CONTRACTS OF SECURITY

We do not agree however, that Roberto Jr.'s liability should be limited to that
extent. Private respondent Roberto Regala, Jr., as surety of his wife,
expressly bound himself up to the extent of the debtor's (Celia) indebtedness
likewise expressly waiving any "discharge in case of any change or novation
of the terms and conditions in connection with the issuance of the Pacificard
credit card." Roberto, in fact, made his commitment as a surety a continuing
one, binding upon himself until all the liabilities of Celia Regala have been
fully paid. All these were clear under the "Guarantor's Undertaking" Roberto
signed, thus:
. . . Any changes of or novation in the terms and conditions
in connection with the issuance or use of said Pacificard, or
any extension of time to pay such obligations, charges or
liabilities shall not in any manner release me/us from the
responsibility hereunder, it being understood that the
undertaking is a continuing one and shall subsist and bind
me/us until all the liabilities of the said Celia SyjucoRegala
have been fully satisfied or paid. (p. 12, supra; emphasis
supplied)

Pacific Banking Corp. v. IAC and Regala

Facts:
Petitioner Pacific Banking Corp. filed a case for collection of sum of money
against Respondent Roberto Regala. Petitioner Pacific argued that Roberto
Regala is a guarantor of his wife, Celia Regala. Celia Regala obtained from
the Petitioner the issuance and use of Pacificard credit card. As a Pacificard
holder, she had purchased goods and/or services on credit under her
Pacificard, for which the Petitioner advanced the cost amounting to
P92,803.98 at the time of the filing of the complaint but Celia Regala failed to
settle her account for the purchases made. Respondent Roberto Regala, as
the guarantor, also refused to pay to Petitioner.
In his defense, Respondent Roberto Regala argued that his liability would be
limited to P2,000.00 per month as stipulated in the "Guarantor's
Understanding."

Private respondent Roberto Regala, Jr. had been made aware by the terms
of the undertaking of future changes in the terms and conditions governing
the issuance of the credit card to his wife and that, notwithstanding, he
voluntarily agreed to be bound as a surety. As in guaranty, a surety may
secure additional and future debts of the principal debtor the amount of which
is not yet known (see Article 2053, supra).

Issue:
Whether or not Respondent Roberto Regala, as the guarantor, is liable for
the total amount of P92,803.98 despite the stipulation in the "Guarantor's
Understanding" that his liability would be limited to P2,000.00 per month
Ruling:

E. Zobel Inc. v. CA, Consolidated Bank and Trust Corp. (SOLIDBANK),

and Spouses Claveria

Respondent Roberto Regala, as the guarantor, is liable for the total amount
of P92,803.98.

Facts:

The undertaking signed by Roberto Regala, Jr. although denominated

"Guarantor's Undertaking," was in substance a contract of surety. As
distinguished from a contract of guaranty where the guarantor binds himself
to the creditor to fulfill the obligation of the principal debtor only in case the
latter should fail to do so, in a contract of suretyship, the surety binds himself
solidarily with the principal debtor (Art. 2047, Civil Code of the Philippines).

SOLIDBANK filed a case against the E. Zobel Inc. for collection of a sum of
money. SOLIDBANK argued that E. Zobel Inc. is the guarantor of the
Spouses Claveria in the contract of loan between SOLIDBANK and the
Spouses Claveria in the amount of Two Million Eight Hundred Seventy Five
Thousand Pesos (P2,875,000.00). However, the Spouses Claveria failed to
pay such amount. E. Zobel Inc., as the guarantor, also refuses to pay.

It is true that under Article 2054 of the Civil Code, "(A) guarantor may bind
himself for less, but not for more than the principal debtor, both as regards
the amount and the onerous nature of the conditions. It is likewise not
disputed by the parties that the credit limit granted to Celia Regala was
P2,000.00 per month and that Celia Regala succeeded in using the card
beyond the original period of its effectivity, October 29, 1979.

In its defense, E. Zobel Inc. argued 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 mortgage in view of SOLIDBANK's failure to register the chattel
mortgage with the appropriate government agency.

Issue:

Ruling:

on Calle Rosario in the city of Manila for Hospicio, the contract price being
P64,000. Machetti failed to comply with the specifications of the contract.
Hence, Machetti was asked for damages but he was not able to pay and was
even declared insolvent. Fidelity & Surety Co., being a guarantor, still refuses
to pay to Hospicio.

E. Zobel Inc., as the guarantor, is obliged to pay to SOLIDBANK.

Issue:

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 contract of guaranty, on the other hand, is
a collateral undertaking to pay the debt of another in case the latter does not
pay the debt.

Whether or not the Fidelity & Surety Co., being the guarantor, is obliged to
pay to Hospicio because of the insolvency of Machetti

Whether or not E. Zobel Inc., as the guarantor, is obliged to pay to

SOLIDBANK

Ruling:
The Fidelity & Surety Co. is not obliged to pay.

Simply put, a surety is distinguished from a guaranty in that a guarantor is

the insurer of the solvency of the debtor and thus binds himself to pay if the
principal is unable to pay while a surety is the insurer of the debt, and he
obligates himself to pay if the principal does not pay.

Now, while a surety undertakes to pay if the principal does not pay, the
guarantor only binds himself to pay if the principal cannot pay. The one is the
insurer of the debt, the other an insurer of the solvency of the debtor. This
latter liability is what the Fidelity and Surety Company assumed in the
present case.

Based on the aforementioned definitions, it appears that the contract

executed by petitioner in 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.

The Fidelity and Surety Company having bound itself to pay only the event
its principal, Machetti, cannot pay it follows that it cannot be compelled to pay
until it is shown that Machetti is unable to pay. Such ability may be proven by
the return of a writ of execution unsatisfied or by other means, but is not
sufficiently established by the mere fact that he has been declared insolvent
in insolvency proceedings under our statutes, in which the extent of the
insolvent's inability to pay is not determined until the final liquidation of his
estate.

