CREDIT DIGESTS:GUARANTY PART 1

FABIOLA SEVERINO, accompanied by her husband RICARDO VERGARA, plaintiffs-appellees, vs. GUILLERMO SEVERINO, ET AL., defendants. SUMMARY: Deceased left properties to the partiesFabiola claimed better right During pendency, Guillermo and Fabiola entered into a Compromise AgreementEchaus became the guarantor for the payment of 100kDefendant defaultedFabiola sues for collection of sum of moneyTC ruled against defendants, including the guarantorEchaus assailed decision: There was lack of consideration on his partSC ruled that he was liable with the principal.

DOCTRINE: A guarantor or surety is bound by the same consideration that makes the contract effective between the principal parties thereto. It is unnecessary, neither to establish that the guarantor has benefitted nor to prove that there was consideration on his part. CHARACTERS: Guillermo Severino debtor o Step-brother of the plaintiff who assumed control over the disputed property temporarily, with promise to pay 100k as compromise Enrique Echaus Guarantor Fabiola Severino and Ricardo Vergara (spouses) creditor o Fabiola was an acknowledged natural child who apparently executed the compromise agreement with Guillermo even before judicial recognition of acknowledgement.

FACTS: An action recovering the sum of P20,000 from Guillermo Severino and Enrique Echaus. Upon hearing he cause the trial court gave judgment in favor of the plaintiffs to recover the sum of P20,000 with lawful from November 15, 1929, the date of the filing of the complaint, with costs. TC RULING: Execution of this judgment should 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 should be issued against the property of Enrique Echaus as guarantor. BACK STORY: The plaintiff Fabiola Severino is the recognized natural daughter of Melecio Severino, deceased, former resident of Occidental Negros. Upon the death of Melecio Severino a number of years ago, he left considerable property and litigation ensued between his widow, Felicitas Villanueva, and Fabiola Severino, on the one part, and other heirs of the deceased on the other part. o In order to make an end of this litigation a compromise was effected by which Guillermo Severino, a son of Melecio Severino, took over the property pertaining to the estate of his father at the same time agreeing to pay P100,000 to Felicitas Villanueva and Fabiola Severino. o It appears that at the time of the compromise agreement above-mentioned was executed Fabiola Severino had not yet been judicially recognized as the natural daughter of Melecio Severino, and it

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was stipulated that the last P20,000 corresponding to Fabiola and the last P5,000 corresponding to Felicitas Villanueva should retained on deposit until the definite status of Fabiola Severino as natural daughter of Melecio Severino should be established. Payment was suspended. GUARANTORS DEFENSE: 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 consideration as to him.

ISSUE: W/N the guarantor is liable despite the defense raised. RULING: YES. The promise of Echaus as guarantor was binding. 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 was an adequate consideration to support the promise on the part of Guillermo Severino to pay the sum of money stipulated in the contract which is the subject of this action. The promise of the appellant Echaus as guarantor therefore binding. It is never necessary that the guarantor or surety should receive any part of the benefit, if such there be, accruing to his principal. But the true consideration of this contract was the detriment suffered by the plaintiffs in the former action in dismissing that proceeding, and it is immaterial that no benefit may have accrued either to the principal or his guarantor. The judgment appealed from is in all respects correct, and the same will be affirmed, with costs against the appellant. So ordered. ANTONIO GARCIA, JR., -versus- COURT OF APPEALS, LASAL DEVELOPMENT CORPORATION SUMMARY: 2 loans were obtained by WMC from PISOPromissory note issuedSurety Agreement executed by Garcia and Kahn (jointly and severally bound themselves)WMC default in paymentsPISO runs after the defendantsGarcia and Kahn raises defense of lack of considerationTC ruled in favor of defendantsOn appeal, issues of Novation, Subrogation by DBP, and Personal liability of corporate officers who are party to the contractCA reversed and remanded to TC for meritsSC affirmed CA decision. DOCTRINE: Suretyship is a contractual relation resulting from an agreement whereby one person, the surety, engages to be answerable for the debt, default or miscarriage of another, known as the principal. The suretys obligation is not an original and direct one for the performance of his own act, but merely accessory or collateral to the obligation contracted by the principal. In other words, he is directly and equally bound with the principal. The surety therefore becomes liable for the debt or duty of another although he possesses no direct or personal interest over the obligations nor does he receive any benefit therefrom. CHARACTERS: Western Minolco Corporation Creditor Philippine Investments Systems Organization Debtor

