestic letters of credit to finance the purchase of raw  
materials for its textile business. SIHI accepted such application. Villanueva executed a Should Villanueva be held to the comprehensive surety agreement?
comprehensive surety agreement, where he guaranteed, jointly and severally with Filtex, the  
payment at maturity to SIHI of all the indebtedness of Filtex. To ensure payment of the sight drafts, YES. The consent of Filtex to the surety may be assumed from the fact that Villanueva was the
Filtex issued to SIHI several trust receipts covering the merchandise sold. Under the trust receipts, signatory to the sight drafts and trust receipts on behalf of Filtex. Moreover, in its Answer with
Filtex agreed to hold the merchandise in trust for SIHI, with liberty to sell the same for SIHIs account Counterclaim. Filtex admitted the execution of the comprehensive surety agreement with the only
but without authority to make any other disposition of the said goods. Because of Filtex’s failure to qualification that it was not a means to induce SIHI to issue the domestic letters of credit. Clearly,
pay its outstanding obligation despite demand, SIHI filed a Complaint praying that the petitioners be had Filtex not consented to the comprehensive surety agreement, it could have easily objected to its
ordered to pay, jointly and severally, the principal amount. validity and specifically denied the same. SIHI's consent to the surety is also understood from the
  fact that it demanded payment from both Filtex and Villanueva.
  amount shall be subject to two percent (2%) per month penalty charge payable from the date
As regards the purported material alteration of the terms and conditions of the comprehensive surety of default until the amount is fully paid.
agreement, we rule that the extension of time granted to Filtex to pay its obligation did not release  
Villanueva from his liability. As this Court held in Palmares vs. CA: Because of Filtex's failure to pay its outstanding obligation despite demand, SIHI filed a
  Complaint on Dec. 6, 1985 praying that the petitioners be ordered to pay, jointly and severally,
"The neglect of the creditor to sue the principal at the time the debt falls due does not discharge the surety, even the principal amount of ₱3,118,949.75, plus interest and penalties, attorney's fees, exemplary
if such delay continues until the principal becomes insolvent… damages, costs of suit and other litigation expenses.
   
The raison d'etre for the rule is that there is nothing to prevent the creditor from proceeding against In its Answer with Counterclaim, Filtex interposed special and affirmative defenses, i.e., the
the principal at any time. At any rate, if the surety is dissatisfied with the degree of activity displayed provisions of the trust receipts, as well as the comprehensive surety agreement, do not
by the creditor in the pursuit of his principal, he may pay the debt himself and become subrogated to reflect the true will and intention of the parties, full payment of the obligation, and lack of
all the rights and remedies of the creditor. cause of action. For his part, Villanueva interposed the same special and affirmative defenses and
  added that the comprehensive surety agreement is null and void and damages and attorney's
It may not be amiss to add that leniency shown to a debtor in default, by delay permitted by the fees are not legally demandable. The petitioners, however, failed to specifically deny under
creditor without change in the time when the debt might be demanded, does not constitute an oath the genuineness and due execution of the actionable documents upon which the
extension of the time of payment, which would release the surety. In order to constitute an extension Complaint was based.
discharging the surety, it should appear that the extension was for a definite period, pursuant to an  
enforceable agreement between the principal and the creditor, and that it was made without the RTC: On July 23, 1990, the RTC of Manila rendered judgment holding Filtex and Villanueva
consent of the surety or with a reservation of rights with respect to him. The contract must be one jointly and severally liable to SIHI. Dissatisfied, Filtex and Villanueva filed an Appeal, primarily
which precludes the creditor from, or at least hinders him in, enforcing the principal contract within contending that they have fully paid their indebtedness to SIHI and asserting that the letters of credit,
the period during which he could otherwise have enforced it, and precludes the surety from paying sight drafts, trust receipts and comprehensive surety agreement upon which the Complaint is based
the debt." are inadmissible in evidence supposedly because of non-payment of documentary stamp taxes as
  required by the Internal Revenue Code.
Tinga, J.:  
Facts: CA: In its assailed Decision, the CA debunked the petitioners' contention that the letters of
On Dec. 6, 1985, SIHI instituted a Complaint for the collection of the sum of ₱3,118,949.75, credit, sight drafts, trust receipts and comprehensive surety agreement are inadmissible in
with interest, penalties, exemplary damages, attorneys fees and costs of suit against herein evidence ruling that the petitioners had "in effect, admitted the genuineness and due
petitioners Filtex and Villanueva. execution of said documents because of their failure to have their answers placed under
  oath, the complaint being based on actionable documents in line with Section 7, Rule 8 of the
In its Complaint, SIHI alleged that sometime in 1983, Filtex applied for domestic letters of credit Rules of Court." The appellate court also ruled that there remained an unpaid balance as of Jan.
to finance the purchase of various raw materials for its textile business. Finding the 31, 1989 of ₱868,881.11 for which Filtex and Villanueva are solidarily liable.
application to be in order, SIHI issued on various dates domestic letters of credit authorizing  
Indo-Philippine Textile Mills, Inc. ("Indo-Phil"), Texfiber Corporation ("Texfiber"), and Philippine The appellate court denied the petitioners' MR in its Resolution, ruling that the petitioners
Polyamide Industrial Corporation ("Polyamide") "to value" on SIHI such drafts as may be drawn by failed to raise new and substantial matters that would warrant the reversal of its Decision.
said corporations against Filtex for an aggregate amount not exceeding ₱3,737,988.05. However, due to certain typographical oversights, the CA modified its Decision and stated that the
  correct unpaid balance as of Jan. 31, 1989 was actually ₱7,868,881.11, excluding litigation and
Filtex used these domestic letters of credit to cover its purchase of various textile materials other miscellaneous expenses and filing fees.
from Indo-Phil, Texfiber and Polyamide. Upon the sale and delivery of the merchandise, Indo-  
Phil, Texfiber and Polyamide issued several sight drafts on various dates with an aggregate In asking this Court to reverse and set aside the aforementioned Decision and Resolution of
value of ₱3,736,276.71 payable to the order of SIHI, which were duly accepted by Filtex. the CA, the petitioners argued that the appellate court should not have admitted in evidence
Subsequently, the sight drafts were negotiated to and acquired in due course by SIHI which paid the the letters of credit, sight drafts, trust receipts and comprehensive surety agreement for lack
value thereof to Indo-Phil, Texfiber and Polyamide for the account of Filtex. of the requisite documentary stamps thereon.
   
Allegedly by way of inducement upon SIHI to issue the aforesaid domestic letters of credit  They hypothesized that their implied admission of the genuineness and due execution of these
and "to value" the sight drafts issued by Indo-Phil, Texfiber and Polyamide, Villanueva documents for failure to specifically deny the same under oath should not be equated with an
executed a comprehensive surety agreement on Nov. 9, 1982, whereby he guaranteed, jointly admission in evidence of the documents and an admission of their obligation. They also maintained
and severally with Filtex, the full and punctual payment at maturity to SIHI of all the that they have fully paid the obligation and, in fact, have made an excess payment in the amount of
indebtedness of Filtex. The essence of the comprehensive surety agreement was that it shall ₱415,722.53. In addition, Villanueva asserted that the comprehensive surety agreement which
be a continuing surety until such time that the total outstanding obligation of Filtex to SIHI he executed is null and void, inadmissible in evidence and contains material alterations.
had been fully settled. Thus, he claimed that he should not be held solidarily liable with Filtex.
   
In order to ensure the payment of the sight drafts aforementioned, Filtex executed and issued Traversing the allegations in the instant petition, SIHI stated in its Comment19 that in their respective
to SIHI several trust receipts of various dates, which were later extended with the issuance of answers to the complaint, the petitioners expressly admitted the due execution of the letters of
replacement trust receipts all dated June 22, 1984, covering the merchandise sold. Under the credit, sight drafts and trust receipts and their obligation arising from these documents. Having done
trust receipts, Filtex agreed to hold the merchandise in trust for SIHI, with liberty to sell the so, they could no longer question the admissibility of these documents. Moreover, their allegation of
same for SIHI's account but without authority to make any other disposition of the said inadmissibility of these documents is inconsistent with their defense of full payment. SIHI also
goods. Filtex likewise agreed to hand the proceeds, as soon as received, to SIHI "to apply" against reasoned that the documentary stamps, assuming they are required, are for the sole account of
any indebtedness of the former to the latter. Filtex also agreed to pay SIHI interest at the rate of 25% Filtex not only because the letters of credit were issued at its instance and application but also
per annum from the time of release of the amount to Indo-Phil, Texfiber and Polyamide until the because it was the issuer and acceptor of the trust receipts and sight drafts, respectively. As regards
same is fully paid, subject to SIHI's option to reduce the interest rate. Furthermore, in case of delay the petitioners' allegation of full payment, SIHI stressed that the appellate court had already resolved
in the payment at maturity of the aggregate amount of the sight drafts negotiated to SIHI, said this issue in its favor by ruling that there remained an unpaid balance of ₱7,868,881.11 as of Jan.
31, 1989 for which the petitioners were held solidarily liable. Besides, by quoting substantial portions surety agreement with the only qualification that it was not a means to induce SIHI to issue
of their appellants' Brief in the instant petition, the petitioners merely repeated the issues that have the domestic letters of credit. Clearly, had Filtex not consented to the comprehensive surety
already been passed upon by the appellate court. Finally, SIHI asserted the validity and admissibility agreement, it could have easily objected to its validity and specifically denied the same.
of the comprehensive surety agreement. SIHI's consent to the surety is also understood from the fact that it demanded payment from
  both Filtex and Villanueva.
Issue:  
WON the letters of credit, sight drafts, trust receipts and comprehensive surety agreement are As regards the purported material alteration of the terms and conditions of the
admissible in evidence despite the absence of documentary stamps thereon as required by the comprehensive surety agreement, we rule that the extension of time granted to Filtex to pay
Internal Revenue Code. (YES) its obligation did not release Villanueva from his liability. As this Court held in Palmares vs. CA:
  "The neglect of the creditor to sue the principal at the time the debt falls due does not discharge the
Held: surety, even if such delay continues until the principal becomes insolvent…
We rule in the affirmative. As correctly noted by the respondent, the Answer with Counterclaim and Answer, of The raison d'etre for the rule is that there is nothing to prevent the creditor from proceeding
Filtex and Villanueva, respectively, did not contain any specific denial under oath of the letters of credit, against the principal at any time. At any rate, if the surety is dissatisfied with the degree of
sight drafts, trust receipts and comprehensive surety agreement upon which SIHI's Complaint was based, activity displayed by the creditor in the pursuit of his principal, he may pay the debt himself
thus giving rise to the implied admission of the genuineness and due execution of these documents. Under and become subrogated to all the rights and remedies of the creditor.
Sec. 8, Rule 8 of the Rules of Court, when an action or defense is founded upon a written instrument, copied in or  
attached to the corresponding pleading as provided in the preceding section, the genuineness and due execution
of the instrument shall be deemed admitted unless the adverse party, under oath, specifically denies them, and
It may not be amiss to add that leniency shown to a debtor in default, by delay permitted by
sets forth what he claims to be the facts. the creditor without change in the time when the debt might be demanded, does not
  constitute an extension of the time of payment, which would release the surety. In order to
In Benguet Exploration, Inc. vs. CA,2this Court ruled that the admission of the genuineness and due execution of a constitute an extension discharging the surety, it should appear that the extension was for a
document means that the party whose signature it bears admits that he voluntarily signed the document or it was definite period, pursuant to an enforceable agreement between the principal and the creditor,
signed by another for him and with his authority; that at the time it was signed it was in words and figures exactly as and that it was made without the consent of the surety or with a reservation of rights with
set out in the pleading of the party relying upon it; that the document was delivered; and that any formalities respect to him. The contract must be one which precludes the creditor from, or at least
required by law, such as a seal, an acknowledgment, or revenue stamp, which it lacks, are waived by him.
 