The use of the term "guarantee" does not ipso facto mean that the contract is
one of guaranty. Authorities recognize that the word "guarantee" is frequently
employed in business transactions to describe not the security of the debt but
an intention to be bound by a primary or independent obligation. As aptly
observed by the trial court, the interpretation of a contract is not limited to the
title alone but to the contents and intention of the parties.

ONG V PCIB

Having thus established that petitioner is a surety, Article 2080 of the Civil
Code, relied upon by petitioner, finds no application to the case at bar. In
Bicol Savings and Loan Association vs.Guinhawa, we have ruled that Article
2080 of the New Civil Code does not apply where the liability is as a surety,
not as a guarantor.

FACTS
Baliwag Mahogany Corporation (BMC) is a domestic corporation engaged in
the manufacture and export of finished wood products. Petitioners-spouses
Alfredo and Susana Ong are its President and Treasurer, respectively.
Respondent Philippine Commercial International Bank
filed a case for collection of a sum of money 1 against petitioners-spouses.
Respondent bank sought to hold petitioners-spouses liable as sureties on the
three (3) promissory notes they issued to secure some of BMC's loans,
totalling five million pesos (P5,000,000.00).

Machetti v. Hospicio de San Jose

Facts:
Hospicio de San Jose filed a case against the Fidelity & Surety Co.for a
collection of a sum of money. Hospicio argued that the Fidelity & Surety Co.
is the guarantor of Machetti in a contract between Machetti and Hospicio
wherein Machetti, by a written agreement, undertook to construct a building

In the complaint, it was alleged that BMC needed additional capital for its
business and applied for various loans and petitioners-spouses acted as
sureties for these loans and issued three (3) promissory notes. Under the

terms of the notes, it was stipulated that respondent bank may consider
debtor BMC 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. Respondent bank granted BMC's loan applications.

to the principal debtor and are inherent in the debt; but not those which are
purely personal to the debtor."

On November 22, 1991, BMC filed a petition for rehabilitation and

suspension of payments with the Securities and Exchange Commission
(SEC) after its properties were attached by creditors. Respondent bank
considered debtor BMC in default of its obligations and sought to collect
payment thereof from petitioners-spouses

RULING:

On October 13, 1992, a Memorandum of Agreement (MOA) 2 was executed

by debtor BMC, the petitioners-spouses as President and Treasurer of BMC,
and the consortium of creditor banks of BMC (of which respondent bank is
included).

A guarantor insures the solvency of the debtor while a surety is an insurer of

the debt itself. A contract of guaranty gives rise to a subsidiary obligation on
the part of the guarantor. It is only after the creditor has proceeded against
the properties of the principal debtor and the debt remains unsatisfied that a
guarantor can be held liable to answer for any unpaid amount. This is the
principle of excussion. In a suretyship contract, however, the benefit of
excussion is not available to the surety as he is principally liable for the
payment of the debt. As the surety insures the debt itself, he obligates
himself to pay the debt if the principal debtor will not pay, regardless of
whether or not the latter is financially capable to fulfill his obligation. Thus, a
creditor can go directly against the surety although the principal debtor is
solvent and is able to pay or no prior demand is made on the principal
debtor. A surety is directly, equally and absolutely bound with the principal
debtor for the payment of the debt and is deemed as an original promissor
and debtor from the beginning. 5

ISSUE: WON collection case filed against them should be dismissed based
on Art. 2081 and 2063

Articles 2063 and 2081 of the Civil Code is misplaced as these provisions
refer to contracts of guaranty. They do not apply to suretyship contracts.
Petitioners-spouses are not guarantors but sureties of BMC's debts.

Thereafter, petitioners-spouses moved to dismiss 4 the complaint. They

argued that
under the MOA, the creditor banks, including respondent bank, agreed
to temporarily suspend any pending civil action against the debtor
BMC, the benefits of the MOA should be extended to petitionersspouses who acted as BMC's sureties in their contracts of loan with
respondent bank
The trial court denied the motion to dismiss. Petitioners-spouses appealed to
the Court of Appeals which affirmed the trial court's ruling. Hence this appeal

Under the suretyship contract entered into by petitioners-spouses with

respondent bank, the former obligated themselves to be solidarily bound with
the principal debtor BMC for the payment of its debts to respondent bank
amounting to five million pesos (P5,000,000.00). Under Article 1216 of the
Civil Code, 6 respondent bank as creditor may proceed against petitionersspouses as sureties despite the execution of the MOA which provided for the
suspension of payment and filing of collection suits against BMC.
Respondent bank's right to collect payment from the surety exists
independently of its right to proceed directly against the principal debtor

CONTENTION of PET-SPOUSE:
First, the MOA provided that during its effectivity, there shall be a suspension
of filing or pursuing of collection cases against the BMC and this provision
should benefit petitioners as sureties.
Second, principal debtor BMC has been placed under suspension of
payment of debts by the SEC; petitioners contend that it would prejudice
them if the principal debtor BMC would enjoy the suspension of payment of
its debts while petitioners, who acted only as sureties for some of BMC's
debts, would be compelled to make the payment; petitioners add that
compelling them to pay is contrary to Article 2063 of the Civil Code which
provides that a compromise between the creditor and principal debtor
benefits the guarantor and should not prejudice the latter.

Clearly, the collection suit filed by respondent bank against petitionersspouses as sureties can prosper
CASTELLVI de HIGGINS vs SELLNER
FACTS
This is an action brought by plaintiffs to recover from defendant the sum of
P10,000.

Lastly, petitioners rely on Article 2081 of the Civil Code which provides that:
"the guarantor may set up against the creditor all the defenses which pertain

Assumption of Solidary Liability whereby they agreed "to assume in

[their] individual capacity, solidary liability with [Falcon] for the due and
punctual payment" of the loan contracted by Falcon with PDCP. 3

The basis of plaintiff's action is a letter written by defendant George C.