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Antonio Garcia and Ernest Kahn Surety Guarantor, Corporate Officers DBP suspected to have substituted the debtor, but in fact, merely allowed for Loan Restructuring FACTS: On April 15, 1977, WMC obtained from the PISO two loans for P2,500,000.00 and P1,000,000.00 for which it issued the corresponding promissory notes payable on May 30, 1977. On the same date, Antonio Garcia and Ernest Kahn executed a surety agreement binding themselves jointly and severally for the payment of the loan of P2,500,000.00 on due date. Upon failure of WMC to pay after repeated demands, demand was made on Garcia pursuant to the surety agreement. Garcia also failed to pay. Hence, on April 5, 1983, Lasal Development Corporation (to which the credit had been assigned earlier by PISO) sued Garcia for recovery of the debt in the Regional Trial Court of Makati. On May 18, 1983, Garcia moved to dismiss on the grounds that: (a) the complaint stated no cause of action; (b) the suit would result in unjust enrichment of the plaintiff because he had not received any consideration from PISO; (c) the surety agreement violated the doctrine of the limited liability of corporations; and (d) the principal obligation had been novated. chanroblespublishingcompany Trial court granted the motion and dismissed the complaint on the ground that the surety agreement was invalid for absence of consideration. Court of Appeals Reversed and remanded the records of the case for trial on the merits.

ISSUE: W/N the suretyship agreement was binding even without consideration on the part of the surety guarantor RULING: YES. ON RESPONDENTS PERSONAL LIABILITY: Regarding the petitioners claim that he is liable only as a corporate officer of WMC, the surety agreement 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 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. o Since in the surety contract, the petitioner not only consented to an extension in the payment of the obligation but even waived his right to be notified of such extension, he cannot now claim that he has been released from his undertaking because of the extension granted to the principal. REGARDING APPLICABLE INTEREST RATE ON THE SURETY: Thus, despite the compounding of the interest, the liability of the surety remains only up to the original uncompounded interest, as stipulated in the promissory note, that is, 17% per annum, with a penalty charge of 2 1/2% per month until full payment. REGARDING NOVATION: It is true as a general rule no form of words or writing is necessary to give effect to a novation. Nevertheless, since the parties involved here are corporations, it must first be proved that

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the contracts, assuming they were made, were executed by the persons possessing the proper authority to bind their respective principals. No such documents, as duly signed by the parties, were ever presented in court. It cannot be raised first time on appeal. o Novation of contract cannot be presumed. In every novation there are four essential requisites. (1) a previous valid obligation; (2) the agreement of all the parties to the new contract; (3) the extinguishment of the old contract; and (4) validity of the new one. Novation requires the creation of new contractual relations as well as the extinguishment of the old. REGARDING ALLEGED SUBSTITUTION: Nowhere in the record can we find evidence of this claim. What DBP did was merely to restructure its credit with WMC and make additional accommodations in the form of investments on preferred and common shares of stock of WMC. It was clearly an effort to assist WMC perform its obligations with its creditors, but not more than that. o There must be consent of all the parties to the substitution, resulting in the extinction of the old obligation and the creation of a valid new one. The acceptance of the promissory note by the plaintiff is not novation of the contract. WHEREFORE, the petition is DENIED and the challenged decision of the respondent court AFFIRMED, with costs against the petitioner. GOVERNMENT OF THE REPUBLIC OF THE PHILIPPINES, represented by the BUREAU OF SUPPLY COORDINATION plaintiff-appellee, vs. MARCELINO TIZON, ET AL., defendants. SUMMARY: Tizon Engg won the bidding for the supply of heavy-duty equipmentsBOSC required payment of bond amounting to 10kCapital Insurance issued bond amount in favor of RPTizon Engg failed to deliver, BOSC incurred losses because it was forced to buy from the second highest bidderBOSC now claims sum of money for the lossesTC ruled in favor of BOSC and allowed surety to recover reimbursement from the principal debtorTizon appealed, but Surety did notPetitioner moves for the striking out of the Suretys reproduced answer and remand case to TCSurety contends that the appeal of the co-defendant should be considered to have included it alreadyOpposition was overruled SC affirmed CA decision, but has set aside the order to remand the case to TC. DOCTRINE: The rule is quite general that a reversal as to parties appealing does not necessitate a reversal as to parties not appealing, but that the judgment may be affirmed or left undisturbed as to them. An exception to the rule exists, however, where a judgment cannot be reversed as to the party appealing without affecting the rights of his co-debtor. The liability of the Surety is "consequent upon the liability" of the principal debtor, or "so dependent on that of the principal debtor" that the Surety "is considered in law as being the same party as the debtor in relation to whatever is adjudged, touching the obligation of the latter"; or the liabilities of the two defendants herein "are so interwoven and dependent as to be inseparable." This case provides an EXCEPTION to the general rule.