hinders him in, enforcing the principal contract within the period during which he could
Moreover, under Section 173 of the Internal Revenue Code the liability for payment of the stamp taxes is imposed otherwise have enforced it, and precludes the surety from paying the debt."
on "the person making, signing, issuing, accepting, or transferring" the document. As correctly pointed out by SIHI,  
Filtex was the issuer and acceptor of the trust receipts and sight drafts, respectively, while the letters of credit were Lastly, with regard to Villanueva's assertion that the 25% annual interest to be paid by Filtex in case
issued upon its application. On the other hand, Villanueva signed the comprehensive surety agreement. Thus, it failed to pay the amount released to suppliers was inserted by SIHI without his consent, suffice it to
being among the parties obliged to pay the documentary stamp taxes, the petitioners are estopped from claiming say that the trust receipts bearing the alleged insertion of the 25% annual fee are countersigned by
that the documents are inadmissible in evidence for non-payment thereof. him. His pretension of lack of knowledge and consent thereto is obviously contrived.
  In view of the foregoing, we find the instant petition bereft of merit.
Interestingly, the petitioners questioned the admissibility of these documents rather belatedly, at the WHEREFORE, premises considered, the petition is DENIED and the assailed Decision and Resolution of the CA
appeal stage even. Their respective answers to SIHI's Complaint were silent on this point. The rule is well- concurring with the decision of the TC are hereby AFFIRMED. Costs against the petitioners.
settled that points of law, theories, issues and arguments not adequately brought to the attention of the TC
need not, and ordinarily will not, be considered by a reviewing court as they cannot be raised for the first
• Severino v. Severino, G.R. No. 34642, September 24, 1931 - RINA
time on appeal because this would be offensive to the basic rules of fair play, justice and due process.
  G.R. No. 34642           September 24, 1931
Hence, the petitioners can no longer dispute the admissibility of the letters of credit, sight drafts, trust receipts and FABIOLA SEVERINO, accompanied by her husband RICARDO VERGARA, plaintiffs-appellees,
comprehensive surety agreement. However, this does not preclude the petitioners from impugning these vs.
documents by evidence of fraud, mistake, compromise, payment, statute of limitations, estoppel and want of
consideration.
GUILLERMO SEVERINO, ET AL., defendants.
  ENRIQUE ECHAUS, appellant.
This brings us to the petitioners' contention that they have already fully paid their obligation to SIHI and  
have, in fact, overpaid by ₱415,722.53. This matter is purely a factual issue . In Fortune Motors (Phils.) STREET, J.:
Corporation vs. CA,28 it was held that "the jurisdiction of this Court in cases brought before it from the CA under  
Rule 45 of the Rules of Court is limited to reviewing or revising errors of law. It is not the function of this Court to SUMMARY: Melecio Severino died, leaving considerable property and litigation ensued between his
analyze or weigh evidence all over again unless there is a showing that the findings of the lower court are totally widow, Felicitas Villanueva, and Fabiola Severino, on the one part, and other heirs of the deceased
devoid of support or are glaringly erroneous as to constitute serious abuse of discretion. Factual findings of the CA
are conclusive on the parties and carry even more weight when said court affirms the factual findings of the TC."29
on the other part. In order to make an end of this litigation a compromise was effected by which
  Guillermo Severino, a son of Melecio, took over the property at the same time agreeing to pay
It should be noted that the issue of overpayment as well as the proof presented by the petitioners on this P100,000 to Felicitas and Fabiola. This sum of money was made payable, first, P40,000 in cash
point merely rehash those submitted before the CA. The appellate court affirmed the TC and passed upon this upon the execution of the document of compromise, and the balance in three several payments of
issue by exhaustively detailing the amounts paid as guaranty deposit, the payments made and the balance due for P20,000 at the end of one year; two years, and three years respectively. To this contract Enrique
every trust receipt. This Court shall not depart from the findings of the TC and the appellate court, supported by the Echaus affixed his name as guarantor. Upon failure to pay, Fabiola instituted an action against
preponderance of evidence and unsatisfactorily refuted by the petitioners, as they are. Guillermo and Echaus. Echaus then contends that he received nothing for affixing his signature as
  guarantor to the contract which is the subject of suit and that in effect the contract was lacking in
As a final issue, Villanueva contended that the comprehensive surety agreement is null and consideration as to him.
void for lack of consent of Filtex and SIHI. He also alleged that SIHI materially altered the  
terms and conditions of the comprehensive surety agreement by granting Filtex an extension ISSUE: W/N there is consideration for the guaranty (NO)
of the period for payment thereby releasing him from his obligation as surety. We find these  
contentions specious. RULING: The judgment appealed from is in all respects correct, and the same will be affirmed, with
  costs against the appellant. So ordered.
In the first place, the consent of Filtex to the surety may be assumed from the fact that  
Villanueva was the signatory to the sight drafts and trust receipts on behalf of Filtex. The point is not well taken. A guarantor or surety is bound by the same consideration that makes the
Moreover, in its Answer with Counterclaim. Filtex admitted the execution of the comprehensive contract effective between the principal parties thereto. The compromise and dismissal of a
lawsuit is recognized in law as a valuable consideration; and the dismissal of the action  
which Felicitas Villanueva and Fabiola Severino had instituted against Guillermo Severino It appears that at the time of the compromise agreement was executed Fabiola had not yet
was an adequate consideration to support the promise on the part of Guillermo Severino to been judicially recognized as the natural daughter of Melecio, and it was stipulated that the
pay the sum of money stipulated in the contract which is the subject of this action. The last P20,000 corresponding to Fabiola and the last P5,000 corresponding to Felicitas
promise of the appellant Echaus as guarantor therefore binding. It is never necessary that the Villanueva should be retained on deposit until the definite status of Fabiola as natural
guarantor or surety should receive any part of the benefit, if such there be, accruing to his daughter of Melecio should be established. The judicial decree to this effect was entered in the
principal. But the true consideration of this contract was the detriment suffered by the plaintiffs in CFI of Occidental Negros on June 16, 1925, and as the money which was contemplated to be
the former action in dismissing that proceeding, and it is immaterial that no benefit may have held in suspense has never in fact been paid to the parties entitled thereto, it results that the
accrued either to the principal or his guarantor. point respecting the deposit referred to has ceased to be of moment.
   
CASE: This action was instituted in the CFI of Iloilo by Fabiola Severino, with whom is joined her The proof shows that the money claimed in this action has never been paid and is still owing to
husband Ricardo Vergara, for the purpose of recovering P20,000 from Guillermo Severino and the plaintiff; and the only defense worth noting in this decision is the assertion on the part of
Enrique Echaus, the latter in the character of guarantor for the former. The trial court gave judgment Enrique Echaus that he received nothing for affixing his signature as guarantor to the
in favor of the plaintiffs to recover the sum of P20,000 with lawful from November 15, 1929, the date contract which is the subject of suit and that in effect the contract was lacking in
of the filing of the complaint, with costs. But it was declared that execution of this judgment should consideration as to him.
issue first against the property of Guillermo Severino, and if no property should be found belonging  
to said defendant sufficient to satisfy the judgment in whole or in part, execution for the remainder ISSUE: W/N there is consideration for the guaranty (NO)
should be issued against the property of Enrique Echaus as guarantor. From this judgment Echaus  
appealed, but his principal, Guillermo Severino, did not. RULING: The judgment appealed from is in all respects correct, and the same will be affirmed, with
  costs against the appellant. So ordered.
FACTS:  
  The point is not well taken. A guarantor or surety is bound by the same consideration that makes the
Fabiola Severino is the recognized natural daughter of Melecio Severino, deceased, former contract effective between the principal parties thereto. The compromise and dismissal of a
resident of Occidental Negros. Upon the death of Melecio, he left considerable property and lawsuit is recognized in law as a valuable consideration; and the dismissal of the action
litigation ensued between his widow, Felicitas Villanueva, and Fabiola Severino, on the one part, which Felicitas Villanueva and Fabiola Severino had instituted against Guillermo Severino
and other heirs of the deceased on the other part. In order to make an end of this litigation a was an adequate consideration to support the promise on the part of Guillermo Severino to
compromise was effected by which Guillermo Severino, a son of Melecio, took over the pay the sum of money stipulated in the contract which is the subject of this action. The
property pertaining to the estate of his father at the same time agreeing to pay P100,000 to promise of the appellant Echaus as guarantor therefore binding. It is never necessary that the
Felicitas and Fabiola. This sum of money was made payable, first, P40,000 in cash upon the guarantor or surety should receive any part of the benefit, if such there be, accruing to his
execution of the document of compromise, and the balance in three several payments of P20,000 at principal. But the true consideration of this contract was the detriment suffered by the plaintiffs in
the end of one year; two years, and three years respectively. To this contract Enrique Echaus the former action in dismissing that proceeding, and it is immaterial that no benefit may have
affixed his name as guarantor. The first payment of P40,000 was made on July 11, 1924, the date accrued either to the principal or his guarantor.
when the contract of compromise was executed; and of this amount Fabiola Severino received the
sum of P10,000. Of the remaining P60,000, all as yet unpaid, Fabiola Severino is entitled to the sum
of P20,000.

• Willex Plastic Industries Corp. v. Court of Appeals, G.R. No. 103066, April 25, 1996 - VAL Whether under the "Continuing Guaranty" petitioner Willex Plastic may be held jointly and severally liable
G.R. No. 103066 April 25, 1996 with Inter-Resin Industrial for the amount paid by Interbank to Manilabank- YES
WILLEX PLASTIC INDUSTRIES, CORPORATION, petitioner, vs. HON. COURT OF APPEALS and  
INTERNATIONAL CORPORATE BANK, respondents. SC: ARGUMENT OF WILLEX: In denying liability to Interbank for the amount, Willex Plastic argues
that under the "Continuing Guaranty," its liability is for sums obtained by Inter-Resin Industrial from
MENDOZA, J.: Interbank, not for sums paid by the latter to Manilabank for the account of Inter-Resin Industrial.
SUMMARY: Inter-Resin Industrial Corporation opened a letter of credit with the Manila Banking  
Corporation. To secure payment of the credit accommodation, Inter-Resin Industrial and the Investment As already stated, the amount had been paid by Interbank's predecessor-in-interest, Atrium Capital,
and Underwriting Corporation of the Philippines (IUCP) executed two documents, both entitled "Continuing to Manilabank pursuant to the "Continuing Surety Agreements" made on December 1, 1978.
Surety Agreement". Inter-Resin Industrial, together with Willex Plastic Industries Corp., executed a
"Continuing Guaranty" in favor of IUCP whereby "For and in consideration of the sum or sums obtained
and/or to be obtained by Inter-Resin Industrial Corporation" from IUCP, Inter-Resin Industrial and Willex The contention of Willex is untenable. What Willex Plastic has overlooked is the fact that evidence
Plastic jointly and severally guaranteed "the prompt and punctual payment at maturity of the NOTE/S aliunde was introduced in the trial court to explain that it was actually to secure payment to Interbank
issued by the DEBTOR/S . . . to the extent of the aggregate principal sum of P5M and such interests, (formerly IUCP) of amounts paid by the latter to Manilabank that the "Continuing Guaranty" was
charges and penalties as hereafter may be specified." Following demand upon it, IUCP paid to Manilabank executed. In its complaint below, Interbank's predecessor-in-interest, Atrium Capital, alleged:
the sum of P4,334,280.61 representing Inter-Resin Industrial's outstanding obligation. Atrium Capital Corp., 5. to secure the guarantee made by plaintiff of the credit accommodation
which in the meantime had succeeded IUCP, demanded from Inter-Resin Industrial and Willex Plastic the granted to defendant IRIC [Inter-Resin Industrial] by Manilabank, the plaintiff
payment of what it (IUCP) had paid to Manilabank. As neither one of the sureties paid, Atrium filed a case required defendant IRIC [Inter-Resin Industrial] to execute a chattel mortgage in
against Inter-Resin Industrial and Willex Plastic. Inter-Resin Industrial paid Interbank, which had in turn its favor and a Continuing Guaranty which was signed by the other defendant
succeeded Atrium, the sum of P687,600.00 representing the proceeds of its fire insurance policy for the WPIC [Willex Plastic].
destruction of its properties. In its answer, Inter-Resin Industrial admitted that the "Continuing Guaranty"
was intended to secure payment to Atrium of the amount of P4,334,280.61 which the latter had paid to
 
Manilabank. It claimed, however, that it had already fully paid its obligation to Atrium Capital. Interbank was
Accordingly, the trial court found that it was "to secure the guarantee made by plaintiff (Interbank) of
substituted as plaintiff in the action. the credit accommodation granted to defendant IRIC [Inter-Resin Industrial] by Manilabank, [that] the
plaintiff required defendant IRIC to execute a chattel mortgage in its favor and a Continuing
Guaranty which was signed by the defendant Willex Plastic Industries Corporation." Similarly, the
6
Court of Appeals found it to be an undisputed fact that "to secure the guarantee undertaken by paid to Manilabank. As neither one of the sureties paid, Atrium filed this case in the court
plaintiff-appellee [Interbank] of the credit accommodation granted to Inter-Resin Industrial by below against Inter-Resin Industrial and Willex Plastic.
Manilabank, plaintiff-appellee required defendant-appellants to sign a Continuing Guaranty." Nor
does the record show any other transaction under which Inter-Resin Industrial may have obtained On August 11, 1982, Inter-Resin Industrial paid Interbank, which had in turn succeeded
sums of money from Interbank. It can reasonably be assumed that Inter-Resin Industrial and Willex Atrium, the sum of P687,600.00 representing the proceeds of its fire insurance policy for the
Plastic intended to indemnify Interbank for amounts which it may have paid Manilabank on behalf of destruction of its properties.
Inter-Resin Industrial.
  In its answer, Inter-Resin Industrial admitted that the "Continuing Guaranty" was intended to
ARGUMENT OF WILLEX: the "Continuing Guaranty," being an accessory contract, cannot legally secure payment to Atrium of the amount of P4,334,280.61 which the latter had paid to
exist because of the absence of a valid principal obligation. Its contention is based on the fact that it
8
Manilabank. It claimed, however, that it had already fully paid its obligation to Atrium Capital.
is not a party either to the "Continuing Surety Agreement" or to the loan agreement between
Manilabank and Interbank Industrial.
On the other hand, Willex Plastic denied the material allegations of the complaint and
  interposed the following Special Affirmative Defenses:
Put in another way the consideration necessary to support a surety obligation need not pass directly (a) Assuming arguendo that main defendant is indebted to plaintiff, the former's
to the surety, a consideration moving to the principal alone being sufficient. For a "guarantor or liability is extinguished due to the accidental fire that destroyed its
surety is bound by the same consideration that makes the contract effective between the principal premises, which liability is covered by sufficient insurance assigned to
parties thereto. It is never necessary that a guarantor or surety should receive any part or benefit, if plaintiff;
such there be, accruing to his principal."
9
(b) Again, assuming arguendo, that the main defendant is indebted to plaintiff,
  its account is now very much lesser than those stated in the complaint
ARGUMENT OF WILLEX: the "Continuing Guaranty" cannot be retroactively applied so as to secure because of some payments made by the former;
payments made by Interbank under the two "Continuing Surety Agreements." Willex Plastic invokes (c) The complaint states no cause of action against WILLEX;
the ruling in El Vencedor v. Canlas and Diño v. Court of Appeals in support of its contention that a
11 12
(d) WLLLEX is only a guarantor of the principal obliger, and thus, its
contract of suretyship or guaranty should be applied prospectively. liability is only secondary to that of the principal;
  (e) Plaintiff failed to exhaust the ultimate remedy in pursuing its claim
The cases cited are, however, distinguishable from the present case. In El Vencedor v. Canlas we against the principal obliger;
held that a contract of suretyship "is not retrospective and no liability attaches for defaults occurring (f) Plaintiff has no personality to sue.
before it is entered into unless an intent to be so liable is indicated." There we found nothing in the
contract to show that the parties intended the surety bonds to answer for the debts contracted On April 29, 1986, Interbank was substituted as plaintiff in the action. The case then proceeded to trial.
previous to the execution of the bonds. In contrast, in this case, the parties to the "Continuing
Guaranty" clearly provided that the guaranty would cover "sums obtained and/or to be obtained" by On March 4, 1988, the trial court declared Inter-Resin Industrial to have waived the right to present evidence for its
Inter-Resin Industrial from Interbank. On the other hand, in Diño v. Court of Appeals the issue was failure to appear at the hearing despite due notice. On the other hand, Willex Plastic rested its case without
whether the sureties could be held liable for an obligation contracted after the execution of the presenting any evidence. Thereafter Interbank and Willex Plastic submitted their respective memoranda.
continuing surety agreement. It was held that by its very nature a continuing suretyship contemplates
a future course of dealing. "It is prospective in its operation and is generally intended to provide TC: ordering Inter-Resin Industrial and Willex Plastic jointly and severally to pay to Interbank
security with respect to future transactions." By no means, however, was it meant in that case that in the following amounts:
all instances a contrast of guaranty or suretyship should be prospective in application. (a) P3, 646,780.61, representing their indebtedness to the plaintiff, with interest of 17% per annum
from August 11, 1982, when Inter-Resin Industrial paid P687,500.00 to the plaintiff, until full
payment of the said amount;
FACTS: Sometime in 1978, Inter-Resin Industrial Corporation opened a letter of credit with the (b) Liquidated damages equivalent to 178 of the amount due; and
Manila Banking Corporation. To secure payment of the credit accommodation, Inter-Resin (c) Attorney's fees and expenses of litigation equivalent to 208 of the total amount due.
Industrial and the Investment and Underwriting Corporation of the Philippines (IUCP)
executed two documents, both entitled "Continuing Surety Agreement" and dated December Inter-Resin Industrial and Willex Plastic appealed to the Court of Appeals. Willex Plastic filed its brief, while Inter-
1, 1978, whereby they bound themselves solidarily to pay Manilabank "obligations of every kind, on Resin Industrial presented a "Motion to Conduct Hearing and to Receive Evidence to Resolve Factual Issues and
which the [Inter-Resin Industrial] may now be indebted or hereafter become indebted to the to Defer Filing of the Appellant's Brief." After its motion was denied, Inter-Resin Industrial did not file its brief
anymore.
[Manilabank]." The two agreements (Exhs. J and K) are the same in all respects, except as to the
limit of liability of the surety, the first surety agreement being limited to US$333,830.00, while
the second one is limited to US$334,087.00. CA: affirming the ruling of the TC