Sellnerto John T. Macleod, agent for Mrs. Horace L. Higgins
The brief decision of the trial court held that the suit was premature, and
absolved the defendant from the complaint

In the meantime, two separate guaranties were executed to guarantee the

payment of the same loan by other stockholders and officers of Falcon,
acting in their personal and individual capacities. One Guaranty 4 was
executed by petitioner Salvador Escao (Escao), while the other 5 by
petitioner Mario M. Silos (Silos), Ricardo C. Silverio (Silverio), Carlos L.
Inductivo (Inductivo) and Joaquin J. Rodriguez (Rodriguez)

ISSUE
The determination of defendant's status in the transaction referred to.
Plaintiffs contend that he is a surety; defendant contends that he is a
guarantor.

Two years later, an agreement developed to cede control of Falcon to

Escao, Silos and Joseph M. Matti (Matti). Thus, contracts were executed
whereby Ortigas, George A. Scholey, Inductivo and the heirs of then already
deceased George T. Scholey assigned their shares of stock in Falcon to
Escao, Silos and Matti. An Undertaking dated 11 June 1982
wasexecuted by the concerned parties, 7 namely: with Escao, Silos and
Matti identified in the document as "SURETIES," on one hand, and
Ortigas, Inductivo and the Scholeys as "OBLIGORS," on the other

RULING
A surety and a guarantor are alike in that each promises to answer for the
debt or default of another. A surety and a guarantor are unlike in thatthe
surety assumes liability as a regular party to the undertaking, while the
liability as a regular party to upon an independent agreement to pay the
obligation if the primary pay or fails to do so. A surety is charged as an
original promissory; the engagement of the guarantor is a collateral
undertaking. The obligation of the surety is primary; the obligation of the
guarantor is secondary

Falcon subsequently defaulted. After PDCP foreclosed on the chattel

mortgage, there remained a subsisting deficiency which Falcon did not
satisfy

It is perfectly clear that the obligation assumed by defendant was simply that
of a guarantor, or, to be more precise, of the fiador whose responsibility is
fixed in the Civil Code. The letter of Mr. Sellner recites that if the promissory
note is not paid at maturity, then, within fifteen days after notice of such
default and upon surrender to him of the three thousand shares of Keystone
Mining Company stock, he will assume responsibility. Sellner is not bound
with the principals by the same instrument executed at the same time and on
the same consideration, but his responsibility is a secondary one found in an
independent collateral agreement, Neither is Sellner jointly and severally
liable with the principal debtors.
With particular reference, therefore, to appellants assignments of error, we
hold that defendant Sellner is a guarantor within the meaning of the
provisions of the Civil Code.

In order to recover the indebtedness, PDCP filed a complaint for sum of

money with the RTC of Makati against Falcon, Ortigas, Escao, Silos,
Silverio and Inductivo.
Escao, Ortigas and Silos each sought to seek a settlement with PDCP
Ortigas entered into his own compromise agreement 13 with PDCP,
allegedly without the knowledge of Escao, Matti and Silos. Thereby,
Ortigas agreed to pay PDCP P1,300,000.00 as "full satisfaction of the
PDCP's claim against Ortigas," 14 in exchange for PDCP's release of Ortigas
from any liability or claim arising from the Falcon loan agreement, and a
renunciation of its claims against Ortigas. ACETSa

ESCANO vs ORTIGAS

In the meantime, after having settled with PDCP, Ortigas pursued his
claims against Escao, Silos and Matti, on the basis of the 1982
Undertaking

FACTS
Private Development Corporation of the Philippines (PDCP) 1 entered into a
loan agreement with Falcon Minerals, Inc. (Falcon) whereby PDCP agreed to
make available and lend to Falcon the amount of US$320,000.00,

In 1995, Ortigas filed a motion for Summary Judgment in his favor against
Escao, Silos and Matti.

Three stockholders-officers of Falcon, namely: respondent Rafael Ortigas,

Jr. (Ortigas), George A. Scholey and George T. Scholeyexecuted an

RTC issued the Summary Judgment, ordering Escao, Silos and Matti to pay
Ortigas, jointly and severally, the amount of P1,300,000.00, as well as
P20,000.00 in attorney's fees

It appears that Ortigas's argument rests solely on the solidary nature of the
obligation of the surety under Article 2047. In tandem with the nomenclature
"SURETIES" accorded to petitioners and Matti in the Undertaking, however,
this argument can only be viable if the obligations established in the
Undertaking do partake of the nature of a suretyship as defined under
Article 2047 in the first place.That clearly is not the case here,
notwithstanding the use of the nomenclature "SURETIES" in the
Undertaking.

CA dismissed the appeals and affirmed the Summary Judgment.

ISSUE
Whether petitioners were correctly held liable to Ortigas on the basis of the
1982 Undertaking in this Summary Judgment

Again, as indicated by Article 2047, a suretyship requires a principal

debtor to whom the surety is solidarily bound by way of an ancillary
obligation of segregate identity from the obligation between the principal
debtor and the creditor

CONTENTION:
Petitioners submit that they could only be held jointly, not solidarily, liable
to Ortigas, claiming that the Undertaking did not provide for express
solidarity. They cite Article 1207 of the New Civil Code, which states in part
that "[t]here is a solidary liability only when the obligation expressly so states,
or when the law or the nature of the obligation requires solidarity."

Note that Article 2047 itself specifically calls for the application of the
provisions on solidary obligations to suretyship contracts. 44 Article 1217 of
the Civil Code thus comes into play, recognizing the right of reimbursement
from a co-debtor (the principal debtor, in case of suretyship) in favor of the
one who paid (i.e., the surety). 45However, a significant distinction still lies
between a joint and several debtor, on one hand, and a surety on the other.
Solidarity signifies that the creditor can compel any one of the joint and
several debtors or the surety alone to answer for the entirety of the
principal debt. The difference lies in the respective faculties of the joint and
several debtor and the surety to seek reimbursement for the sums they paid
out to the creditor.