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CHARACTERS: Tizon Engineering Company who won bid for supply of heavy duty equipments Bureau of Supply Coordination conducted the bidding Marcelino Tizon Owner of Tizon Eng'g Capital Insurance & Surety Co., Inc Surety

FACTS: Bureau of Supply Coordination conducted bidding, for the supply of "one (1) Baylift portable heavy-duty truck and auto lift, fully air operated, 500 lbs. capacity, and two (2) Baylift Ramps, U.S. manufacture. Tizon engineering, of which Marcelino Tizon was the sole owner and proprietor, won the bid, having offered the lowest bid of P4,000.00. o To guarantee faithful performance of the conditions of the bid, the Bureau of Supply Coordination required Tizon Engineering to give a bond in the sum of P10,000.00. The Surety issued its bond for the said amount in favor of the Republic of the Philippines. Tizon Engineering failed to comply with the conditions of the bid, failing as he did to deliver the equipment. o Bureau of Supply, instead, purchased the equipment from Fema Trading, the second lowest bidder, resulting in a loss of P2,975.00 to the Government. Notwithstanding demands made by the Bureau of Supply on defendants Marcelino Tizon and the Surety to pay said amount, they failed and refused. Case for the recovery the said sum with legal interests, plus attorney's fees and costs. TIZONS ARGUMENTS: (a) "the alleged bidding conducted by the Bureau of Supply is in utter disregard and wanton violation of the Rules and Regulations of the said office"; (b) "that assuming that a corresponding buyer's order was prepared, the same was not delivered to and duly received by him, such that there has never been a binding contract between plaintiff and the answering defendant; (c) that the bond-issued by the Surety "answers only (for) those contracts legally entered into by the herein defendants with the Bureau of Supply and certainly not those contracts and/or bids which are of doubtful legality, as in the present case." SURETYS ARGUMENTS: Admitted the fact of having executed the bond for RP Government but states that: "that it failed and refused to pay the demand (of the plaintiff), the truth of the matter being that its co-defendant, Marcelino Tizon, doing business under the name of Tizon Engineering, has put it on notice not to settle the claim because he is not in any way whatsoever liable to plaintiff."

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As cross-claim against defendant Tizon, the Surety asserted that if it is made liable to the plaintiff on its bond, Marcelino Tizon should be ordered to make the corresponding reimbursement, with interest of 12%, plus attorney's fees. After trial, judgment was rendered in favor of the plaintiff and against the defendants, ordering the latter to pay, jointly and severally, the sum of P2,972.00 with legal interests from November 12, 1960, and the costs of suit. On the cross-claim of the Surety, defendant Tizon was ordered to reimburse the crossplaintiff of whatever amount the latter might have paid to the plaintiff, plus P100.00 as attorney's fees. Only defendant Tizon appealed from the decision to the Court of First Instance of Manila. Plaintiff filed a motion praying "(a) To strike out the answer filed by the Surety reproducing its answer filed in the City Court; (b) To remand the case to the City Court, as concerns the Surety, for execution of the judgment rendered in said court." The Surety opposed the motion on two grounds: (a) that although it did not appeal from the decision of the inferior court, the appeal interposed by its co-defendant inured to its benefit, because the obligation sued on "is so dependent on that of the principal debtor, that the Surety is considered in law as being the same party in relation to whatever is adjudged, touching the obligation of its co-defendant"; and (b) the appeal of its co-defendant, the principal debtor, "should be considered in law as to include the defendant Surety, in view of the latter's cross-claim against the former." The opposition was over-ruled in the order appealed from. ISSUE: Whether an appeal by one of the parties sentenced to pay solidarily a sum of money, inures to the benefit of the other who did not appeal. RULING: As we have already said, whether an appeal by one of several judgment debtors will affect the liability of those who did not appeal must depend upon the facts in each particular case. o If the judgment can only be sustained upon the liability of the one who appeals and the liability of the other co-judgment debtors depends solely upon the question whether or not the appellant is liable, and the judgment is revoked as to that appellant, then the result of his appeal will inure to the benefit of all. . . . A reversal of a judgment on appeal is binding on the parties to the suit, but does not inure to the benefit of parties against whom judgment was rendered in the lower court who did not join in the appeal, unless their rights and liabilities and those of the parties appealing are so interwoven and dependent as to be inseparable, in which case a reversal as to one operates as a reversal as to all. A solidary debtor may, in actions filed by the creditor, avail himself of all defenses which are derived from the nature of the obligation and of those which are personal to him, or pertain to his own share. With respect to those which personally belong to the others, he may avail himself thereof only as regards that part of the debt for which the latter are responsible.