On April 2, 1979, Inter-Resin Industrial, together with Willex Plastic Industries Corp., executed Willex Plastic filed a motion for reconsideration praying that it be allowed to present evidence to show that Inter-
Resin Industrial had already paid its obligation to Interbank, but its motion was denied on December 6, 1991.
a "Continuing Guaranty" in favor of IUCP whereby "For and in consideration of the sum or sums
Hence this petition.
obtained and/or to be obtained by Inter-Resin Industrial Corporation" from IUCP, Inter-Resin
Industrial and Willex Plastic jointly and severally guaranteed "the prompt and punctual payment at
maturity of the NOTE/S issued by the DEBTOR/S . . . to the extent of the aggregate principal sum of ISSUE: whether under the "Continuing Guaranty" signed on April 2, 1979 petitioner Willex Plastic
FIVE MILLION PESOS (P5,000,000.00) Philippine Currency and such interests, charges and may be held jointly and severally liable with Inter-Resin Industrial for the amount paid by Interbank to
penalties as hereafter may be specified." Manilabank. (YES)
 
On January 7, 1981, following demand upon it, IUCP paid to Manilabank the sum of RULING: WHEREFORE, the decision of the Court of Appeals is AFFIRMED, with costs against the
P4,334,280.61 representing Inter-Resin Industrial's outstanding obligation. (Exh. M-1) On petitioner.
February 23 and 24, 1981, Atrium Capital Corp., which in the meantime had succeeded IUCP,
demanded from Inter-Resin Industrial and Willex Plastic the payment of what it (IUCP) had RATIO:  ARGUMENT OF WILLEX: In denying liability to Interbank for the amount, Willex Plastic
argues that under the "Continuing Guaranty," its liability is for sums obtained by Inter-Resin
Industrial from Interbank, not for sums paid by the latter to Manilabank for the account of entitled to great weight and respect but also because our own examination of the record of the trial
Inter-Resin Industrial. In support of this contention Willex Plastic cites the following portion of the court confirms these findings of the two courts. 7

"Continuing Guaranty":  
For and in consideration of the sums obtained and/or to be obtained by INTER-RESIN Nor does the record show any other transaction under which Inter-Resin Industrial may have
INDUSTRIAL CORPORATION, hereinafter referred to as the DEBTOR/S, from you and/or
your principal/s as may be evidenced by promissory note/s, checks, bills receivable/s and/or
obtained sums of money from Interbank. It can reasonably be assumed that Inter-Resin
other evidence/s of indebtedness (hereinafter referred to as the NOTE/S), I/We hereby Industrial and Willex Plastic intended to indemnify Interbank 
jointly and severally and unconditionally guarantee unto you and/or your principal/s, for amounts which it may have paid Manilabank on behalf of Inter-Resin Industrial.
successor/s and assigns the prompt and punctual payment at maturity of the NOTE/S  
issued by the DEBTOR/S in your and/or your principal/s, successor/s and assigns favor to Indeed, in its Petition for Review in this Court, Willex Plastic admitted that it was "to secure the
the extent of the aggregate principal sum of FIVE MILLION PESOS (P5,000,000.00),
Philippine Currency, and such interests, charges and penalties as may hereinafter be
aforesaid guarantee, that INTERBANK required principal debtor IRIC [Inter-Resin Industrial] to
specified. execute a chattel mortgage in its favor, and so a "Continuing Guaranty" was executed on April 2,
1979 by WILLEX PLASTIC INDUSTRIES CORPORATION (WILLEX for brevity) in favor of
INTERBANK for and in consideration of the loan obtained by IRIC [Inter-Resin Industrial]."
As already stated, the amount had been paid by Interbank's predecessor-in-interest, Atrium
Capital, to Manilabank pursuant to the "Continuing Surety Agreements" made on December 1,  
1978. ARGUMENT OF WILLEX: the "Continuing Guaranty," being an accessory contract, cannot
legally exist because of the absence of a valid principal obligation. Its contention is based on
8

the fact that it is not a party either to the "Continuing Surety Agreement" or to the loan
The contention of Willex is untenable. What Willex Plastic has overlooked is the fact that evidence
agreement between Manilabank and Interbank Industrial.
aliunde was introduced in the trial court to explain that it was actually to secure payment to
Interbank (formerly IUCP) of amounts paid by the latter to Manilabank that the "Continuing  
Guaranty" was executed. In its complaint below, Interbank's predecessor-in-interest, Atrium SC: Put in another way the consideration necessary to support a surety obligation need not
Capital, alleged: pass directly to the surety, a consideration moving to the principal alone being sufficient. For
5. to secure the guarantee made by plaintiff of the credit accommodation a "guarantor or surety is bound by the same consideration that makes the contract effective
granted to defendant IRIC [Inter-Resin Industrial] by Manilabank, the between the principal parties thereto. It is never necessary that a guarantor or surety should
plaintiff required defendant IRIC [Inter-Resin Industrial] to execute a chattel receive any part or benefit, if such there be, accruing to his principal." In an analogous case,
9 10

mortgage in its favor and a Continuing Guaranty which was signed by the this Court held:
other defendant WPIC [Willex Plastic]. At the time the loan of P100,000.00 was obtained from petitioner by Daicor, for the
purpose of having an additional capital for buying and selling coco-shell charcoal and
importation of activated carbon, the comprehensive surety agreement was admittedly
In its answer, Inter-Resin Industrial admitted this allegation although it claimed that it had already in full force and effect. The loan was, therefore, covered by the said agreement, and
paid its obligation in its entirety. On the other hand, Willex Plastic, while denying the allegation in private respondent, even if he did not sign the promissory note, is liable by virtue of
question, merely did so "for lack of knowledge or information of the same." But, at the hearing of the the surety agreement. The only condition that would make him liable thereunder is
case on September 16, 1986, when asked by the trial judge whether Willex Plastic had not filed a that the Borrower "is or may become liable as maker, endorser, acceptor or
crossclaim against Inter-Resin Industrial, Willex Plastic's counsel replied in the negative and otherwise." There is no doubt that Daicor is liable on the promissory note evidencing
manifested that "the plaintiff in this case [Interbank] is the guarantor and my client [Willex the indebtedness.
Plastic] only signed as a guarantor to the guarantee." 2 The surety agreement which was earlier signed by Enrique Go, Sr. and private
respondent, is an accessory obligation, it being dependent upon a principal one
which, in this case is the loan obtained by Daicor as evidenced by a promissory note.
For its part Interbank adduced evidence to show that the "Continuing Guaranty" had been made
to guarantee payment of amounts made by it to Manilabank and not of any sums given by it  
as loan to Inter-Resin Industrial. Interbank's witness testified under cross examination by counsel ARGUMENT OF WILLEX: the "Continuing Guaranty" cannot be retroactively applied so as to
for Willex Plastic that Willex "guaranteed the exposure/of whatever exposure of ACP [Atrium Capital] secure payments made by Interbank under the two "Continuing Surety Agreements." Willex
will later be made because of the guarantee to Manila Banking Corporation." 3 Plastic invokes the ruling in El Vencedor v. Canlas and Diño v. Court of Appeals in support of its
11 12

contention that a contract of suretyship or guaranty should be applied prospectively.

It has been held that explanatory evidence may be received to show the circumstances under which  
a document has been made and to what debt it relates. At all events, Willex Plastic cannot now
4 SC: The cases cited are, however, distinguishable from the present case. In El Vencedor v.
claim that its liability is limited to any amount which Interbank, as creditor, might give directly Canlas we held that a contract of suretyship "is not retrospective and no liability attaches for defaults
to Inter-Resin Industrial as debtor because, by failing to object to the parol evidence occurring before it is entered into unless an intent to be so liable is indicated." There we found
presented, Willex Plastic waived the protection of the parol evidence rule. 5 nothing in the contract to show that the parties intended the surety bonds to answer for the
debts contracted previous to the execution of the bonds. In contrast, in this case, the parties
to the "Continuing Guaranty" clearly provided that the guaranty would cover "sums obtained
Accordingly, the trial court found that it was "to secure the guarantee made by plaintiff
and/or to be obtained" by Inter-Resin Industrial from Interbank. On the other hand, in Diño v.
(Interbank) of the credit accommodation granted to defendant IRIC [Inter-Resin Industrial] by
Court of Appeals the issue was whether the sureties could be held liable for an obligation contracted
Manilabank, [that] the plaintiff required defendant IRIC to execute a chattel mortgage in its favor
after the execution of the continuing surety agreement. It was held that by its very nature a
and a Continuing Guaranty which was signed by the defendant Willex Plastic Industries
continuing suretyship contemplates a future course of dealing. "It is prospective in its operation
Corporation." 6

and is generally intended to provide security with respect to future transactions." By no

  means, however, was it meant in that case that in all instances a contrast of guaranty or
Similarly, the Court of Appeals found it to be an undisputed fact that "to secure the guarantee suretyship should be prospective in application.
undertaken by plaintiff-appellee [Interbank] of the credit accommodation granted to Inter-
Resin Industrial by Manilabank, plaintiff-appellee required defendant-appellants to sign a
 
Indeed, as we also held in Bank of the Philippine Islands v. Foerster, although a contract of
13

Continuing Guaranty." These factual findings of the trial court and of the Court of Appeals are
suretyship is ordinarily not to be construed as retrospective, in the end the intention of the
binding on us not only because of the rule that on appeal to the Supreme Court such findings are
parties as revealed by the evidence is controlling. What was said there 14
applies mutatis  
mutandis to the case at bar: Again, the reception of evidence for Inter-Resin Industrial was reset on January 22, 1988 and February 5, 1988
In our opinion, the appealed judgment is erroneous. It is very true that bonds or other upon motion of its counsel. As Inter-Resin Industrial still failed to present its evidence, it was declared to have
contracts of suretyship are ordinarily not to be construed as retrospective, but that waived its evidence.
rule must yield to the intention of the contracting parties as revealed by the evidence,  
and does not interfere with the use of the ordinary tests and canons of interpretation To give Inter-Resin Industrial a last opportunity to present its evidence, however, the hearing was
which apply in regard to other contracts. postponed to March 4, 1988. Again Inter-Resin Industrial's counsel did not appear. The trial court,
In the present case the circumstances so clearly indicate that the bond given by therefore, finally declared Inter-Resin Industrial to have waived the right to present its evidence. On the
Echevarria was intended to cover all of the indebtedness of the Arrocera upon its other hand, Willex Plastic, as before, manifested that it was not presenting evidence and requested instead
current account with the plaintiff Bank that we cannot possibly adopt the view of the for time to file a memorandum. There is therefore no basis for the plea made by Willex Plastic that it be
court below in regard to the effect of the bond. given the opportunity of showing that Inter-Resin Industrial has already paid its obligation to Interbank.
   