Respondent Ortigas in turn argues that petitioners, as well as Matti, are

jointly and severally liable for the Undertaking, as the language used in
the agreement "clearly shows that it is a surety agreement. Ortigas
points out that the Undertaking uses the word "SURETIES" althroughout
the document, in describing the parties. It is further contended that the
principal objective of the parties in executing the Undertaking cannot be
attained unless petitioners are solidarily liable "because the total loan
obligation can not be paid or settled to free or release the OBLIGORS if one
or any of the SURETIES default from their obligation in the Undertaking."
RULING
It isincumbent upon the party alleging that the obligation is indeed
solidary in character to prove such fact with a preponderance of
evidence.
The Undertaking does not contain any express stipulation that the petitioners
agreed "to bind themselves jointly and severally" in their obligations to the
Ortigas group, or any such terms to that effect. Hence, such obligation
established in the Undertaking is presumed only to be joint.Ortigas, as
the party alleging that the obligation is in fact solidary, bears the burden to
overcome the presumption of jointness of obligations. We rule and so
hold that he failed to discharge such burden

In the case of joint and several debtors, Article 1217 makes plain that the
solidary debtor who effected the payment to the creditor "may claim from his
co-debtors only the share which corresponds to each, with the interest for
the payment already made." Such solidary debtor will not be able to recover
from the co-debtors the full amount already paid to the creditor, because the
right to recovery extends only to the proportional share of the other codebtors, and not as to the particular proportional share of the solidary debtor
who already paid. In contrast, even as the surety is solidarily bound with the
principal debtor to the creditor, the surety who does pay the creditor has the
right to recover the full amount paid, and not just any proportional share, from
the principal debtor or debtors. Such right to full reimbursement falls within
the other rights, actions and benefits which pertain to the surety by reason of
the subsidiary obligation assumed by the surety.

Ortigas places primary reliance on the fact that the petitioners and Matti
identified themselves in the Undertaking as "SURETIES", a term
repeated no less than thirteen (13) times in the document

DECISION:
The Petition is GRANTED in PART. The Order of the Regional Trial Court
dated 5 October 1995 is MODIFIED by declaring that petitioners and Joseph
M. Matti are only jointly liable, not jointly and severally, to respondent Rafael
Ortigas, Jr. in the amount of P1,300,000.00.

As provided in Article 2047, in a surety agreement the surety undertakes to

be bound solidarily with the principal debtor. Thus, a surety agreement is
an ancillary contract as it presupposes the existence of a principal contract.

PICZON vs PICZON

RTC of Iloilo City rendered judgment dismissing the complaint without

prejudice to the filing of a separate action for a sum of money against the
spouses Azarraga who are primarily liable on the instrument

FACTS
This an appeal from the decision of the Court of First Instance of Samar in its
Civil Case No. 5156, entitled Consuelo P. Piczon, et. al. vs. Esteban Piczon,
et al., sentencing defendants-appellees, Sosing Lobos and Co., Inc., as
principal, and Esteban Piczon, as guarantor, to pay plaintiffs-appellants "the
sum of P12,500.00 with 12% interest from August 6, 1964 until said principal
amount of P12,500.00 shall have been duly paid, and the costs."

Respondent CA, however, reversed the decision of the trial court, and
rendered judgment declaring herein petitioner Palmares liable to pay
respondent corporation; declared that petitioner Palmares is a surety
since she bound herself to be jointly and severally or solidarily liable
with the principal debtors, the Azarraga spouses, when she signed as a
co-maker

ISSUE
Is defendant Esteban Piczon liable as a guarantor or a surety?

CONTENTION:
Petitioner contends that the provisions of the second and third paragraph (of
the promissory notes) are conflicting in that while the second paragraph
seems to define her liability as that of a surety which is joint and solidary
with the principal maker, on the other hand, under the third paragraph her
liability is actually that of a mere guarantor because she bound herself to
fulfill the obligation only in case the principal debtor should fail to do so,
which is the essence of a contract of guaranty. More simply stated, although
the second paragraph says that she is liable as a surety, the third paragraph
defines the nature of her liability as that of a guarantor

RULING
Appellants' pose cannot be sustained (that the trial court erred in
considering defendant estebanpiczon as guarantor only and not as
surety). Under the terms of the contract, Annex A, Esteban Piczon
expressly bound himself only as guarantor, and there are no
circumstances in the record from which it can be deduced that his
liability could be that of a surety. A guaranty must be express, (Article
2055, Civil Code) and it would be violative of the law to consider a party to be
bound as a surety when the very word used in the agreement is "guarantor."

RULING
It is a cardinal rule in the interpretation of contracts that if the terms of a
contract are clear and leave no doubt upon the intention of the contracting
13
parties, the literal meaning of its stipulation shall control. In the case at bar,
petitioner expressly bound herself to be jointly and severally or solidarily
liable with the principal maker of the note. The terms of the contract are
clear, explicit and unequivocal that petitioner's liability is that of a
surety.
Surety is an insurer of the debt, whereas a guarantor is an insurer of the
17
solvency of the debtor.

Moreover, as well pointed out in appellees' brief, under the terms of the pretrial order, appellants accepted the express assumption of liability by SosingLobos & Co., Inc. for the payment of the obligation in question, thereby
modifying their original posture that inasmuch as that corporation did not
exist yet at the time of the agreement, Piczon necessarily must have bound
himself as insurer.
PALMARES vs CA
FACTS
Private respondent M.B. Lending Corporation extended a loan to the
spouses Osmea and Merlyn Azarraga, together with petitioner
EstrellaPalmares

A suretyship is an undertaking that the debt shall be paid; a guaranty, an

18
undertaking that the debtor shall pay. Stated differently, a surety promises
to pay the principal's debt if the principal will not pay, while a guarantor
agrees that the creditor, after proceeding against the principal, may proceed
19
against the guarantor if the principal is unable to pay.

