Add-On for batch 3 digests: G.R. No. 173526 August 28, 2008 BENJAMIN BITANGA, petitioner, vs.

PYRAMID CONSTRUCTION ENGINEERING CORPORATION, respondent. Facts: Respondent alleged it entered into an agreement with Macrogen Realty, of which petitioner is the President, to construct for the latter the Shoppers Gold Building. Respondent commenced civil, structural, and architectural works on the construction project. However, Macrogen Realty failed to settle respondents progress billings. Relying on the assurances made by petitioner, who was no less than the President of Macrogen Realty, respondent continued the construction project. But, respondent suspended work on the construction project since the conditions that it imposed for the continuation had not been complied with by Macrogen Realty and it instituted with the Construction Industry Arbitration Commission (CIAC) a case for arbitration against Macrogen Realty seeking payment by the latter of its unpaid billings and project costs. The respondent and Macrogen Realty entered into a Compromise Agreement, with petitioner acting as signatory for and in behalf of Macrogen Realty. Under the Compromise Agreement, Macrogen Realty agreed to pay respondent the total amount of P6,000,000.00 in six equal monthly installments, with each installment to be delivered on the 15th day of the month, beginning 15 June 2000. Petitioner guaranteed the obligations of Macrogen Realty under the Compromise Agreement 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 Realty in the sum of P6,000,000.00. However, contrary to petitioners assurances, Macrogen Realty failed and refused to pay all the monthly installments agreed upon in the Compromise Agreement.Hence, respondent moved for the issuance of a writ of execution against Macrogen Realty, which CIAC granted. The sheriff filed a return stating that he was unable to locate any property of Macrogen Realty, except its bank deposit of P20,242.33, with the Planters Bank. According to respondent, petitioners obligation as guarantor was already due and demandable. As to Marilyns (wife of petitioner) liability and contended that Macrogen Realty was owned and controlled by petitioner and Marilyn and/or by corporations owned and controlled by them and would have redounded to the benefit of both and/or their corporations; Marilyn cannot be unaware of the obligations incurred by Macrogen Realty and/or petitioner in the course of the business operations of the said corporation. Petitioner averred that he never made representations to respondent that Macrogen Realty would faithfully comply with its obligations under the Compromise Agreement. He did not offer to guarantee the obligations of Macrogen Realty to entice respondent to enter into the Compromise Agreement but that, on the contrary, it was respondent that required Macrogen Realty to offer some form of security for its obligations before

agreeing to the compromise; further alleged that his wife Marilyn was not aware of the obligations that he assumed under both the Compromise Agreement and the Contract of Guaranty as he did not inform her about said contracts, nor did he secure her consent thereto at the time of their execution. Petitioner argued that the benefit of excussion was still available to him according to him, respondent failed to exhaust all legal remedies to collect from Macrogen Realty the amount due under the Compromise Agreement, considering that Macrogen Realty still had uncollected credits which were more than enough to pay for the same. Given these premise, petitioner could not be held liable as guarantor. The RTC rendered a summary judgment ordering the Spouses to pay the respondent. Ca affirmed but held the wife not liable. Issues: Whether or not petitioner is liable. [Yes] Whether petitioner can avail the benefit of excussion. [No] Ruling: Yes. Under a contract of guarantee, the guarantor binds himself to the creditor to fulfill the obligation of the principal debtor in case the latter should fail to do so. The guarantor who pays for a debtor, in turn, must be indemnified by the latter. However, the guarantor cannot be compelled to pay the creditor unless the latter has exhausted all the property of the debtor and resorted to all the legal remedies against the debtor. This is what is otherwise known as the benefit of excussion. Article 2060 of the Civil Code reads: Art. 2060. In order that the guarantor may make use of the benefit of excussion, he must set it up against the creditor upon the latters demand for payment from him, and point out to the creditor available property of the debtor within Philippine territory, sufficient to cover the amount of the debt. The afore-quoted provision imposes a condition for the invocation of the defense of excussion. Article 2060 of the Civil Code clearly requires that in order for the guarantor to make use of the benefit of excussion, he must set it up against the creditor upon the latters 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. It must be stressed that despite having been served a demand letter at his office, 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 petitioners part forecloses his right to set up the defense of excussion. Worthy of note as well is the Sheriffs return stating that the only property of Macrogen Realty which he found was its deposit of P20,242.23 with the Planters Bank. Article 2059(5) of the Civil Code thus finds application and precludes petitioner from interposing the defense of excussion. We quote: Art. 2059. This excussion shall not take place: xxxx (5) If it may be presumed that an execution on the property of the principal debtor would not result in the satisfaction of the obligation. As the Court of Appeals correctly ruled:

We find untenable the claim that the petitioner cannot be compelled to pay Pyramid because the Macrogen Realty has allegedly sufficient assets. Reason: The said petitioner had not genuinely controverted the return made by Sheriff Joseph F. Bisnar, who affirmed that, after exerting diligent efforts, he was not able to locate any property belonging to the Macrogen Realty, except for a bank deposit with the Planters Bank at Buendia, in the amount of P20,242.23. 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 unsatisfied. Petition denied.