ARGUMENT OF WILLEX: in any event it cannot be proceeded against without first exhausting  
all property of Inter-Resin Industrial. Willex Plastic thus claims the benefit of excussion. The
Civil Code provides, however: • Diño v. Court of Appeals, G.R. No. 89775, November 26, 1992 - PIA
Art. 2059. This excussion shall not take place:
(1) If the guarantor has expressly renounced it; G.R. No. 89775 November 26, 1992
(2) If he has bound himself solidarily with the debtor; JACINTO UY DIÑO and NORBERTO UY, petitioners, vs. HON. COURT OF APPEALS and
  METROPOLITAN BANK AND TRUST COMPANY, respondents.
SC: The pertinent portion of the "Continuing Guaranty" executed by Willex Plastic and Inter-Resin
Industrial in favor of IUCP (now Interbank) reads:
If default be made in the payment of the NOTE/s herein guaranteed you and/or your SUMMARY: UTEFS obtained credit accommodations from METROBANK in the sum of P700k and
principal/s may directly proceed against Me/Us without first proceeding against to secure such, Uy and Diño executed separate Continuing Suretyships (Feb 25, 1977) under which
and exhausting DEBTOR/s propertiesin the same manner as if all such liabilities Uy agreed to pay Metrobank any indebtedness of up to P300k while Diño agreed to be bound up to
constituted My/Our direct and primary obligations. (emphasis supplied) P815k. Having paid the obligation under the 1977 letter of credit, UTEFS obtained another one
  (1978) which was again fully settled before an irrevocable letter of credit was obtained in 1979. This
This stipulation embodies an express renunciation of the right of excussion. In addition, Willex Irrevocable Letter of Credit in the amount of P800k covered the purchase of 8000 bags of Urea and
Plastic bound itself solidarily liable with Inter-Resin Industrial under the same agreement: 4000 bags of Planters 21-0-0 and was obtained without any participation of Uy and Diño. They were
For and in consideration of the sums obtained and/or to be obtained by INTER- also not informed that the Continuing Suretyship of 1977 was used to guarantee the payment.
RESIN INDUSTRIAL CORPORATION, hereinafter referred to as the DEBTOR/S, UTEFS executed and delivered a Trust Receipt to Metrobank and agreed to deliver to Metrobank the
from you and/or your principal/s as may be evidenced by promissory note/s, checks, entrusted goods in the event of non-sale or the proceeds of the sale but UTEFS failed to do so.
bills receivable/s and/or other evidence/s of indebtedness (hereinafter referred to as Metrobank sent letters demanding payment to Metrobank who made partial payments, but also sent
the NOTE/S), I/We hereby jointly and severally and unconditionally guarantee letters to Uy and Diño as the sureties. Diño denied his liability because a new obligation was
unto you and/or your principal/s, successor/s and assigns the prompt and punctual contracted without his participation and that the credit accommodation he guaranteed has already
payment at maturity of the NOTE/S issued by the DEBTOR/S in your and/or your been fully paid. Metrobank filed a complaint for the collection of a sum of money. 
principal/s, successor/s and assigns favor to the extent of the aggregate principal
sum of FIVE MILLION PESOS (P5,000,000.00), Philippine Currency, and such
Uy and Diño maintained that the obligation which they guaranteed in 1977 has been extinguished
interests, charges and penalties as may hereinafter he specified.
since it has already been paid in the same year. The Continuing Suretyships executed in 1977
  cannot be availed of to secure the one obtained in 1979 because a guaranty cannot exist without a
CONTENTION OF WILLEX: Inter-Resin Industrial had already paid its indebtedness to Interbank and that valid obligation (Art 2052) and that they can not be held liable for such because they are not privies
Willex Plastic should have been allowed by the Court of Appeals to adduce evidence to prove this. Suffice it
to say that Inter-Resin Industrial had been given generous opportunity to present its evidence but it failed to make thereto as it was contracted without their participation. 
use of the same. On the otherhand, Willex Plastic rested its case without presenting evidence.
  Metrobank, relying on  Article 2053 of the new Civil Code, invoked the terms and conditions
SC: The reception of evidence of Inter-Resin Industrial was set on January 29, 1987, but because of its failure to embodied in the comprehensive suretyships separately executed by Uy and Diño, and argued that
appear on that date, the hearing was reset on March 12, 26 and April 2, 1987. they bound themselves as solidary obligors of Uy Tiam to both existing obligations and future ones.
  It further argued that the agreement was in full force and effect at the time the letter of credit was
On March 12, 1987 Inter-Resin Industrial again failed to appear. Upon motion of Willex Plastic, the hearings on obtained in 1979 as sureties-defendants did not exercise their right to revoke it by giving notice to
March 12 and 26, 1987 were cancelled and "reset for the last time" on April 2 and 30, 1987 the bank.
.
On April 2, 1987, Inter-Resin Industrial again failed to appear. Accordingly the trial court issued the following order: ISSUE: WON they are liable as sureties for the 1979 obligations of Uy Tiam to METROBANK by
Considering that, as shown by the records, the Court had exerted every earnest effort to virtue of the Continuing Suretyship Agreements they separately signed in 1977; (YES)
cause the service of notice or subpoena on the defendant Inter-Resin Industrial but to no
avail, even with the assistance of the defendant Willex the defendant Inter-Resin Industrial
is hereby deemed to have waived the right to present its evidence. The SC held that under the Civil Code, a guaranty may be given to secure even future debts, the
On the other hand, Willex Plastic announced it was resting its case without presenting any evidence. amount of which may not known at the time the guaranty is executed. This is the basis for contracts
  denominated as continuing guaranty or suretyship. A continuing guaranty is one which is not limited
Upon motion of Inter-Resin Industrial, however, the trial court reconsidered its order and set the hearing anew on to a single transaction, but which contemplates a future course of dealing, covering a series of
July 23, 1987. But Inter-Resin Industrial again moved for the postponement of the hearing be postponed to August transactions, generally for an indefinite time or until revoked. It is prospective in its operation and is
11, 1987. The hearing was, therefore, reset on September 8 and 22, 1987 but the hearings were reset on October generally intended to provide security with respect to future transactions within certain limits, and
13, 1987, this time upon motion of Interbank. To give Interbank time to comment on a motion filed by Inter-Resin contemplates a succession of liabilities, for which, as they accrue, the guarantor becomes liable.
Industrial, the reception of evidence for Inter-Resin Industrial was again reset on November 17, 26 and December Otherwise stated, a continuing guaranty is one which covers all transactions, including those arising
11, 1987. However, Inter-Resin Industrial again moved for the postponement of the hearing. Accordingly the
hearing was reset on November 26 and December 11, 1987, with warning that the hearings were intransferrable.
in the future, which are within the description or contemplation of the contract, of guaranty, until the
expiration or termination thereof. A guaranty shall be construed as continuing when by the terms
thereof it is evident that the object is to give a standing credit to the principal debtor to be used from As a rejoinder, Diño maintained that he cannot be held liable for the 1979 credit
time to time either indefinitely or until a certain period, especially if the right to recall the guaranty is accommodation because it is a new obligation contracted without his participation. Besides,
expressly reserved. Hence, where the contract of guaranty states that the same is to secure the 1977 credit accommodation which he guaranteed has been fully paid.
advances to be made "from time to time" the guaranty will be construed to be a continuing one. 
Having sent the last demand letter to UTEFS, Diño and Uy and finding resort to extrajudicial
Par I and Par IV of the suretyship agreement executed by Uy and Diño unequivocally reveal that the remedies to be futile, METROBANK filed a complaint for collection of a sum of money
suretyship agreement in the case at bar are continuing in nature. This was not denied as well as the (P613,339.32, as of January 31, 1982, inclusive of interest, commission penalty and bank charges)
fact that they had not revoked the suretyship agreements. When the Irrevocable Letter of Credit was with a prayer for the issuance of a writ of preliminary attachment, against Uy Tiam, representative of
obtained from Metrobank for the purpose of obtaining goods (covered by a trust receipt) from UTEFS and impleaded Diño and Uy as parties-defendants.
Planters Products, the continuing suretyships were in full force and effect. Hence, even if Uy and
Diño did not sign the "Commercial Letter of Credit and Application, they are still liable as the credit The court issued an order, granting the attachment writ, which writ was returned unserved and
accommodation (letter of credit/trust receipt) was covered by the said suretyships. What makes them unsatisfied as defendant Uy Tiam was nowhere to be found at his given address and his commercial
liable thereunder is the condition which provides that the Borrower "is or may become liable as enterprise was already non-operational.
maker, endorser, acceptor or otherwise." 
UY AND DINO: filed a motion to dismiss the complaint on the ground of lack of cause of
FACTS: It appears that in 1977, Uy Tiam Enterprises and Freight Services (UTEFS), thru its action. They maintained that the obligation which they guaranteed in 1977 has been
representative Uy Tiam, applied for and obtained credit accommodations (letter of credit and extinguished since it has already been paid in the same year. Accordingly, the Continuing
trust receipt accommodations) from the Metropolitan Bank and Trust Company Suretyships executed in 1977 cannot be availed of to secure Uy Tiam's Letter of Credit
(METROBANK) in the sum of P700,000. To secure the aforementioned credit accommodations obtained in 1979 because a guaranty cannot exist without a valid obligation. It was further
Norberto Uy and Jacinto Uy Diño executed separate Continuing Suretyships dated 25 argued that they can not be held liable for the obligation contracted in 1979 because they are
February 1977, in favor of the latter. Under the aforesaid agreements, Norberto Uy agreed to pay not privies thereto as it was contracted without their participation.
METROBANK any indebtedness of UTEFS up to the aggregate sum of P300,000 while Jacinto
Uy Diño agreed to be bound up to the aggregate sum of P800,000. METROBANK: filed its opposition to the motion to dismiss. Invoking the terms and
conditions embodied in the comprehensive suretyships separately executed by Uy and Diño,
Having paid the obligation under the above letter of credit in 1977, UTEFS, through Uy Tiam, the bank argued that they bound themselves as solidary obligors of Uy Tiam to both existing
obtained another credit accommodation from METROBANK in 1978, which credit obligations and future ones. It relied on Article 2053 of the new Civil Code which provides: "A
accommodation was fully settled before an irrevocable letter of credit was applied for and guaranty may also be given as security for future debts, the amount of which is not yet
obtained by the abovementioned business entity in 1979. known; ." It was further asserted that the agreement was in full force and effect at the time the
letter of credit was obtained in 1979 as sureties-defendants did not exercise their right to
The Irrevocable Letter of Credit No. SN-Loc-309, dated March 30, 1979, in the sum of P815, 600, revoke it by giving notice to the bank.
covered UTEFS' purchase of "8,000 Bags Planters Urea and 4,000 Bags Planters 21-0-0." It
was applied for and obtain by UTEFS without the participation of Norberto Uy and Jacinto Uy Meanwhile, the resolution of the aforecited motion to dismiss was held in abeyance pending the
Diño as they did not sign the document denominated as "Commercial Letter of Credit and introduction of evidence by the parties as per order dated February 21, 1986. Having been granted a
Application." Also, they were not asked to execute any suretyship to guarantee its payment. period of fifteen days from receipt of the order dated March 7, 1986 within which to file the answer,
Neither did METROBANK nor UTEFS inform them that the 1979 Letter of Credit has been Uy and Diño filed their responsive pleading which merely rehashed the arguments in their motion to
opened and the Continuing Suretyships separately executed in February, 1977 shall dismiss and maintained that they are entitled to the benefit of excussion.
guarantee its payment.
On February 23, 1987, plaintiff filed a motion to dismiss the complaint against defendant Uy Tiam on
The 1979 letter of credit was negotiated. METROBANK paid Planters Products the amount of the ground that it has no information as to the heirs or legal representatives of the latter who died
P815,600 which payment was covered by a Bill of Exchange, dated 4 June 1979. sometime in December, 1986, which motion was granted on the following day).