On four occasions after the execution of the promissory note and even after
the loan matured, petitioner and the Azarraga spouses were able to pay a
total of P16,300.00, thereby leaving a balance of P13,700.00

A surety binds himself to perform if the principal does not, without regard to
his ability to do so. A guarantor, on the other hand, does not contract that the
20
principal will pay, but simply that he is able to do so. In other words, a
surety undertakes directly for the payment and is so responsible at once if
the principal debtor makes default, while a guarantor contracts to pay if, by

Consequently, on the basis of petitioner's solidary liability under the

3
promissory note, respondent corporation filed a complaint against
petitioner Palmares as the lone party-defendant,to the exclusion of the
principal debtors, allegedly by reason of the insolvency of the latter.

the use of due diligence, the debt cannot be made out of the principal
21
debtor.

FACTS
The plaintiff FabiolaSeverino is the recognized natural daughter of
MelecioSeverino. Upon the death of MelecioSeverino, he left
considerable property. Litigation ensued between his widow, Felicitas
Villanueva, and FabiolaSeverino, on the one part, and other heirs of the
deceased on the other part.

It is a well-entrenched rule that in order to judge the intention of the

contracting parties, their contemporaneous and subsequent acts shall also
24
be principally considered. Several attendant factors in that genre lend
support to our finding that petitioner is a surety.
For one, when petitioner was informed about the failure of the
principal debtor to pay the loan, she immediately offered to settle the account
with respondent corporation. Obviously, in her mind, she knew that she was
directly and primarily liable upon default of her principal.
For another, and this is most revealing, petitioner presented the
receipts of the payments already made, from the time of initial payment up to
the last, which were all issued in her name and of the Azarraga
25
spouses. This can only be construed to mean that the payments made
by the principal debtors were considered by respondent corporation as
creditable directly upon the account and inuring to the benefit of
petitioner
The concomitant and simultaneous compliance of petitioner's obligation with
that of her principals only goes to show that, from the very start, petitioner
considered herself equally bound by the contract of the principal makers.

In order to make an end of this litigation a compromise was effected

Guillermo Severino (DEF), a son of MelecioSeverino, took over the property
at the same time agreeing to pay P100,000 to Felicitas Villanueva and
FabiolaSeverino
This sum of money was made payable, first, P40,000 in cash upon the
execution of the document of compromise, and the balance in three several
payments of P20,000. To this contract the appellant Enrique Echaus
affixed his name as guarantor
Upon failure to pay the balance, plaintiff filed and action against the
defendant and Echauz.Enchauz contends that he received nothing from
affixing his signature in the document and the contract lacked the
consideration as to him

In this regard, we need only to reiterate the rule that a surety is bound
26
equally and absolutely with the principal, and as such is deemed an original
27
promisor and debtor from the beginning. This is because in suretyship there
is but one contract, and the surety is bound by the same agreement which
28
binds the principal. In essence, the contract of a surety starts with the
29
agreement, which is precisely the situation obtaining in this case before the
Court.

ISSUE: WON there is a consideration for the guaranty

RULING
The promise of the appellant Echaus as guarantor is therefore binding. It is
never necessary that a 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 bythe plaintiffs in the
former action in dismissing that proceeding, andit is immaterial that no
benefit may have accrued either to the principal or his guarantor

Also, petitioner questions the propriety of the filing of a complaint solely

against her to the exclusion of the principal debtors who allegedly were the
only ones who benefited from the proceeds of the loan

DE GUZMAN vs SANTOS

A creditor's right to proceed against the surety exists independently of his

39
right to proceed against the principal. Under Article 1216 of the Civil Code,
the creditor may proceed against any one of the solidary debtors or some or
all of them simultaneously. The rule, therefore, is that if the obligation is
joint and several, the creditor has the right to proceed even against the
surety alone the obligation of the surety is the same that of the principal,
then soon as the principal is in default, the surety is likewise in default, and
may be sued immediately and before any proceedings are had against the
principal

FACTS
Jerry O. Toole, Antonio K. Abad and Anastacio R. Santos, the defendant,
formed a general mercantile partnership under the style Philippine-American
Construction Company, with a capital of P14,000, P10,000 of which were
taken by way of loan from PaulinoCandelaria. The partnership and the
copartners undertook and bound themselves to pay, jointly and
severally, the said indebtedness in or before June, 1925.Having violated
the conditions of the contract executed for the purpose, PaulinoCandelaria
brought civil case No. 3838against the Philippine-American
Construction Company and its copartners, for the recovery of the loan,
plus interest thereon

SEVERINO vs SEVERINO

Under article 1822 of the Civil Code, by guaranty one person binds
himself to pay or perform for a third person in case the latter should fail to do
so; and article 1838 provides that any guarantor who pays for the debtor
shall be indemnified by the latter even should the guaranty have been
undertaken without the knowledge of the debtor.

The Court of First Instance rendered judgment therein sentencing all the
defendants to pay the plaintiff, jointly and severally, the sum of P9,317
On appeal, this judgment was affirmed by this court. A writ of execution of
the affirmed judgment was issued and the herein plaintiff, in her
capacity as judicial administratrixof the deceased Santiago Lucero, paid
to the creditor PaulinoCandelaria the sum of P5,665.55 on account of the
judgment.

In the present case, the guarantor was the deceased Santiago Lucero,
and the debtor is the defendant-appellant. Applying the provision of the
last cited article, it is obvious that the appellant is legally bound to pay
what the plaintiff had advanced to the creditor upon the judgment,
notwithstanding the fact that the bond had been given without his
knowledge.