[respondents] right to recover damages from x x x JDS and the latters sureties. "[Respondent] alleged that, as a result of x x x JDSs failure to comply with the provisions of the contract, which resulted in the said contracts rescission, it had to hire another contractor to finish the project, for which it incurred an additional expense of three million two hundred fifty six thousand, eight hundred seventy four pesos (P3,256,874.00). "[Respondent] then filed [a] complaint against x x x JDS and SICI

TOPIC: Extinguishment of Guaranty and Suretyship (Art. 2047) Digested by: RJ del Fierro STRONGHOLD INSURANCE COMPANY, INC., Petitioner, vs. REPUBLIC-ASAHI GLASS CORPORATION, Respondent Facts: [Respondent] Republic-Asahi Glass Corporation (Republic-Asahi) entered into a contract with x x x Jose D. Santos, Jr., the proprietor of JDS Construction (JDS), for the construction of roadways and a drainage system in Republic-Asahis compound. Republic-Asahi Glass Corporation was to pay x x x JDS five million three hundred thousand pesos (P5,300,000.00) inclusive of value added tax for said construction, which was supposed to be completed within a period of two hundred forty (240) days. In order to guarantee the faithful and satisfactory performance of its undertakings x x x JDS, shall post a performance bond of seven hundred ninety five thousand pesos (P795,000.00). Thus, JDS executed, jointly and severally with [petitioner] Stronghold Insurance Co., Inc. (SICI) Performance Bond No. SICI-25849/g(13)9769. Several times prior to November of 1989, [respondents] engineers called the attention of x x x JDS to the alleged alarmingly slow pace of the construction, which resulted in the fear that the construction will not be finished within the stipulated 240-day period. On November 24, 1989, dissatisfied with the progress of the work undertaken by x x x JDS, [respondent] Republic-Asahi extrajudicially rescinded the contract pursuant to Article XIII of said contract, and wrote a letter to x x x JDS informing the latter of such rescission. Such rescission, according to Article XV of the contract shall not be construed as a waiver of

o It sought from x x x JDS payment ofP3,256,874.00 representing the additional expenses, jointly and severally. o payment of P750,000.00 as damages in accordance with the performance bond o exemplary damages in the amount of P100,000.00 o attorneys fees in the amount of at least P100,000.00. On July 10, 1991, [petitioner] SICI filed its answer, alleging that the [respondents] money claims against [petitioner and JDS] have been extinguished by the death of Jose D. Santos, Jr. Issue: Whether or not [petitioners] ] Stronghold Insurance Co., Incs (SICI) liability under the performance bond was AUTOMATICALLY extinguished by the death of Santos, the principal? Held: No. The death did not extinguish SICIs liability because it is solidarily liable with Santos. Ratio: As a general rule, the death of either the creditor or the debtor does not extinguish the obligation The liability of petitioner is contractual in nature, because it executed a performance bond worded as follows: xxx That we, JDS CONSTRUCTION of 208A San Buena Building, contractor, of Shaw Blvd., Pasig, MM Philippines, as principal and the STRONGHOLD INSURANCE COMPANY, INC. a corporation duly organized and existing under and by virtue of the laws of the Philippines with head office at Makati, as Surety, are held and firmly bound unto the REPUBLIC ASAHI GLASS CORPORATION and to any individual, firm, partnership, corporation or association supplying the

principal with labor or materials in the penal sum of SEVEN HUNDRED NINETY FIVE THOUSAND (P795,000.00), Philippine Currency, for the payment of which sum, well and truly to be made, we bind ourselves, our heirs, executors, administrators, successors and assigns, jointly and severally, firmly by these presents xxx. As a surety, petitioner is solidarily liable with Santos in accordance with the Civil Code, which provides as follows: o "Art. 2047. By guaranty a person, called the guarantor, binds himself to the creditor to fulfill the obligation of the principal debtor in case the latter