Pursuant to the above commercial transaction, UTEFS executed and delivered to METROBANK a After trial, the court a quo, on December 2, 198, rendered its judgment, a portion of which reads:
Trust Receipt dated 4 June 1979, whereby UTEFS acknowledged receipt in trust from
METROBANK of the aforementioned goods from Planters Products which amounted to P815, The evidence and the pleadings, thus, pose the querry (sic):
600. Being the entrusted, the former agreed to deliver to METROBANK the entrusted goods in Are the defendants Jacinto Uy Diñoand Norberto Uy liable for the obligation
the event of non-sale or, if sold, the proceeds of the sale thereof, on or before September 2, contracted by Uy Tiam under the Letter of Credit (Exh. B) issued on March 30,
1979. 1987 by virtue of the Continuing Suretyships they executed on February 25,
1977?
However, UTEFS did not acquiesce to the obligatory stipulations in the trust receipt. As a
consequence, METROBANK sent letters to the said principal obligor and its sureties, Under the admitted proven facts, the Court finds that they are not.
Norberto Uy and Jacinto Uy Diño, demanding payment of the amount due. Informed of the
amount due, UTEFS made partial payments to the Bank which were accepted by the latter. a) When Uy and Diño executed the continuing suretyships, exhibits E and F, on
February 25, 1977, Uy Tiam was obligated to the plaintiff in the amount of
Answering one of the demand letters, Diño, thru counsel, denied his liability for the amount P700,000.00 — and this was the obligation which both obligation which both
demanded and requested METROBANK to send him copies of documents showing the defendants guaranteed to pay. Uy Tiam paid this 1977 obligation –– and such
source of his liability. In its reply, the bank informed him that the source of his liability is the payment extinguished the obligation they assumed as guarantors/sureties.
Continuing Suretyship which he executed on February 25, 1977. b) The 1979 Letter of Credit is different from the 1977 Letter of Credit which
covered the 1977 account of Uy Tiam. Thus, the obligation under either is apart
and distinct from the obligation created in the other — as evidenced by the fact
 that Uy Tiam had to apply anew for the 1979 transaction. And Diño and Uy, In ruling for METROBANK, CA held that the Continuing Suretyship Agreements separately
being strangers thereto, cannot be answerable thereunder. executed by the petitioners in 1977 were intended to guarantee payment of Uy Tiam's
outstanding as well as future obligations; each suretyship arrangement was intended to
c) The plaintiff did not serve notice to the defendants Diño and Uy when it remain in full force and effect until METROBANK would have been notified of its revocation.
extended to Credit — at least to inform them that the continuing suretyships they Since no such notice was given by Uy and Diño, the suretyships are deemed outstanding and
executed on February 25, 1977 will be considered by the plaintiff to secure the hence, cover even the 1979 letter of credit issued by METROBANK in favor of Uy Tiam.
1979 transaction of Uy Tiam.
d) There is no sufficient and credible showing that Diño and Uy were fully Uy and Diño filed a motion to reconsider the foregoing Decision. They questioned the public
informed of the import of the Continuing Suretyships when they affixed their respondent's construction of the suretyship agreements and its ruling with respect to the extent of
signatures thereon –– that they are thereby securing all future obligations which their liability thereunder. They argued the even if the agreements were in full force and effect when
Uy Tiam may contract the plaintiff. On the contrary, Diño and Uy categorically METROBANK granted Uy Tiam's application for a letter of credit in 1979, the public respondent
testified that they signed the blank forms in the office of Uy Tiam at 623 nonetheless seriously erred in holding them liable for an amount over and above their respective
Asuncion Street, Binondo, Manila, in obedience to the instruction of Uy Tiam, face values.
their former employer. They denied having gone to the office of the plaintiff to
subscribe to the documents In its Resolution of 21 August 1989, public respondent denied the motion:
. . . considering that the issues raised were substantially the same grounds utilized by the
In its Decision, the trial court decreed as follows: lower court in rendering judgment for defendants-appellees which We upon appeal found
and resolved to be untenable, thereby reversing and setting aside said judgment and
PREMISES CONSIDERED, judgment is hereby rendered: rendering another in favor of plaintiff, and no new or fresh issues have been posited to
a) dismissing the COMPLAINT against JACINTO UY DIÑO and NORBERTO justify reversal of Our decision herein, 
UY;
b) ordering the plaintiff to pay to Diño and Uy the amount of P6,000.00 as Uy and Diño vehemently deny such liability on the ground that the Continuing Suretyship
attorney's fees and expenses of litigation; and Agreements were automatically extinguished upon payment of the principal obligation
c) denying all other claims of the parties for want of legal and/or factual basis. secured thereby, i.e., the letter of credit obtained by Uy Tiam in 1977. They further claim that
they were not advised by either METROBANK or Uy Tiam that the Continuing Suretyship
SO ORDERED. Agreements would stand as security for the 1979 obligation. Moreover, it is posited that to extend
the application of such agreements to the 1979 obligation would amount to a violation of
From the said Decision, the private respondent appealed to the Court of Appeals. The case was Article 2052 of the Civil Code which expressly provides that a guaranty cannot exist without a
docketed as CA-G.R. CV No. 17724. In support thereof, it made the following assignment of errors in valid obligation. Petitioners further argue that even granting, for the sake of argument, that the
its Brief: Continuing Suretyship Agreements still subsisted and thereby also secured the 1979
I. THE LOWER COURT SERIOUSLY ERRED IN NOT FINDING AND HOLDING THAT obligations incurred by Uy Tiam, they cannot be held liable for more than what they
DEFENDANTS-APPELLEES JACINTO UY DIÑO AND NORBERTO UY ARE guaranteed to pay because it s axiomatic that the obligations of a surety cannot extend
SOLIDARILY LIABLE TO PLAINTIFF-APPELLANT FOR THE OBLIGATION OF beyond what is stipulated in the agreement.
DEFENDANT UY TIAM UNDER THE LETTER OF CREDIT ISSUED ON MARCH 30,
1979 BY VIRTUE OF THE CONTINUING SURETYSHIPS THEY EXECUTED ON ISSUES:
FEBRUARY 25, 1977. 1. Whether petitioners are liable as sureties for the 1979 obligations of Uy Tiam to METROBANK by
II. THE LOWER COURT ERRED IN HOLDING THAT PLAINTIFF-APPELLANT IS virtue of the Continuing Suretyship Agreements they separately signed in 1977;
ANSWERABLE TO DEFENDANTS-APPELLEES JACINTO UY DIÑO AND NORBERTO
UY FOR ATTORNEY'S FEES AND EXPENSES OF LITIGATION. 5 RULING: YES. WHEREFORE, the petition is partly GRANTED, but only insofar as the challenged
decision has to be modified with respect to the extend of petitioners' liability. As modified, petitioners
On 22 June 1989, public respondent promulgated the assailed Decision the dispositive portion of JACINTO UY DIÑO and NORBERTO UY are hereby declared liable for and are ordered to pay, up
which reads: to the maximum limit only of their respective Continuing Suretyship Agreement, the remaining unpaid
balance of the principal obligation of UY TIAM or UY TIAM ENTERPRISES & FREIGHT SERVICES
WHEREFORE, premises considered, the judgment appealed from is hereby REVERSED under Irrevocable Letter of Credit No. SN-Loc-309, dated 30 March 1979, together with the interest
AND SET, ASIDE. In lieu thereof, another one is rendered: due thereon at the legal rate commencing from the date of the filing of the complaint in Civil Case
No. 82-9303 with Branch 45 of the Regional Trial Court of Manila, as well as the adjudged attorney's
1) Ordering sureties-appellees Jacinto Uy Diño and Norberto Uy to pay, jointly fees and costs.
and severally, to appellant METROBANK the amount of P2,397,883.68 which
represents the amount due as of July 17, 1987 inclusive of principal, interest All other dispositions in the dispositive portion of the challenged decision not inconsistent with the
and charges; above are affirmed.
2) Ordering sureties-appellees Jacinto Uy Diño and Norberto Uy to pay, jointly
and severally, appellant METROBANK the accruing interest, fees and charges RATIO: Under the Civil Code, a guaranty may be given to secure even future debts, the
thereon from July 18, 1987 until the whole monetary obligation is paid; and amount of which may not known at the time the guaranty is executed. This is the basis for
3) Ordering sureties-appellees Jacinto Uy Diño and Norberto Uy to pay, jointly contracts denominated as continuing guaranty or suretyship. A continuing guaranty is one
and severally, to plaintiff P20,000.00 as attorney's fees. which is not limited to a single transaction, but which contemplates a future course of
dealing, covering a series of transactions, generally for an indefinite time or until revoked. It
With costs against appellees. is prospective in its operation and is generally intended to provide security with respect to
future transactions within certain limits, and contemplates a succession of liabilities, for
SO ORDERED. which, as they accrue, the guarantor becomes liable. Otherwise stated, a continuing guaranty
is one which covers all transactions, including those arising in the future, which are within
the description or contemplation of the contract, of guaranty, until the expiration or The foregoing stipulations unequivocally reveal that the suretyship agreement in the case at
termination thereof. A guaranty shall be construed as continuing when by the terms thereof it bar are continuing in nature. Petitioners do not deny this; in fact, they candidly admitted it.
is evident that the object is to give a standing credit to the principal debtor to be used from Neither have they denied the fact that they had not revoked the suretyship agreements.
time to time either indefinitely or until a certain period, especially if the right to recall the Accordingly, as correctly held by the public respondent:
guaranty is expressly reserved. Hence, where the contract of guaranty states that the same is
to secure advances to be made "from time to time" the guaranty will be construed to be a Undoubtedly, the purpose of the execution of the Continuing Suretyships was to induce
continuing one.  appellant to grant any application for credit accommodation (letter of credit/trust receipt)
UTEFS may desire to obtain from appellant bank. By its terms, each suretyship is a continuing
In other jurisdictions, it has been held that the use of particular words and expressions such as one which shall remain in full force and effect until the bank is notified of its revocation.
payment of "any debt," "any indebtedness," "any deficiency," or "any sum," or the guaranty of "any
transaction" or money to be furnished the principal debtor "at any time," or "on such time" that the When the Irrevocable Letter of Credit No. SN-Loc-309 was obtained from appellant bank, for the
principal debtor may require, have been construed to indicate a continuing guaranty.  purpose of obtaining goods (covered by a trust receipt) from Planters Products, the continuing
suretyships were in full force and effect. Hence, even if Uy and Diño did not sign the
In the case at bar, the pertinent portion of paragraph I of the suretyship agreement executed by "Commercial Letter of Credit and Application, they are still liable as the credit
petitioner Uy provides thus: accommodation (letter of credit/trust receipt) was covered by the said suretyships. What
I. For and in consideration of any existing indebtedness to the BANK of UY TIAM makes them liable thereunder is the condition which provides that the Borrower "is or may
(hereinafter called the "Borrower"), for the payment of which the SURETY is now obligated become liable as maker, endorser, acceptor or otherwise." And since UTEFS was liable as
to the BANK, either as guarantor or otherwise, and/or in order to induce the BANK, in its principal obligor for having failed to fulfill the obligatory stipulations in the trust receipt, they as
discretion, at any time or from time to time hereafter, to make loans or advances or to insurers of its obligation, are liable thereunder. 
extend credit in any other manner to, or at the request, or for the account of the Borrower,
either with or without security, and/or to purchase or discount, or to make any loans or ON THEIR LIABILITIES IF A CONTINUING SURETYSHIP EXISTS
advances evidence or secured by any notes, bills, receivables, drafts, acceptances, Petitioners maintain, however, that their Continuing Suretyship Agreements cannot be made
checks, or other instruments or evidences of indebtedness (all hereinafter called applicable to the 1979 obligation because the latter was not yet in existence when the agreements
"instruments") upon which the Borrower is or may become liable as maker, endorser, were executed in 1977; under Article 2052 of the Civil Code, a guaranty "cannot exist without a
acceptor, or otherwise, the SURETY agrees to guarantee, and does hereby guarantee, valid obligation." We cannot agree. 
the punctual payment at maturity to the loans, advances credits and/or other obligations
hereinbefore referred to, and also any and all other indebtedness of every kind which is First of all, the succeeding article provides that "guaranty may also be given as security for future
now or may hereafter become due or owing to the BANK by the Borrower, together with debts, the amount of which is not yet known." Secondly, Article 2052 speaks about a valid
any and all expenses which may be incurred by the BANK in collecting all or any such obligation, as distinguished from a void obligation, and not an existing or current obligation .
instruments or other indebtedness or obligations herein before referred to, and/or in This distinction is made clearer in the second paragraph of Article 2052 which reads:
enforcing any rights hereunder, and the SURETY also agrees that the BANK may make or Nevertheless, a guaranty may be constituted to guarantee the performance of a voidable
cause any and all such payments to be made strictly in accordance with the terms and or an unenforceable contract. It may also guarantee a natural obligation.
provisions of any agreement(s) express or implied, which has (have) been or may
hereafter be made or entered into by the Borrow in reference thereto, regardless of any As to the amount of their liability under the Continuing Suretyship Agreements, petitioners contend
law, regulation or decree, unless the same is mandatory and non-waivable in character, that the public respondent gravely erred in finding them liable for more than the amount specified in
nor or hereafter in effect, which might in any manner affect any of the terms or provisions their respective agreements, to wit: 
of any such agreement(s) or the Bank's rights with respect thereto as against the (a) P800,000 for petitioner Diño
Borrower, or cause or permit to be invoked any alteration in the time, amount or manner of (b) P300,000 for petitioner Uy
payment by the Borrower of any such instruments, obligations or indebtedness; provided,
however, that the liability of the SURETY hereunder shall not exceed at any one time the
The limit of their respective liabilities must be determined from the suretyship agreement
aggregate principal sum of PESOS: THREE HUNDRED THOUSAND ONLY
each had signed. It is undoubtedly true that the law looks upon the contract of suretyship with a
(P300,000.00) (irrespective of the currenc(ies) in which the obligations hereby guaranteed
jealous eye, and the rule is settled that the obligation of the surety cannot be extended by implication
are payable), and such interest as may accrue thereon either before or after any
beyond its specified limits. To the extent, and in the manner, and under the circumstances pointed
maturity(ies) thereof and such expenses as may be incurred by the BANK as referred to
out in his obligation, he is bound, and no farther. 
above. 
Indeed, the Continuing Suretyship Agreements signed by petitioner Diño and petitioner Uy fix
Paragraph I of the Continuing Suretyship Agreement executed by petitioner Diño contains identical
the aggregate amount of their liability, at any given time, at P800,000.00 and P300,000.00,
provisions except with respect to the guaranteed aggregate principal amount which is EIGHT
respectively. The law is clear that a guarantor may bond himself for less, but not for more
THOUSAND PESOS (P800,000)
than the principal debtor, both as regards the amount and the onerous nature of the
conditions. 18 In the case at bar, both agreements provide for liability for interest and expenses, to
Paragraph IV of both agreements stipulate that: wit:
VI. This is a continuing guaranty and shall remain in full force and effect until written notice . . . and such interest as may accrue thereon either before or after any maturity(ies)
shall have been received by the BANK that it has been revoked by the SURETY, but any thereof and such expenses as may be incurred by the BANK referred to above.
such notice shall not release the SURETY, from any liability as to any instruments, loans,
advances or other obligations hereby guaranteed, which may be held by the BANK, or in
They further provide that:
which the BANK may have any interest at the time of the receipt (sic) of such notice. No
In the event of judicial proceedings being instituted by the BANK against the SURETY to
act or omission of any kind on the BANK'S part in the premises shall in any event affect or
enforce any of the terms and conditions of this undertaking, the SURETY further agrees to
impair this guaranty, nor shall same (sic) be affected by any change which may arise by
pay the BANK a reasonable compensation for and as attorney's fees and costs of
reason of the death of the SURETY, or of any partner(s) of the SURETY, or of the
collection, which shall not in any event be less than ten per cent (10%) of the amount due
Borrower, or of the accession to any such partnership of any one or more new partners. 
 (the same to be due and payable irrespective of whether the case is settled judicially or
extrajudicially). In other words the surety is made to pay interest, not by reason of the contract, but by
reason of its failure to pay when demanded and for having compelled the plaintiff to resort
Thus, by express mandate of the Continuing Suretyship Agreements which they had signed, to the courts to obtain payment. It should be observed that interest does not run from the
petitioners separately bound themselves to pay interest, expenses, attorney's fees and costs. time the obligation became due, but from the filing of the complaint.
The last two items are pegged at not less than ten percent (10%) of the amount due.
As to attorney's fees. Before the enactment of the New Civil Code, successful litigants
Even without such stipulations, the petitioners would, nevertheless, be liable for the interest and could not recover attorney's fees as part of the damages they suffered by reason of the
judicial costs. Article 2055 of the Civil Code provides:  litigation. Even if the party paid thousands of pesos to his lawyers, he could not charge the
Art. 2055. A guaranty is not presumed; it must be express and cannot extend to more than amount to his opponent (Tan Ti vs. Alvear).
what is stipulated therein.
If it be simple or indefinite, it shall comprise not only the principal obligation, but also all its However the New Civil Code permits recovery of attorney's fees in eleven cases
accessories, including the judicial costs, provided with respect to the latter, that the enumerated in Article 2208, among them, "where the court deems it just and equitable that
guarantor shall only be liable for those costs incurred after he has been judicially required attorneys fees and expenses of litigation should be recovered" or "when the defendant
to pay. acted in gross and evident bad faith in refusing to satisfy the plaintiff's plainly valid, just
and demandable claim." This gives the courts discretion in apportioning attorney's fees
Interest and damages are included in the term accessories. However, such interest should run The records do not reveal the exact amount of the unpaid portion of the principal obligation of Uy
only from the date when the complaint was filed in court. Even attorney's fees may be imposed Tiam to MERTOBANK under Irrevocable Letter of Credit No. SN-Loc-309 dated 30 March 1979. In
whenever appropriate, pursuant to Article 2208 of the Civil Code. Thus, in Plaridel Surety & referring to the last demand letter to Mr. Uy Tiam and the complaint filed in Civil Case No. 82-9303,
Insurance Co., Inc. vs. P.L. Galang Machinery Co., Inc., this Court held: the public respondent mentions the amount of "P613,339.32, as of January 31, 1982, inclusive of
Petitioner objects to the payment of interest and attorney's fees because: (1) they were not interest commission penalty and bank charges." 23 This is the same amount stated by
mentioned in the bond; and (2) the surety would become liable for more than the amount METROBANK in its Memorandum. 24 However, in summarizing Uy Tiam's outstanding obligation as
stated in the contract of suretyship. of 17 July 1987, public respondent states:

The objection has to be overruled, because as far back as the year 1922 this Court held in Hence, they are jointly and severally liable to appellant METROBANK of UTEFS' outstanding
Tagawa vs. Aldanese, 43 Phil. 852, that creditors suing on a suretyship bond may recover obligation in the sum of P2,397,883.68 (as of July 17, 1987) — P651,092.82 representing the
from the surety as part of their damages, interest at the legal rate even if the surety would principal amount, P825,133.54, for past due interest (5-31-82 to 7-17-87) and P921,657.32, for
thereby become liable to pay more than the total amount stipulated in the bond. The penalty charges at 12% per annum as shown in the Statement of Account.
theory is that interest is allowed only by way of damages for delay upon the part of the
sureties in making payment after they should have done so. In some states, the interest Since the complaint was filed on 18 May 1982, it is obvious that on that date, the outstanding
has been charged from the date of the interest has been charged from the date of the principal obligation of Uy Tiam, secured by the petitioners' Continuing Suretyship Agreements, was
judgment of the appellate court. In this jurisdiction, we rather prefer to follow the general less than P613,339.32. Such amount may be fully covered by the Continuing Suretyship Agreement
practice, which is to order that interest begin to run from the date when the complaint was executed by petitioner Diño which stipulates an aggregate principal sum of not exceeding
filed in court, . . . P800,000.00, and partly covered by that of petitioner Uy which pegs his maximum liability at
P300,000
Such theory aligned with sec. 510 of the Code of Civil Procedure which was subsequently
recognized in the Rules of Court (Rule 53, section 6) and with Article 1108 of the Civil Consequently, the judgment of the public respondent shall have to be modified to conform to the
Code ( Art. 2209 of the New Civil Code). foregoing exposition, to which extent the instant petition is impressed with partial merit.
• Atok Finance Corporation v. Court of Appeals, G.R. No. 80078, May 18, 1993 - EV -that the continuing suretyship relating to any indebtedness, including that arising under successive
transactions which shall either continue the indebtedness from time to time or renew it after it has
G.R. No. 80078 May 18, 1993 been satisfied..
ATOK FINANCE CORPORATION, petitioner,  -That the obligations are joint and several and independent of the obligations of the Principal.
vs. (Pls see facts for the provisions of the agreement)
COURT OF APPEALS, SANYU CHEMICAL CORPORATION, DANILO E. ARRIETA, NENITA B.
ARRIETA, PABLITO BERMUNDO and LEOPOLDO HALILI, respondents. On 27 November 1981, Sanyu Chemical assigned its trade receivables outstanding as of 27
November 1981 with a total face value of P125,871.00, to Atok Finance in consideration of receipt
Summary: from Atok Finance of the amount of P105,000.00.
On 27 July 1979, private respondent Sanyu Chemical as principal and Sanyu Trading along with Later, additional trade receivables were assigned by Sanyu Chemical to Atok Finance with a total
individual private stockholders of Sanyu Chemical, namely, private respondent spouses Danilo E. face value of P100,378.45.
Halili and Pablico Bermundo as sureties, executed in the continuing Suretyship Agreement in favor
of Atok Finance as creditor.  On 13 January 1984, Atok Finance commenced action against Sanyu Chemical, the Arrieta
spouses, Pablito Bermundo and Leopoldo Halili before the RTC of Manila to collect the sum of
Under this Agreement, Sanyu Trading and the individual private respondents who were officers and P120,240.00 plus penalty charges amounting to P0.03 for every peso due and payable for each
stockholders of Sanyu Chemical did: month starting from 1 September 1983. 
For valuable and/or other consideration . . ., jointly and severally unconditionally
guarantee to ATOK FINANCE CORPORATION (hereinafter called Creditor), the full, faithful and Atok Finance: alleged that Sanyu Chemical had failed to collect and remit the amount due under the
prompt payment and discharge of any and all indebtedness of [Sanyu Chemical] . . . (hereinafter trade receivables.
called Principal) to the Creditor…
Sanyu Chemical and the individual private respondents: sought dismissal of Atok's claim upon the
Other provisions of the Continuing Suretyship Agreement provides: ground of lack of cause of action. The private respondents contended that the Continuing Suretyship
Agreement, being an accessory contract, was null and void since, at the time of its execution, Sanyu
Chemical had no pre-existing obligation due to Atok Finance. Other relevant provisions of the Continuing Suretyship Agreement follow:
(2) This is a continuing suretyship relating to any indebtedness, including that arising under
ISSUE: WON the Continuing Suretyship Agreement, being an accessory contract, was null and void successive transactions which shall either continue the indebtedness from time to time or renew it
since, at the time of its execution, Sanyu Chemical had no pre-existing obligation due to Atok after it has been satisfied. This suretyship is binding upon the heirs, successors, executors,
Finance? —NO administrators and assigns of the surety, and the benefits hereof shall extend to and include the
successors and assigns of the Creditor.
It is true that a serious guaranty or a suretyship agreement is an accessory contract in the sense that (3) The obligations hereunder are joint and several and independent of the obligations of the
it is entered into for the purpose of securing the performance of another obligation which is Principal. A separate action or actions may be prosecuted against the Principal and whether or not
denominated as the principal obligation. It is also true that Article 2052 of the Civil Code states that the Principal be joined in any such action or actions.
"a guarantee cannot exist without a valid obligation." This legal proposition is not, however, like most xxx xxx xxx.
legal principles, to be read in an absolute and literal manner and carried to the limit of its logic. This (6) In addition to liens upon, and rights of set-off against the moneys, securities or other property of
is clear from Article 2052 of the Civil Code itself: the Surety given to the Creditor by law, the Creditor shall have the lien upon and a right of self-off
against all moneys, securities, and other property of the Surety now and hereafter in the possession
of the Creditor; and every such lien or right of self-off may be exercised without need of demands
Art. 2052. A guaranty cannot exist without a valid obligation.
upon or notice to the Surety. No lien or right of set-off shall be deemed to have been waived by any
Nevertheless, a guaranty may be constituted to guarantee the performance of a voidable or an
act, omission or conduct on the part of the Creditor, or by any neglect to exercise such right of set-off
unenforceable contract. It may also guaranty a natural obligation.”
or to enforce such lien, or by any delay in so doing, and every right of set-off or lien shall continue in
full force and effect until such right of set-off of lien is specifically waived or released by an
Moreover, Article 2053 of the Civil Code states: instrument in writing executed by the Creditor.
Art. 2053. A guaranty may also be given as security for future debts, the amount of which is not yet (7) Any indebtedness of the Principal now or hereafter held by the Surety is hereby subordinated to
known; there can be no claim against the guarantor until the debt is liquidated. A conditional the indebtedness of the Principal to the Creditor; and if the Creditor so requests, such indebtedness
obligation may also be secured.  of the Principal of the Surety shall be collected, enforced and shall be paid over to the Creditor and
shall be paid over to the Creditor and shall be paid over to the Creditor on account of the
Of course, a surety is not bound under any particular principal obligation until that principal obligation indebtedness of the Principal to the Creditor but without reducing or affecting in any manner the
is born. But there is no theoretical or doctrinal difficulty inherent in saying that the suretyship liability of the Surety under the provisions of this suretyship.
agreement itself is valid and binding even before the principal obligation intended to be secured xxx xxx xxx
thereby is born, any more that there would be in saying that obligations which are subject to a
condition precedent are valid and binding before the occurrence of the condition precedent. On 27 November 1981, Sanyu Chemical assigned its trade receivables outstanding as of 27
November 1981 with a total face value of P125,871.00, to Atok Finance in consideration of
Comprehensive or continuing surety agreements are in fact quite common place in present day receipt from Atok Finance of the amount of P105,000.00. The assigned receivables carried a
financial and commercial practice. A bank or a financing company which anticipates entering into a standard term of thirty (30) days; it appeared, however, that the standard commercial practice was to
series of credit transactions with a particular company, commonly requires the projected principal grant an extension up to one hundred twenty (120) days without penalties. The relevant portions of
debtor to execute a continuing surety agreement along with its sureties. By executing such an this Deed of Assignment read as follows:
agreement, the principal places itself in a position to enter into the projected series of transactions
with its creditor; with such surety agreement, there would be no need to execute a separate surety 1. FOR VALUE RECEIVED, the ASSIGNOR does hereby SELL, TRANSFER and ASSIGN all his/its rights, title
contract or bond for each financing or credit accommodation extended to the principal debtor. As we and interest in the contracts, receivables, accounts, notes, leases, deeds of sale with reservation of title, invoices,
understand it, this is precisely what happened in the case at bar. mortgages, checks, negotiable instruments and evidences of indebtedness listed in the schedule forming part
hereinafter called "Contract" or "Contracts."

2. To induce the ASSIGNEE to purchase the above Contracts, the ASSIGNOR does hereby certify, warrant and
FACTS: represent that :
On 27 July 1979, private respondents Sanyu Chemical corporation ("Sanyu Chemical") as (a). He/It is the sole owner of the assigned Contracts free and clear of claims of any other party except the herein
principal and Sanyu Trading Corporation ("Sanyu Trading") along with individual private ASSIGNEE and has the right to transfer absolute title thereto the ASSIGNEE;
stockholders of Sanyu Chemical, namely, private respondent spouses Danilo E. Halili and (b). Each assigned Contract is bonafide and the amount owing and to become due on each contract is correctly
Pablico Bermundo as sureties, executed in the continuing Suretyship Agreement in favor of stated upon the schedule or other evidences of the Contract delivered pursuant thereto;
(c). Each assigned Contract arises out of the sale of merchandise/s which had been delivered and/or services
Atok Finance as creditor. Under this Agreement, Sanyu Trading and the individual private
which have been rendered and none of the Contract is now, nor will at any time become, contingent upon the
respondents who were officers and stockholders of Sanyu Chemical did: fulfillment of any contract or condition whatsoever, or subject to any defense, offset or counterclaim;
(d). No assigned Contract is represented by any note or other evidence of indebtness or other security document
(1) For valuable and/or other consideration . . ., jointly and severally unconditionally except such as may have been endorsed, assigned and delivered by the ASSIGNOR to the ASSIGNEE
guarantee to ATOK FINANCE CORPORATION (hereinafter called Creditor), the full, faithful simultaneously with the assignment of such Contract;
(e). No agreement has been made, or will be made, with any debtor for any deduction discount or return of
and prompt payment and discharge of any and all indebtedness of [Sanyu Chemical] . . .
merchandise, except as may be specifically noted at the time of the assignment of the Contract;
(hereinafter called Principal) to the Creditor. The word "indebtedness" is used herein in its most (f). None of the terms or provisions of the assigned Contracts have been amended, modified or waived;
comprehensive sense and includes any and all advances, debts, obligations and liabilities of (g). The debtor/s under the assigned Contract/s are solvent and his/its/their failure to pay the assigned Contracts
Principal or any one or more of them, here[to]fore, now or hereafter made, incurred or created, and/or any installment thereon upon maturity thereof shall be conclusively considered as a violation of this
whether voluntary or involuntary and however arising, whether direct or acquired by the Creditor by warranty; and
assignment or succession, whether due or not due, absolute or contingent, liquidated or (h). Each assigned Contract is a valid obligation of the buyer of the merchandise and/or service rendered under the
unliquidated, determined or undetermined and whether the Principal may be may be liable Contract And that no Contract is overdue.
The foregoing warranties and representations are in addition to those provided for in the Negotiable Instruments
individually of jointly with others, or whether recovery upon such indebtedness may be or hereafter
Law and other applicable laws. Any violation thereof shall render the ASSIGNOR immediately and unconditionally
become barred by any statute of limitations, or whether such indebtedness may be or otherwise liable to pay the ASSIGNEE jointly and severally with the debtors under the assigned contracts, the amounts due
become unenforceable. (Emphasis supplied) thereon.
xxx xxx xxx then IAC, and gave private respondents a non-extendible period of fifteen (15) days within which to
file their appeal brief. Private respondents did file their appeal brief.
4. The ASSIGNOR shall without compensation or cost, collect and receive in trust for the ASSIGNEE all payments
made upon the assigned contracts and shall remit to the ASSIGNEE all collections on the said Contracts as follows CA: on 18 August 1987, rendered a Decision on the merits of the appeal, and reversed and set
:
P5,450.00 due on January 2, 1982 on every 15th day (semi-monthly) until November 1, 1982.
aside the decision of the trial court and entered a new judgment dismissing the complaint of
P110,550.00 balloon payment after 12 months. (Emphasis supplied)
3 Atok Finance, ordering it to pay private respondents P3,000.00 as attorney's fees and to pay the
xxx xxx xxx costs.