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o It thus appears that the Surety bound itself, jointly and severally, with the principal obligor to pay the Republic of the Philippines any loss or damage the latter may suffer, not exceeding P10,000.00, "in case of delay and/or default in the execution of the contract." On the account of its failure to appeal, it lost its personality to appear in the latter court or to file an answer therein. However this may be, it is not certain at this stage of the proceeding that the Surety's liability unto plaintiff has attached. o The principal debtor has asserted on appeal that it has no liability whatsoever to the plaintiff, and, if this assertion be proven and sustained, the reversal of the judgment of the inferior court would operate as a reversal on the Surety, even though it did not appeal, in view of the dependency of its obligation upon the liability of the principal debtor. Upon the foregoing considerations, that portion of the appealed order remanding the record of the case to the City Court of Manila for execution of the decision of said court is hereby set aside, without costs. BALDOMERO INCIONG, JR. , vs. COURT OF APPEALS and PHILIPPINE BANK OF COMMUNICATIONS SUMMARY: Rudy Campos informed Inciong about the business plans of Naybe, who lacked capitalInciong got interested to enter into a new venture and agreed to secure a loan with PBC together with Naybe5 Copies of PN were signed by petitioner (but according to him, 1 copy states that he agrees to be a co-maker for 5k only)Apparently, what was stated in the PN was 50kExpressly, PN states that the signatories therein are jointly and severally liable for the obligationNaybe defaulted in paymentBank sues for collection of sum of money against Inciong, Naybe, and Postanosas2 other defendants cases were dismissed except for InciongsPetitioner now seeks dismissal of his case based on dismissal of the cases against his codefendantsTC and CA denied his prayerOn certiorari, Inciong introduced claims of deceit, fraud, and due execution of a public instrumentSC affirmed lower courts decisions and held that Inciong, as a solidary co-debtor was liable to pay the bankSolidary creditor can choose who to run after. Dismissal of co-defendants cases doesnt warrant dismissal of the petitioners.

DOCTRINE: GUARANTOR AS DISTINGUISHED FROM SOLIDARY DEBTOR. A guarantor who binds himself in solidum with the principal debtor under the provisions of the second paragraph does not become a solidary co-debtor to all intents and purposes. o A surety or a fiador in solidum (surety) assumes to pay the debt before the property of the principal debtor has been exhausted, retains all the other rights, actions and benefits which pertain to him by reason of the fiansa; A solidary co-debtor has no other rights than those bestowed upon him in Section 4, Chapter 3, title I, Book IV of the Civil Code which states the law on joint and several obligations.

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o When there are two or more debtors in one and the same obligation, the presumption is that the obligation is joint so that each of the debtors is liable only for a proportionate part of the debt. There is a solidarity liability only when the obligation expressly so states, when the law so provides or when the nature of the obligation so requires. CHARACTERS: Rudy Campos and Pio Tio Deceiving foe-friends who lured Naybe and Inciong to apply for a loan Rene Naybe The business man who went missing in action. He was the principal obligor, but the Court did not acquire jurisdiction over his person (improper service of summons) Baldomero Inciong, Jr. The frustrated business man and the trusting friend, who signed as Naybes comaker in the PN. Court believes that he had been properly educated and can discern what he was signing for. (signing as a solidary co-maker) Judge Gregorio D. Pantanosas The judge/witness and co-maker who was supposed to attest to the due execution of the Promissory Note, but didnt. Nadamay lang sya, so he was eventually dismissed. (signing as a mere guarantor)