Upon the filing of the complaint in civil case No. 3838, PaulinoCandelaria
obtained a writ of attachment against the then defendants. No property of the
partnership Philippine-American Construction Company was attached.With
this, the Philippine-American Construction Company moved for the discharge
of the attached properties and offered to post a bond for P10,000. The court
granted the motion

The obligation of the appellant to pay the plaintiff what he latter had
advanced is further sanctioned by the general provisions of the Civil Code
regarding obligation.
Article 1158 provides that "payment may be made by any person, whether he
has an interest in the performance of the obligation or not, and whether the
payment is known and approved by the debtor or whether he is unaware of it.
Any person who makes a payment for the account of another may recover
from the debtor the amount of the payment, unless it was made against the
express will of the latter. In the latter case he can only recover from the
debtor in so far as the payment has been beneficial to the latter."

The Philippine-American Construction Company, as principal, then

represented by the partner Antonio K. Abad, and Santiago Lucero and
Meliton Carlos, as guarantors, executed a bond for P10,000 in favor of
PaulinoCandelaria for the lifting of the attachment under section 440 of the
Code of Civil Procedure.
After the issuance of the writ for the execution of the judgment rendered in
civil case No. 3838, the sheriff returned the same with the statement that
the writ could not be executed as he found no property of the judgment
debtors. In view of this, PaulinoCandelaria moved for the issuance of a
writ of execution against the guarantors of the defendants.The court
granted the motion and issued a writ of execution against the plaintiff

According to this legal provision, it is evident that the plaintiff-appellant is

bound to pay to the plaintiff what the latter had advanced to the creditor
upon the judgment, and this is the more so because it appears that
although Lucero executed the bond without his knowledge, nevertheless he
did not object thereto or repudiate the same at any time

ISSUE: WON appellant Santos is bound to pay to the plaintiff what the latter
had advanced to PaulinoCandelaria upon the bond which the deceased
Santiago Lucero had executed

PHILIPPINE NATIONAL BANK, petitioner,

vs.
LUZON SURETY CO., INC. and THE HONORABLE COURT OF
APPEALS, respondent.

RULING
It is beyond question that the appellant neither intervened nor signed the
bondbut it is clear, and this is admitted, that the bond was filed to
release the attached properties. It was approved by the court and it
resulted in the discharge of the attachment and the return of the attached
properties to their respective owners. When the sheriff attempted to execute
the judgment, he found that they had disappeared, for which reason the court
subsequently issued a writ of execution against the guarantors. As a result
of this last execution, the plaintiff was forced to pay and in fact paid the
said sum to the creditor Candelaria

FACTS:
Defendant Augusto R. Villarosa, a sugar planter adhered to the Lopez Sugar
Central Milling company, Inc. applied for a crop loan with the plaintiff,
Philippine National Bank, which application was approved on March 6, 1952
in the amount of P32,400. Villarosa executed a Chattel Mortgage on standing
crop to guaranty the crop loan.

As of September 27, 1953 as shown in the accounts, there was a balance of

P63,222.78 but as of the date when the complaint was filed on June 8, 1960,
because of the interest accrued, it has reached a much higher sum. Due to
its non-payment, plaintiff filed this complaint which sought reliefnot only
against the planter but also against the 3 bondsmen, Luzon Surety, Central
surety and Associated surety

however, that the interest runs from the time the complaint is filed, not from
the time the debt becomes due and demandable.

ISSUE:
Whether or not the CA was justified in absolving Luzon Surety Co., Inc. from
liability to petitioner PNB.
RULING:

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

the manufacture and export of finished wood products. Petitioners-spouses
Alfredo and Susana Ong are its President and Treasurer, respectively.

ONG vs. PHILIPPINE COMMERCIAL INTERNATIONAL BANK

Facts:

On April 20, 1992, respondent Philippine Commercial International Bank

(now Equitable-Philippine Commercial International Bank or E-PCIB) filed a
case for collection of a sum of money against petitioners-spouses. The
complaint alleged that in 1991, BMC needed additional capital for its
business and applied for various loans, amounting to a total of five million
pesos, with the respondent bank.

The surety bond executed by and between the PNB on one hand and
Augusto Villarosa and respondent Luzon Surety Company, Inc., on theother
is hereby reproduced, viz:
That we Augusto Villarosa, as principal and Luzon Surety Company,
Inc., as surety, are held and firmly bound unto Philippine National
Bank, Bacolod City , Philippines, in the sum of P10,000,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:

Petitioners-spouses acted as sureties for these loans and issued three (3)
promissory notes for the purpose. Under the terms of the notes, it was
stipulated that respondent bank may consider debtor BMC 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 BMCs
insolvency, or if it is declared to be in a state of suspension of payments.
Respondent bank granted BMCs loan applications.

The foregoing evidences clearly the liability of Luzon Surety to petitioner PNB
not merely as a guarantor but as a surety-liable as a regular party to the
undertaking.

On November 22, 1991, BMC filed a petition for rehabilitation and

suspension of payments with the Securities and Exchange Commission
(SEC) after its properties were attached by creditors. Respondent bank
considered debtor BMC in default of its obligations and sought to collect
payment thereof from petitioners-spouses as sureties. On October 13, 1992,
a Memorandum of Agreement (MOA) was executed by debtor BMC, the
petitioners-spouses as President and Treasurer of BMC, and the consortium
of creditor banks of BMC (of which respondent bank is included). The MOA
took effect upon its approval by the SEC on November 27, 1992.

Court further held that The principal obligation, therefore, has never been
put in issue by then defendant. On the other hand it raised as its defense the
alleged material alteration of the terms and conditions of the contract as the
basis of its prayer for release. As a surety, said bonding company is charged
as an original promissory and is an insurer of the debt.
Accordingly, the alterations in the form of increases were made with the full
consent by defendant as it was explicitly stated in the chattel mortgage that:
the Mortgagee may increase or decrease the amount of the loan as well as
the installment as it may deem convenient.