Later, additional trade receivables were assigned by Sanyu Chemical to Atok Finance with a Atok Finance moved to set aside the decision but was denied. Hence, this petition.
total face value of P100,378.45.
In the present Petition for Review, Atok Finance assigns the following as errors on the part of the
On 13 January 1984, Atok Finance commenced action against Sanyu Chemical, the Arrieta Court of Appeals in rendering its decision of 18 August 1987:
spouses, Pablito Bermundo and Leopoldo Halili before the RTC of Manila to collect the sum (1) that it had erred in ruling that a continuing suretyship agreement cannot be effected to secure
of P120,240.00 plus penalty charges amounting to P0.03 for every peso due and payable for future debts;
each month starting from 1 September 1983.  (2) that it had erred in ruling that the continuing suretyship agreement was null and void for lack of
consideration without any evidence whatsoever [being] adduced by private respondents;
(3) that it had erred in granting the Petition for Relief from Judgment while execution proceedings
Atok Finance: alleged that Sanyu Chemical had failed to collect and remit the amount due
[were] on-going on the trial court.
under the trade receivables.

ISSUES:
Sanyu Chemical and the individual private respondents: sought dismissal of Atok's claim upon
(1) Whether the individual private respondents may be held solidarily liable with Sanyu Chemical
the ground that such claim had prescribed under Article 1629 of the Civil Code and for lack of cause
under the provisions of the Continuing Suretyship Agreement, or whether that Agreement must be
of action. The private respondents contended that the Continuing Suretyship Agreement,
held null and void as having been executed without consideration and without a pre-existing principal
being an accessory contract, was null and void since, at the time of its execution, Sanyu
obligation to sustain it? —-the individual private respondents may be held solidarily liable with Sanyu
Chemical had no pre-existing obligation due to Atok Finance.
Chemical under the provisions of the Continuing Suretyship Agreement;

At the trial, Sanyu Chemical and the individual private respondents failed to present any evidence on
(2)WON private respondents are liable under the Deed of Assignment which they, along with the
their behalf, although the individual private respondents submitted a memorandum in support of their
principal debtor Sanyu Chemical, executed in favor of petitioner, on the receivables thereby
argument.
assigned?—YES

RTC: on 1 April 1985, rendered a decision in favor of Atok Finance. The dispositive portion of this
HELD: Petition granted; CA decision reversed and set aside;
decision reads as follows:
ACCORDINGLY, judgment is hereby rendered in favor of the plaintiff ATOK FINANCE CORPORATION; and
RATIO: (Note: may inalis ako about sa issue ng petition for relief na ginrant ng 15th division ng CA)
against the defendants SANYU CHEMICAL CORPORATION, DANILO E. ARRIETA, NENITA B. ARRIETA, 1st ISSUE: (Validity of the Continuing Suretyship Agreement—SC: VALID)
PABLITO BERMUNDO and LEOPOLDO HALILI, ordering the said defendants, jointly and severally, to pay the
plaintiff: The Court of Appeals held on this first issue as follows:
(1) P120,240.00 plus P0.03 for each peso for each month from September 1, 1983 until the whole amount is fully Xxx xxx xxx
paid;
(2) P50,000.00 as attorney's fees; and
It is the contention of private appellants that the suretyship agreement is null and void because it is
(3) To pay the costs. not in consonance with the laws on guaranty and security. The said agreement was entered into by
SO ORDERED. the parties two years before the Deed of Assignment was executed. Thus, allegedly, it ran counter to
the provision that guaranty cannot exist independently because by nature it is merely an accessory
Private respondents went on appeal before the then Intermediate IAC. The case was raffled to the contract. The law on guaranty is applicable to surety to some extent Manila Surety and Fidelity Co.
Third Civil Cases Division of the IAC. In a resolution dated 21 March 1986, that Division dismissed v. Baxter Construction & Co., 53 O.G. 8836; and, Arran v. Manila Fidelity & Surety Co., 53 O.G.
the appeal upon the ground of abandonment, since the private respondents had failed to file their 7247.
appeal brief notwithstanding receipt of the notice to do so. On 4 June 1986, entry of judgment was We find merit in this contention.
made by the Clerk of Court of the IAC. Accordingly, Atok Finance went before the trial court and Although obligations arising from contracts have the force of law between the contracting parties,
sought a writ of execution to enforce the decision of the trial court of 1 April 1985. The trial court (Article 1159 of the Civil Code) this does not mean that the law is inferior to it; the terms of the
issued a writ of execution on 23 July 1986. Petitioner alleged that the writ of execution was served contract could not be enforces if not valid. So, even if, as in this case, the agreement was for a
on private respondents. continuing suretyship to include obligations enumerated in paragraph 2 of the agreement, the same
However, on 27 August 1986, private respondents filed a Petition for Relief from Judgment before could not be enforced. First, because this contract, just like guaranty, cannot exist without a valid
the Court of Appeals. This Petition was raffled off to the 15th Division of the Court of Appeals. In that obligation (Art. 2052, Civil Code); and, second, although it may be given as security for future debt
Petition, private respondents claimed that their failure to file their appeal brief was due to excusable (Art. 2053, C.C.), the obligation contemplated in the case at bar cannot be considered "future debt"
negligence, that is, that their previous counsel had entrusted the preparation and filing of the brief to as envisioned by this law.
one of his associates, which associate, however, had unexpectedly resigned from the law firm There is no proof that when the suretyship agreement was entered into, there was a pre-existing
without returning the records of cases he had been handling, including the appeal of private obligation which served the principal obligation between the parties. Furthermore, the "future debts"
respondents. Atok Finance opposed the Petition for Relief arguing that no valid ground existed for alluded to in Article 2053 refer to debts already existing at the time of the constitution of the
setting aside the resolution of the Third Division of the then IAC. agreement but the amount thereof is unknown, unlike in the case at bar where the obligation was
The 15th Division of the Court of Appeals nonetheless granted the Petition for Relief from Judgment acquired two years after the agreement. (Emphasis supplied).
"in the paramount interest of justice," set aside the resolution of the Third Civil Cases Division of the Xxx xxx xxx
SC: We consider that the Court of Appeals here was in serious error. It is true that a serious It is clear to us that the Rizal Commercial Banking Corporation and the NARIC cases rejected
guaranty or a suretyship agreement is an accessory contract in the sense that it is entered the distinction which the Court of Appeals in the case at bar sought to make with respect to
into for the purpose of securing the performance of another obligation which is denominated Article 2053, that is, that the "future debts" referred to in that Article relate to "debts already
as the principal obligation. It is also true that Article 2052 of the Civil Code states that "a existing at the time of the constitution of the agreement but the amount [of which] is
guarantee cannot exist without a valid obligation." This legal proposition is not, however, like unknown," and not to debts not yet incurred and existing at that time. Of course, a surety is
most legal principles, to be read in an absolute and literal manner and carried to the limit of not bound under any particular principal obligation until that principal obligation is born. But
its logic. This is clear from Article 2052 of the Civil Code itself: there is no theoretical or doctrinal difficulty inherent in saying that the suretyship agreement
itself is valid and binding even before the principal obligation intended to be secured thereby
Art. 2052. A guaranty cannot exist without a valid obligation. is born, any more that there would be in saying that obligations which are subject to a
Nevertheless, a guaranty may be constituted to guarantee the performance of a voidable or an condition precedent are valid and binding before the occurrence of the condition precedent. 14

unenforceable contract. It may also guaranty a natural obligation." (Emphasis supplied).

Comprehensive or continuing surety agreements are in fact quite common place in present
Moreover, Article 2053 of the Civil Code states: day financial and commercial practice. A bank or a financing company which anticipates
Art. 2053. A guaranty may also be given as security for future debts , the amount of which is not yet entering into a series of credit transactions with a particular company, commonly requires
known; there can be no claim against the guarantor until the debt is liquidated. A conditional the projected principal debtor to execute a continuing surety agreement along with its
obligation may also be secured. (Emphasis supplied) sureties. By executing such an agreement, the principal places itself in a position to enter
into the projected series of transactions with its creditor; with such surety agreement, there
would be no need to execute a separate surety contract or bond for each financing or credit
The Court of Appeals apparently overlooked our caselaw interpreting Articles 2052 and 2053 of the
accommodation extended to the principal debtor. As we understand it, this is precisely what
Civil Code. 
happened in the case at bar.

National Rice and Corn Corporation (NARIC) v. Jose A. Fojas and Alto Surety Co., Inc. case: 
2nd Issue: 
In National Rice and Corn Corporation (NARIC) v. Jose A. Fojas and Alto Surety Co., Inc., the
Sanyu Chemical: contended that Atok Finance had no cause of action under the Deed of
private respondents assailed the decision of the trial court holding them liable under certain surety
Assignment for the reason that Sanyu Chemical's warranty of the debtors' solvency had
bonds filed by private respondent Fojas and issued by private respondent Alto Surety Co. in favor of
ceased. In submitting this contention, Sanyu Chemical relied on Article 1629 of the Civil Code which
petitioner NARIC, upon the ground that those surety bonds were null and void "there being no
reads as follows:
principal obligation to be secured by said bonds." In affirming the decision of the trial court, this
Art. 1629. In case the assignor in good faith should have made himself responsible for the solvency
Court, speaking through Mr. Justice J.B.L. Reyes, made short shrift of the private respondents'
of the debtor, and the contracting parties should not have agreed upon the duration of the liability, it
doctrinaire argument:
shall last for one year only, from the time of the assignment if the period had already expired.
Under his third assignment of error, appellant Fojas questions the validity of the additional
If the credit should be payable within a term or period which has not yet expired, the liability shall
bonds (Exhs. D and D-1) on the theory that when they were executed, the principal obligation
cease one year after maturity.
referred to in said bonds had not yet been entered into, as no copy thereof was attached to the
deeds of suretyship. This defense is untenable, because in its complaint the NARIC averred, and the
appellant did not deny that these bonds were posted to secure the additional credit that Fojas has Once more, the Court of Appeals upheld the contention of private respondents and held that
applied for, and the credit increase over his original contract was sufficient consideration for the Sanyu Chemical was free from liability under the Deed of Assignment. The Court of Appeals
bonds. That the latter were signed and filed before the additional credit was extended by the NARIC said:
is no ground for complaint. Article 1825 of the Civil Code of 1889, in force in 1948, expressly . . . Article 1629 provides for the duration of assignor's warranty of debtor's solvency depending on whether there
was a period agreed upon for the existence of such warranty, analyzing the law thus:
recognized that "a guaranty may also be given as security for future debts the amount of which is not (1) if there is a period (or length of time) agreed upon, then for such period;
yet known." (Emphasis supplied) (2) if no period (or length of time) was agreed upon, then:
(a) one year from assignment — if debt was due at the time of the assignment
Rizal Commercial Banking Corporation v. Arro case: (b) one year from maturity — if debt was not yet due at the time of the assignment..
In Rizal Commercial Banking Corporation v. Arro, the Court was confronted again with the same The debt referred to in this law is the debt under the assigned contract or the original debts in favor of the assignor
which were later assigned to the assignee. The debt alluded to in the law, is not the debt incurred by the assignor
issue, that is, whether private respondent was liable to pay a promissory note dated 29 April 1977 to the assignee as contended by the appellant.
executed by the principal debtor in the light of the provisions of a comprehensive surety agreement Applying the said law to the case at bar, the records disclose that none of the assigned receivables had matured on
which petitioner bank and the private respondent had earlier entered into on 19 October 1976. Under November 27, 1981 when the Deed of Assignment was executed. The oldest debt then existing was that
the comprehensive surety agreement, the private respondents had bound themselves as solidary contracted on November 3, 1981 and the latest was contracted on December 4, 1981.
debtors of the Diacor Corporation not only in respect of existing obligations but also in respect of Each of the invoices assigned to the assignee contained a term of 30 days (Exhibits B-3-A to 5 and extended by
future ones. In holding private respondent surety (Residoro Chua) liable under the comprehensive the notation which appeared in the "Schedule of Assigned Receivables" which states that the ". . . the terms stated
surety agreement, the Court said: on our invoices were normally extended up to a period of 120 days
. . ." (Exhibit B-2). Considering the terms in the invoices plus the ordinary practice of the company, thus, the
The surety agreement which was earlier signed by Enrique Go, Sr. and private assigned debts matured between April 3, 1982 to May 4, 1982. The assignor's warranty for debtor's warranty, in
respondent, is an accessory obligation, it being dependent upon a principal one, which, in this case this case, would then be from the maturity period up to April 3, 1983 or May 4, 1983 to cover all of the receivables
is the loan obtained by Daicor as evidenced by a promissory note. What obviously induced petitioner in the invoices.
bank to grant the loan was the surety agreement whereby Go and Chua bound themselves solidarily The letter of demand executed by appellee was dated August 29, 1983 (Exhibit D) and the complaint was filed on
to guaranty the punctual payment of the loan at maturity. By terms that are unequivocal, it can be January 13, 1984. Both dates were beyond the warranty period.
clearly seen that the surety agreement was executed to guarantee future debts which Daicor may In effect, therefore, company-appellant was right when it claimed that appellee had no cause of action against it or
incur with petitioner, as is legally allowable under the Civil Code. Thus — had lost its cause of
action. (Emphasis supplied)
15