PACIFIC REHOUSE-DATU MORRO L. SOLANO FACTS: Plaintiffs Pacific Rehouse, et.al bought 60,790,000 Kuok Properties, Inc. (KPP) shares of stock through the Philippine Stock Exchange (PSE). The KPP shares were acquired by them through their broker, defendant EIB. Plaintiffs also bought/acquired 32,180,000 DMCI shares of stock through the PSE. Of these shares, 16,180,000 were likewise acquired by the plaintiffs through their broker, defendant EIB. On 01 April 2004, plaintiffs and defendant EIB agreed to sell the 60,790,000 KPP shares of plaintiffs to any party for the price of P0.14 per share. As agreed by plaintiffs and defendant, the sale of the KPP shares of plaintiffs was made with an option on the part of the plaintiffs to buy back or reacquire the said KPP shares within a period of thirty (30) days from the transaction date, at the buy-back price of P0.18 per share. The notices of sale issued by EIB covering the sale of the KKP shares of petitioners clearly show that the very same KKP shares sold to third parties albeit under a buy-back arrangement and the Property of petitioners were made the collaterals to secure the payment of the reacquisition . Plaintiffs did not exercise their option to buy back the KPP shares and did not give any buy-back instruction/s to their broker, defendant EIB. On various dates in June 2004, without plaintiffs prior knowledge and consent, defendant EIB sold plaintiffs 32,180,000 DMCI shares of stock for an average price of P0.24 per share. Defendant EIB sold the DMCI shares of plaintiffs. The proceeds of said DMCI shares sold by defendant EIB without plaintiffs knowledge and consent were used by defendant EIB to buy back 61,100,000 KPP shares earlier sold by plaintiffs. Defendant EIB sold without authority plaintiffs 32,180,000 DMCI shares and used the proceeds thereof to buy back 61,000,000 KPP shares because defendant EIB made an unauthorized promise and commitment to the buyer/s of plantiffs KPP shares in April 2004 that plaintiffs would buy back the KPP shares. ISSUE: whether or not the pledge on KKP Shares/Property is valid? RULING: The answer is no. It is indispensable that the pledgor is the absolute owner of the thing pledged (second element). In the case at bar, the KKP shares were sold to third parties by EIB at PhP 0.14 and, as a result, petitioners lost their right of ownership over the KKP shares. Hence, from the time of the sale, petitioners were no longer the absolute owners of said shares, making the pledge constituted over said KKP shares null and void. Also, it is necessary under Art. 2085 that the person constituting the pledge has the free disposal of his or her

should fail to do so.

"If a person binds himself solidarily with the principal debtor, the provisions of Section 4,17 Chapter 3, Title I of this Book shall be observed. In such case the contract is called a suretyship." xxxxx

xxxx

o "Art. 1216. The creditor may proceed against any one of the solidary debtors or some or all of them 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. Elucidating on these provisions, the Court in Garcia v. Court of Appeals18 : although the contract of a surety is in essence secondary only to a valid principal obligation, his liability to the creditor or promisee of the principal is said to be direct, primary and absolute; in other words, he is directly and equally bound with the principal. The death of the principal debtor will not work to convert, decrease or nullify the substantive right of the solidary creditor. Despite the death of the principal debtor, respondent may still sue petitioner alone, in accordance with the solidary nature of the latters liability under the performance bond.

property, and in the absence of that free disposal, that he or she be legally authorized for the purpose (third element). This element is absent in the case at bar. Petitioners no longer have the free disposal of the KKP shares when EIB sold said shares at the stock exchange as they are no longer the owners of the shares. Thus, there was no valid pledge constituted on the KKP shares. The notice of sale, assuming it incorporates the accessory contract of pledge, merely stated Property as collateral in addition to KKP shares. This is a blatant violation of Art. 2096, which provides that a pledge shall not take effect against third persons if description of the thing pledged and the date of the pledge do not appear in a public instrument. The thing pledged must be amply and clearly described and specifically identified. Evidently, the word Property is vague, broad, and confusing as to the ownership. Hence, it does not satisfy the prescription under Art. 2096 of the Code. Worse, the notice of sale is not in a public instrument as required by said legal provision; therefore, the pledge on property is void and without legal effect. Moreover, the notices of sale must be construed against EIB. Any ambiguity in a contract whose terms are susceptible of different interpretations must be read against the party who drafted it. The DMCI shares which EIB construed to be included within the ambit of the word property cannot be considered the thing pledged to secure the buy back of the KKP shares in view of the vagueness of the word Property and the nonapplicability of the SDAA to the sale of the KKP shares. Pacific

Rehouse Corporation, et al. vs. EIB Securities, Inc.;G.R. No. 184036, October 13, 2010.