466 Phil.

104
SECOND DIVISION
[ G.R. No. 130886, January 29, 2004 ]
COMMONWEALTH INSURANCE CORPORATION, PETITIONER, VS. COURT OF APPEALS AND RIZAL
COMMERCIAL BANKING CORPORATION, RESPONDENTS.

Facts:

Rizal Banking Corporation granted two export loan lines to Jigs Manufacturing Corporation and to
Elba Industries. These loans were evidenced by promissory notes and secured by surety bonds executed
by petitioner Commonwealth Insurance Company. Jigs and Elba defaulted in the payment of their
respective loans. Despite several demands, petitioner was not able to pay to the full extent of the
suretyship. Respondent bank filed a complaint for sum of money and prayed that, in addition to the
principal sum, petitioner be held liable to pay interests thereon from date of demand.

Issue:

May petitioner be held liable to pay legal interest above its principal obligation under the surety
bonds issued by it?

Decision:

Yes. If a surety upon demand fails to pay, he can be held liable for interest, even if in thus paying,
its liability becomes more than the principal obligation. The increased liability is not because of the contract
but because of the default and the necessity of judicial collection.
Petitioner’s liability under the suretyship contract is different from its liability under the law.
Petitioner offered no valid excuse for not paying the balance of its principal obligation when demanded by
the bank. Its failure to pay is, therefore, unreasonable.
549 Phil. 118
THIRD DIVISION
[ G.R. NO. 166058, April 03, 2007 ]
EMERITA GARON, PETITIONER, VS. PROJECT MOVERS REALTY AND DEVELOPMENT
CORPORATION AND STONGHOLD INSURANCE COMPANY, INC., RESPONDENTS.

Facts:

Project Movers Realty and Development Corporation obtained two loans from petitioner Emerita
Garon covered by promissory notes. To secure the payment of the loans, PMRDC undertook to assign to
Garon its leasehold rights over a space at the Monumento Plaza Commercial Complex. The parties
stipulated that failure to pay the note or any portion thereof, or any interest thereon, shall constitute default,
and the entire obligation shall become due and payable without need of demand. To secure its obligation to
assign the leasehold right to Garon, PMRDC procured a surety bond from Stronghold Insurance Company,
Inc.
In view of PMRDC’s and SICI’s failure to comply with their respective obligations, Garon filed a
complaint for collection.

Issue:

Is SICI liable to petitioner under its surety bond?

Decision:

No. Since respondent’s undertaking under the surety bond was to guarantee the assignment of
leasehold rights, the security of the principal debt, its obligation cannot extend to the payment of the
principal obligation; to do so would mean going beyond the terms of the contract.

The respondent is a stranger to the contract of loan between petitioner and PMRDC; it cannot thus
be held liable for an obligation which it did not undertake to perform or at least to guarantee.
585 Phil. 537
THIRD DIVISION
[ G.R. No. 173526, August 28, 2008 ]
BENJAMIN BITANGA, PETITIONER, VS. PYRAMID CONSTRUCTION ENGINEERING CORPORATION,
RESPONDENT.

Facts:

Pyramid Construction Engineering Corporation entered into an agreement with Macrogen Realty,
of which petitioner is the President, to construct for the latter the Shoppers Gold Building. Respondent
commenced the construction project. However, Macrogen failed to settle respondent’s progress billings.
Thereafter, respondent suspended work on the construction project.
Respondent and Macrogen entered into a Compromise Agreement. Petitioner guaranteed the
obligations of Macrogen by executing a contract of guaranty in favor of respondent, by virtue of which he
irrevocably and unconditionally guaranteed the full and complete payment of the principal amount of liability
of Macrogen. However, Macrogen failed and refused to pay all the monthly installments agreed upon.
Respondent moved for the issuance of a writ of execution but the sheriff was unable to locate any property
of Macrogen, except its bank deposit. Respondent then demanded the petitioner, as guarantor, to pay or to
the obligation guaranteed.

Issue:

Is petitioner entitled to the benefit of excussion?