Article 2053. — A guarantee may also be given as security for future debts, the amount of
Xxx xxx xxx
which is not yet known; there can be no claim against the guarantor until the debt is liquidated. A
conditional obligation may also be secured. (Emphasis supplied)
13

Once again, however, we consider that the Court of Appeals was in reversible error in so concluding.
The relevant provision of the Deed of Assignment may be quoted again in this connection:
2. To induce the ASSIGNEE [Atok Finance] to purchase the above contracts, the ASSIGNOR ex lege (ex Article 1629) but rather ex contractu. Under the Deed of Assignment, the effect of
[Sanyu Chemical] does hereby certify, warrant and represent that . . . non-payment by the original trade debtors was breach of warranty of solvency by Sanyu
(g) the debtor/s under the assigned contract/s are solvent and his/its/their failure to pay the assigned Chemical, resulting in turn in the assumption of solidary liability by the assignor under the
contract/s and/or any installment thereon upon maturity thereof shall be conclusively considered as receivables assigned. In other words, the assignor Sanyu Chemical becomes a solidary
a violation of this warranty; and . . . debtor under the terms of the receivables covered and transferred by virtue of the Deed of
The foregoing warranties and representations are in addition to those provided for in the Negotiable Assignment. And because assignor Sanyu Chemical became, under the terms of the Deed of
Instruments Law and other applicable laws. Any violation thereof shall render the ASSIGNOR Assignment, solidary obligor under each of the assigned receivables, the other private
immediately and unconditionally liable to pay the ASSIGNEE jointly and severally with the debtors respondents (the Arrieta spouses, Pablito Bermundo and Leopoldo Halili), became solidarily
under the assigned contracts, the amounts due thereon. liable for that obligation of Sanyu Chemical, by virtue of the operation of the Continuing
xxx xxx xxx(Emphasis supplied) Suretyship Agreement. Put a little differently, the obligations of individual private respondent
officers and stockholders of Sanyu Chemical under the Continuing Suretyship Agreement, were
It may be stressed as a preliminary matter that the Deed of Assignment was valid and binding activated by the resulting obligations of Sanyu Chemical as solidary obligor under each of the
upon Sanyu Chemical. Assignment of receivables is a commonplace commercial transaction assigned receivables by virtue of the operation of the Deed of Assignment. That solidary liability of
today. It is an activity or operation that permits the assignee to monetize or realize the value Sanyu Chemical is not subject to the limiting period set out in Article 1629 of the Civil Code.
of the receivables before the maturity thereof. In other words, Sanyu Chemical received from
Atok Finance the value of its trade receivables it had assigned; Sanyu Chemical obviously It follows that at the time the original complaint was filed by Atok Finance in the trial court, it had a
benefitted from the assignment. The payments due in the first instance from the trade valid and enforceable cause of action against Sanyu Chemical and the other private respondents.
debtors of Sanyu Chemical would represent the return of the investment which Atok Finance We also agree with the Court of Appeals that the original obligors under the receivables assigned to
had made when it paid Sanyu Chemical the transfer value of such receivables. Atok Finance remain liable under the terms of such receivables.

Article 1629 of the Civil Code invoked by private respondents and accepted by the Court of
Appeals is not, in the case at bar, material. The liability of Sanyu Chemical to Atok Finance
rests not on the breach of the warranty of solvency; the liability of Sanyu Chemical was not

• Tañedo v. Allied Banking Corp., G.R. No. 136603, January 18, 2002 - MARKO 2nd: WON the “continuing guarantee” executed by the petitioner is a contract of (surety) adhension –
NO.
G.R. No. 136603            January 18, 2002 As to the second issue, even if the "continuing guarantee" were considered as one of adhesion, we
EMILIO Y. TAÑEDO, petitioner, vs. ALLIED BANKING CORPORATION, respondent. find the contract of "surety" valid because petitioner was "free to reject it entirely".  Petitioner was a
stockholder and officer of Cheng Ban Yek and Co., Inc. and it was common business and banking
TOPIC: Guaranty and Suretyship (Arts. 2047-2084) practice to require "sureties" to guarantee corporate obligations.
FACTS:
Appeal via certiorari from the decision of the Court of Appeals 1  reversing the ruling of the trial court PARDO, J.
and holding petitioner liable solidarily with defendant Cheng Ban Yek Co., Inc. for all items of the
money judgment and costs of suit. The facts, as found by the Court of Appeals, are as follows:

SUMMARY: "Appeal by both the plaintiff Allied Banking Corporation and the defendant Cheng Ban Yek & Co.,
Inc. from the Order, as summary judgment, of the Regional Trial Court (Branch XLIV, Manila), the
A complaint was filed by Allied Banking to recover sums of money from Cheng Ban Yek Co., Inc. on decretal part whereof reads:
its seven past due promissory notes with principal amounts totalling P10M from Alfredo Ching and
plaintiff Tañedo under a Continuing Guaranty providing for joint and several liability relative to the "WHEREFORE, and in view of the foregoing considerations, summary judgment is hereby
said promissory notes. The preliminary attachment sought was granted upon the required bond and rendered in favor of the plaintiff, Allied Banking Corporation, and against defendant Cheng Ban
was thereafter maintained despite Cheng Ban Yek Co.’s efforts to have it discharged. The RTC ruled Yek and Co., Inc. as follows:
in favour of Allied Banking. Despite having a favourable ruling, Allied Banking elevated the case to "1. On the first cause of action:
the CA and filed an appeal from a portion of the RTC summary judgment which declared Ching and
Tañedo as free from any liability under the Continuing Guaranty since their respective liabilities "Ordering the defendant Cheng Ban Yek Co., Inc. to pay plaintiff the sum of P2,000,000.00, plus
thereunder became extinguished when Allied Banking in its pleading branded the Continuing interest thereon at 14% per annum, 2% per annum as service charge, and penalty charge of 1% per
Guaranty as “worthless security”. The CA reversed the RTC judgment and held Ching and Tañedo month from February 11, 1981 until fully paid;
liable. Tañedo filed an MR but it was denied by the CA. Hence, the present case.
"2. On the second cause of action:
1st: WON the execution by the respondent Bank of the 4 th Amendatory Agreement extinguished
petitioner’s obligations as surety – NO. "Ordering the defendant Cheng Ban Yek Co., Inc. to pay plaintiff the sum of P2,500,000.00, plus
interest thereon at 14% per annum, service charge of 2% per annum, and penalty charge of 1 % per
Resolving the first issue, we note that the amendatory agreement between the respondent Allied month, from February 3, 1981 until fully paid;
Banking Corporation and Cheng Ban Yek & Co., Inc. extended the maturity of the promissory notes
without notice or consent of the petitioner as surety of the obligations. However, the "continuing "3. On the third cause of action:
guarantee" executed by the petitioner provided that he consents and agrees that the bank may, at "Ordering the defendant Cheng Ban Yek Co., Inc. to pay plaintiff the sum of P1,000,000.00 plus
any time or from time to time extend or change the time of payments and/or the manner, place or interest thereon at 14% per annum, service charge of 2% per annum, and penalty charge of 1 %
terms of payment of all such instruments, loans, advances, credits or other obligations guaranteed per month, from February 12, 1981 until fully paid;
by the surety. Hence, the extensions of the loans did not release the surety.
"4. On the fourth cause of action:
"Ordering the defendant Cheng Ban Yek Co., Inc. to pay plaintiff the sum of P1,000,000.00 plus On March 27, 1990, the Court of Appeals promulgated a decision, the dispositive portion of which
interest thereon at 14% per annum, service charge of 2% per annum, and penalty charge of 1 % per reads:
month, from February 12, 1981 until fully paid;
"WHEREFORE, the Order appealed from is in part REVERSED and MODIFIED by deleting
"5. On the fifth cause of action: paragraph 9 from the dispositive portion thereof, and declaring the defendants Alfredo Ching
and Emilio Tañedo solidarily liable with defendant Cheng Ban Yek Co., Inc. for all items of the
"Ordering the defendant Cheng Ban Yek Co., Inc. to pay plaintiff the sum of P1,000,000.00 plus money judgment set forth in paragraphs one 91) to eight (8) inclusive, and paragraph ten (10),
interest thereon at 14% per annum, service charge of 2% per annum, and penalty charge of 1% per of said dispositive portion. The Order is AFFIRMED in its other aspects. No costs in this
month, from February 12, 1981 until fully paid; instance.
"6. On the sixth cause of action: "SO ORDERED."
"Ordering the defendant Cheng Ban Yek Co., Inc. to pay plaintiff the sum of P1,000,000.00 plus On April 11, 1990, petitioner Emilio Y. Tañedo filed a motion for reconsideration of the decision,
interest thereon at 14% per annum, service charge of 2% per annum, and penalty charge of 1% per contending that while the case was pending before the Court of Appeals the Allied Bank and Cheng
month, from February 12, 1981 until fully paid; Ban Yek & Co., Inc. agreed to extend the time of payment of the indebtedness, without the
"7. On the seventh cause of action: consent of petitioner, thereby relieving him of his obligation as guarantor or surety of such
obligation.
" Ordering the defendant Cheng Ban Yek Co., Inc. to pay plaintiff the sum of P1,500,000.00 plus
interest thereon at 14% per annum, service charge of 2% per annum, and penalty charge of 1% per On November 27, 1998, the Court of Appeals denied the motion for lack of merit.8
month, from February 12, 1981 until fully paid; Hence, this appeal.
"8. On all the causes of action: ISSUE/S: (1) WON the execution by the respondent Bank of the 4th Amendatory Agreement
"Ordering the defendant Cheng Ban Yek Co., Inc. to pay plaintiff the sum equivalent to 25% of extinguished petitioner’s obligations as surety; and
the amount due and demandable as and for attorney’s fees; (2) WON the “continuing guarantee” executed by the petitioner is a contract of (surety) adhension –
"9. Declaring the "Continuing Guaranty" as having been extinguished after plaintiff branded it RULING: IN VIEW WHEREOF, the Court DENIES the petition and AFFIRMS the decision of the
as a "worthless security" and preferred to avail, as it did avail, of the provisional remedy of Court of Appeals.
attachment; and declaring defendants Alfredo Ching and Emilio Tañedo relieved of their
obligation under the said continuing Guaranty; and RATIO:
"10. Ordering the defendant Cheng Ban Yek Co., Inc. to pay the costs of suit. We find the petition without merit.
"SO ORDERED." 1st Issue:
"The foregoing summary judgment has its roots in a complaint with preliminary attachment filed Resolving the first issue, we note that the amendatory agreement between the respondent Allied
by plaintiff bank to recover sums of money from defendant corporation on its seven past due Banking Corporation and Cheng Ban Yek & Co., Inc. extended the maturity of the promissory notes
promissory notes with principal amounts totaling P10,000,000.00, from defendants Alfredo without notice or consent of the petitioner as surety of the obligations. However, the "continuing
Ching and Emilio Tañedo under a Continuing Guaranty providing for joint and several liability guarantee" executed by the petitioner provided that he consents and agrees that the bank may, at
relative to the said promissory notes. The preliminary attachment sought was granted upon any time or from time to time extend or change the time of payments and/or the manner, place or
the required bond and was thereafter maintained despite defendant corporation’s efforts to terms of payment of all such instruments, loans, advances, credits or other obligations guaranteed
have it discharged. by the surety. Hence, the extensions of the loans did not release the surety.
"The appeal of plaintiff bank is limited to paragraph 9 of the summary judgment (supra, p. 3) 2nd Issue:
which declared defendants Aldredo Ching and Emilio Tañedo as free from any liability under the
Continuing Guaranty since their respective liabilities thereunder became extinguished when plaintiff As to the second issue, even if the "continuing guarantee" were considered as one of adhesion, we
bank in its pleading branded the Continuing Guaranty as "worthless security". find the contract of "surety" valid because petitioner was "free to reject it entirely".  Petitioner was a
stockholder and officer of Cheng Ban Yek and Co., Inc. and it was common business and banking
"On the other hand, defendant corporation’s appeal is an attack on the summary nature of the practice to require "sureties" to guarantee corporate obligations.
proceeding adopted by the lower court since, according to defendant corporation, there was a
petition for suspension of payment filed by it with the Securities and Exchange Commission which,
although dismissed, was duly appealed to the Court of Appeals.
"xxx
"Defendant corporation’s petition for suspension of payment was dismissed by the Securities
and Exchange Commission for lack of quorum. At the creditors’ meeting called and accordingly
held to approve the corporation’s petition for suspension of payment, out of outstanding liabilities of
P237,718,426.00, only the creditors representing P110,355,607.37 thereof attended. This was far
short of the three-fifths quorum unqualifiedly required by law which should have been
P142,631,055.60 (Act No. 1956, Sec. 8) x x x ."
On October 16, 1984, the trial court rendered a summary judgment, as quoted above.
Both plaintiff Allied Banking Corporation and the defendant Cheng Ban Yek & Co., Inc. appealed
from the summary judgment to the Court of Appeals.