Thereafter, petitioners-spouses moved to dismiss the complaint. They

argued that as the SEC declared the principal debtor BMC in a state of
suspension of payments and, under the MOA, the creditor banks, including
respondent bank, agreed to temporarily suspend any pending civil action
against the debtor BMC, the benefits of the MOA should be extended to
petitioners-spouses who acted as BMCs sureties in their contracts of loan
with respondent bank. Petitioners-spouses averred that respondent bank is
barred from pursuing its collection case filed against them.

The next question to take up is the liability of Luzon Surety Co. for interest
which, it contends, would increase its liability to more than P10,000 which is
the maximum if its bond. The SC previously held however that:
If a surety upon demand fails to pay, he can be held liable for interest, even
if in thus paying, the liability becomes more than that in the principal
obligation. The increased liability is not because of the contract but because
of the default and the necessity of judicial collection. It should be noted,

Spouses Ongs Contention:

Petitioners contend that it would prejudice them if the principal debtor BMC
would enjoy the suspension of payment of its debts while petitioners, who
acted only as sureties for some of BMCs debts, would be compelled to make
the payment. They add that compelling them to pay is contrary to Article
2063 of the Civil Code which provides that a compromise between the
creditor and principal debtor benefits the guarantor and should not prejudice
the latter. Lastly, petitioners 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 debtor and are inherent in the debt; but not
those which are purely personal to the debtor." Petitioners aver that if the
principal debtor BMC can set up the defense of suspension of payment of
debts and filing of collection suits against respondent bank, petitioners as
sureties should likewise be allowed to avail of these defenses.

spouses as sureties despite the execution of the MOA which provided for the
suspension of payment and filing of collection suits against BMC.
Respondent banks right to collect payment from the surety exists
independently of its right to proceed directly against the principal debtor. In
fact, the creditor bank may go against the surety alone without prior demand
for payment on the principal debtor.
INTERNATIONAL FINANCE CORPORATION VS. IMPERIAL TEXTILE
MILLS, INC.
Facts:
On December 17, 1974, International Finance Corporation (IFC) and
Philippine Polyamide Industrial Corporation (PPIC) entered into a loan
agreement wherein IFC extended to PPIC a loan of US$7,000,000.00,
payable in 16 semi-annual installments of US$437,500.00 with interest at the
rate of 10%.

SC Ruling:
We find no merit in petitioners contentions.

On December 17, 1974, a Guarantee Agreement was executed where

Imperial Textile Mills, Inc. (ITM), Grand Textile Manufacturing Corporation
(Grandtex) agreed to guarantee PPICs obligations.
PPIC paid the installments due on June 1, 1977, December 1, 1977 and
June 1, 1978. The payments due on December 1, 1978, June 1, 1979 and
December 1, 1979 were rescheduled as requested by PPIC. Despite the
rescheduling of the installment payments, however, PPIC defaulted.

Reliance of petitioners-spouses on Articles 2063 and 2081 of the Civil Code

is misplaced as these provisions refer to contracts of guaranty. They do not
apply to suretyship contracts. Petitioners-spouses are not guarantors but
sureties of BMCs debts. There is a sea of difference in the rights and
liabilities of a guarantor and a surety.
A guarantor insures the solvency of the debtor while a surety is an insurer of
the debt itself. A contract of guaranty gives rise to a subsidiary obligation on
the part of the guarantor. It is only after the creditor has proceeded against
the properties of the principal debtor and the debt remains unsatisfied that a
guarantor can be held liable to answer for any unpaid amount. This is the
principle of excussion. In a suretyship contract, however, the benefit of
excussion is not available to the surety as he is principally liable for the
payment of the debt. As the surety insures the debt itself, he obligates
himself to pay the debt if the principal debtor will not pay, regardless of
whether or not the latter is financially capable to fulfill his obligation.

With PPICs failure to pay, IFC, together with DBP, applied for the
extrajudicial foreclosure of mortgages on the real properties owned by PPIC
at Calamba, 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. IFCs bid was for P99,269,100.00 which was
equivalent to US$5,250,000.00. The outstanding loan, however, amounted to
US$8,083,967.00 thus leaving a balance of US$2,833,967.00. PPIC failed to
pay the remaining balance.

Thus, a creditor can go directly against the surety although the principal
debtor is solvent and is able to pay or no prior demand is made on the
principal debtor. A surety is directly, equally and absolutely bound with the
principal debtor for the payment of the debt and is deemed as an original
promissor and debtor from the beginning.

Consequently, IFC demanded ITM and Grandtex, as guarantors of PPIC, to

pay the outstanding balance.

Under the suretyship contract entered into by petitioners-spouses with

respondent bank, the former obligated themselves to be solidarily bound with
the principal debtor BMC for the payment of its debts to respondent bank
amounting to five million pesos (P5,000,000.00). Under Article 1216 of the
Civil Code, respondent bank as creditor may proceed against petitioners-

IFC filed a complaint with the RTC Manila which held PPIC liable for the
payment of the outstanding loan plus interests. It also ordered PPIC to pay
IFC its claimed attorneys fees. However, the Court relieved ITM of its
obligation as guarantor. Hence, the trial court dismissed IFCs complaint
against ITM. CA reversed the decision stating ITM as guarantor.

However, despite the demand made by IFC, the outstanding balance

remained unpaid.

10

TEXAS CO. VS. ALONZO

Issue:
Whether or not ITM is a surety, and thus solidarily liable with PPIC for the
payment of the loan.

Facts:

SC Ruling:
While referring to ITM as a guarantor, the Agreement specifically stated that
the corporation was jointly and severally liable. To put emphasis on the
nature of that liability, the Contract further stated that ITM was a primary
obligor, not a mere surety. Those stipulations meant only one thing: that at
bottom, and to all legal intents and purposes, it was a surety.

Leonor Bantug was sued for her agency contract with Texas Co. wherein
Texas Co. filed a collection case against her and Alonso. It appears that to
ensure faithful compliance of Bantugs obligations as agent to Texas.Co ,
Alonso bound herself solidarily to answer for Bantugs liability up to P2000
bond evidenced in a document. Bantug failed in the performance of her
obligations and declared in default.