FACTS: Petitioner alleged that sometime in January 1983, he was approached by his friend, Rudy Campos, who told him that he was a partner of Pio Tio, the branch manager of private respondent in Cagayan de Oro City, in the falcata logs operation business. Campos also intimated to him that Rene C. Naybe was interested in the business and would contribute a chainsaw to the venture. He added that, although Naybe had no money to buy the equipment Pio Tio had assured Naybe of the approval of a loan he would make with private respondent. Campos then persuaded petitioner to act as a "co-maker" in the said loan. Petitioner allegedly acceded but with the understanding that he would only be a co-maker for the loan of P5,000.00. o Petitioner alleged further that five (5) copies of a blank promissory note were brought to him by Campos at his office. He affixed his signature thereto but in one copy, he indicated that he bound himself only for the amount of P5,000.00. Thus, it was by trickery, fraud and misrepresentation that he was made liable for the amount of P50,000.00. Petitioner's liability resulted from the promissory note in the amount of P50,000.00 which he signed with Rene C. Naybe and Gregorio D. Pantanosas on February 3, 1983, holding themselves jointly and severally liable to private respondent Philippine Bank of Communications, Cagayan de Oro City branch. The promissory note was due on May 5, 1983. Private respondent sent petitioner telegrams demanding payment thereof. Both obligors did not respond to the demands made, private respondent filed on January 24, 1986 a complaint for collection of the sum of P50,000.00 against the three obligors. On November 25, 1986, the complaint was dismissed for failure of the plaintiff to prosecute the case. However, on January 9, 1987, the lower court reconsidered the dismissal order and required the sheriff to serve the summonses. The lower court dismissed the case against defendant Pantanosas as prayed for by the private respondent herein.

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Meanwhile, case against Naybe was also dismissed since only the summons addressed to petitioner was served as the sheriff. He had gone to Saudi and was never served summons. TRIAL COURT RULING: The typewritten figure "P50,000-" clearly appears directly below the admitted signature of the petitioner in the promissory note. Hence, the latter's uncorroborated testimony on his limited liability cannot prevail over the presumed regularity and fairness of the transaction, under Sec. 5 (q) of Rule 131. The lower court added that it was "rather odd" for petitioner to have indicated in a copy and not in the original, of the promissory note, his supposed obligation in the amount of P5,000.00 only. Finally, the lower court held that even granting that said limited amount had actually been agreed upon, the same would have been merely collateral between him and Naybe and, therefore, not binding upon the private respondent as creditor-bank. CA affirmed lower courts decision and dismissed both Appeal and MR by Inciong. Thus this certiorari case was filed before SC.

ISSUE: Should the case against the petitioner be dismissed, since the other co-defendants have been dismissed already? What was the extent of liability of Inciong who signed as a solidary co-maker?

RULING: On his contention that Campos induced them to sign and that the amount was changed from 5K to 50k: Petitioner is to be reminded of the basic rule that this Court is not a trier of facts. Having lost the chance to fully ventilate his factual claims below, petitioner may no longer be accorded the same opportunity in the absence of grave abuse of discretion on the part of the court below. Had he presented Judge Pantanosas' affidavit before the lower court, it would have strengthened his claim that the promissory note did not reflect the correct amount of the loan. On the allegation of fraud: However, fraud must be established by clear and convincing evidence, mere preponderance of evidence, not even being adequate. Petitioner's attempt to prove fraud must, therefore, fail as it was evidenced only by his own uncorroborated and, expectedly, self-serving testimony. It is to be noted, however, that petitioner signed the promissory note as a solidary co-maker and not as a guarantor. Because the promissory note involved in this case expressly states that the three signatories therein are jointly and severally liable, any one, some or all of them may be proceeded against for the entire obligation. The choice is left to the solidary creditor to determine against whom he will enforce collection. Consequently, the dismissal of the case against Judge Pontanosas may not be deemed as having discharged petitioner from liability as well. As regards Naybe, suffice it to say that the court never acquired jurisdiction over him. Petitioner, therefore, may only have recourse against his co-makers, as provided by law.