Decision:

No. In order for the guarantor to make use of the benefit of excussion, he must set it up against the
creditor upon the latter’s demand for payment and point out to the creditor available property of the debtor
within the Philippines sufficient to cover the amount of the debt.
Despite having been served a demand letter, petitioner still failed to point out to the respondent
properties of Macrogen Realty sufficient to cover its debt as required under Article 2060 of the Civil Code.
Such failure on petitioner's part forecloses his right to set up the defense of excussion. Article 2059,
paragraph 5 of the same code also provides that excussion shall not take place if it may be presumed that
an execution on the property of the principal debtor would not result in the satisfaction of the obligation. It is
axiomatic that the liability of the guarantor arises when the insolvency or inability of the debtor to pay the
amount of debt is proven by the return of the writ of execution that had not been satisfied.
68 Phil. 699
[ G.R. No. 46702, October 06, 1939 ]
ALEIDA SAAVEDRA, PETITIONER, VS. W. S. PRICE, FORTUNATO BORROMEO, JUDGE OF THE
COURT OF FIRST INSTANCE OF LEYTE, AND ANASTASIO ANOVER, PROVINCIAL SHERIFF OF
LEYTE, RESPONDENTS. RAFAEL MARTINEZ, INTERVENOR

Facts:

In another civil case, Rafael Martinez and Cefereno Ibanez were ordered to pay to W.S. Price a
sum of money within ninety days and in case of default, the real property subject matter of the mortgage be
sold at public auction so that the proceeds thereof may be applied to the payment of the sum in question
and interest thereon. Martinez and Ibanez failed to pay and the court directed the sale of the mortgaged
realty for the payment of the judgment obtained by W.S. Price.
Petitioner contends that she is not the debtor and, as the owner of the mortgaged realty, she
merely acted as surety to Martinez, the principal debtor, and as such she is entitled to the benefit of
exhaustion of the property of the principal debtor.

Issue:

Whether or not the mortgaged real property belonging to the petitioner cannot be sold to pay the
debt for the reason that she is a mere surety.

Decision:

It is true that the petitioner is a surety with regard to Rafael Martinez and as such surety she is
entitled to resort to the actions and remedies against him which the law affords her, but she was sued not
as a surety but as a mortgage debtor for being the owner of the mortgaged property.
105 Phil. 245
[ G. R. No. L-12333, February 28, 1959 ]
ASSOCIATED INSURANCE & SURETY CO., INC., PLAINTIFF AND APPELLANT, VS. BACOLOD-
MURCIA MILLING CO., INC., ET AL., DEFENDANTS AND APPELLEES.

Facts:

Sixto Ruiz obtained two crop loans from defendant Bacolod-Murcia Milling Co., Inc., on the
condition that he shall post surety bonds to guarantee the payment of 25% of said crop loans; that in
compliance with said condition, Associated Insurance & Surety Co., Inc., herein plaintiff, executed in favor
of the milling corporation two surety bonds to secure payment of the obligation.
Defendant milling company failed to comply with the conditions set forth in the surety bonds. In
view of the violations of the conditions, plaintiff is deemed to have been relieved of its liability under the
bonds.

Issue:

May plaintiff be released from liability for the reason that the creditor failed to comply the conditions
of the surety bonds?

Whether or not plaintiff, as surety of the debtor, has not yet incurred liability under its bonds since the
complaint contains no allegation that it has voluntarily paid the obligation or has been made to pay the
same to the company.

Decision:

Yes. The purpose of the action is not to dispute the validity of any demand for payment that may
have been made upon plaintiff by defendant company on the strength of its liability under the bonds but
rather to ask for its release from its liability under the bonds for certain breach of its conditions committed
by the milling company, and it is for this reason that the action was brought against the milling company.  It
is true that, as an alternative action, the debtor and the other surety were also included to exact liability
from them under the indemnity agreement, but that is an action distinct and separate from that alleged
against the milling company and as such it cannot in any way affect the relation of the latter to the plaintiff.