When 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 guarantor binds itself 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 emphasize the nature of their liability,
which the law characterizes as a suretyship.

Alonso averred that he merely acted as co-security of one Palanca and that
no acceptance was made by Texas, Co of the bond thus not binding on him.
It was shown that the execution of the bond was requested by Texas, Co. by
virtue of the Additional Security clause in the agency contract:
Additional Security. The Agent shall whenever requested by the Company
in addition to the guaranty herewith provided, furnish further guaranty or
bond, conditioned upon the Agent's faithful performance of this contract, in
such individuals of firms as joint and several sureties as shall be satisfactory
to the Company.

Indubitably therefore, ITM bound itself to be solidarily liable with PPIC. ITM
thereby brought itself to the level of PPIC and could not be deemed merely
secondarily liable. Pursuant to this provision, petitioner (as creditor) was
justified in taking action directly against respondent.

Trial court ordered Bantug and Alonso liable in solidum. CA reversed trial
courts findings holding Alonso absolved of the guaranty undertaking.

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 and that ITMs undertaking was collateral to
and distinct from the Loan Agreement.

Issue:
Whether or not there is acceptance by creditor Texas Co to bind guarantor of
the undertaking.
SC Ruling:

The Court stresses that a suretyship is merely an accessory or a collateral to

a principal obligation. Although a surety contract is secondary to the principal
obligation, the liability of the surety is direct, primary and absolute; or
equivalent to that of a regular party to the undertaking. A surety becomes
liable to the debt and duty of the principal obligor even without possessing a
direct or personal interest in the obligations constituted by the latter.

No acceptance.
Though requested by creditor of the execution of the bond, from the
foregoing Additional security clause it is apparent that before a bond is
accepted by the petitioner, it has to be in such form and amount and with
such sureties as shall be satisfactory hereto. Hence, must be approved by
creditor Texas.

With the present finding that ITM is a surety, it is clear that the CA erred in
declaring the former secondarily liable. Evidently, the dispositive portion of
the assailed Decision should be modified to require ITM to pay the amount
adjudged in favor of IFC.

A request for bond is not inference of approval thereto.

Where there is merely an offer of, or proposition for, a guaranty, or merely a
conditional guaranty in the sense that it requires action by the creditor before
the obligation becomes fixed, it does not become a binding obligation until it
is accepted and, unless there is a waiver of notice of such acceptance is
given to, or acquired by, the guarantor, or until he has notice or knowledge

WHEREFORE, Petition is GRANTED, and MODIFIED that ITM, is declared a

surety and ORDERED to pay International Finance Corporation the same
amounts adjudged against PPIC.

11

that the creditor has performed the conditions and intends to act upon the
guaranty. The acceptance need not necessarily be express or in writing, but
may be indicated by acts amounting to acceptance. Where, upon the other
hand, the transaction is not merely an offer of guaranty but amounts to direct
or unconditional promise of guaranty, unless notice of acceptance is made a
condition of the guaranty, all that is necessary to make the promise binding is
that the promise should act upon it, and notice of acceptance is not
necessary, the reason being that the contract of guaranty is unilateral.
Appealed decision affirmed.

amount of P70 million by United Coconut Planters Bank. As security for this
credit facility, petitioners executed real estate mortgages over several parcels
of land and over several condominium units. Petitioners were likewise
required to execute a promissory note in favor of respondent every time they
availed of the credit facility. As required in these notes, they paid the interest
in monthly amortizations. The parties stipulated in their Credit Agreement
dated that failure to pay "any availment of the accommodation or interest, or
any sum due" shall constitute an event of default, which shall consequently
allow respondent bank to "declare [as immediately due and payable] all
outstanding availments of the accommodation together with accrued interest
and any other sum payable."
In need of further business capital, petitioners obtained from UCPB
an increase in their credit facility. For this purpose, they executed a
Promissory Note for P103,909,710.82, which was to mature on March 26,
1999. In the same note, they agreed to an interest rate of 21.75 percent per
annum, payable by monthly amortizations.
Respondent later sent petitioners a formal demand letter, and decided to
invoke the acceleration provision in their Credit Agreement. Respondent sent
another letter of demand and a final demand on petitioners "to settle in full
past due obligation to [UCPB] within five days from receipt of letter." In
response, petitioners paid respondent the amount of P10,199,473.96 as
partial payment of the accrued interests. Apparently unsatisfied, UCPB
applied for extrajudicial foreclosure of petitioners mortgaged properties.
When petitioners received the Notice of Extra Judicial Foreclosure
Sale on May 18, 1999, they requested UCPB to give them a period of sixty
(60) days to update their accrued interest charges; and to restructure or, in
the alternative, to negotiate for a takeout of their account. On May 25, 1999,
the Bank denied petitioners request. In order to forestall the extrajudicial
foreclosure scheduled for May 31, 1999, petitioners filed a Complaint for
"Damages, Annulment of Interest, Penalty Increase and Accounting with
Prayer for Temporary Restraining Order/Preliminary Injunction."

PHIL. PRYCE ASSURANCE CORP. VS. CA

Facts:
Phil. Pryce Assurance Corp. was sued by Gegroco, Inc. for the two surety
bonds Pryce executed in behalf of its principal Sagum General Merchandise.
Pryce averred in its defense that the checks ( ofSagum General Mechandise)
which were to pay for the premiums bounced and were dishonored hence
there is no contract to speak of. Trial Court rendered judgement in favor of
Gegroco and against Pryce.
Issue:
Whether or not the bond accepted by creditor Gegroco is valid and
enforceable against the surety, although the premium has not been paid by
debtor Sagum to surety Pryce
SC Ruling:
Irrespective of payment or non-payment of the premium for the bond
executed by surety accepted by creditor, such bond is enforceable against
such surety.

Issue:
Whether or not petitioners were in default, and whether petitioners debt were
considered liquidated
SC Ruling:
It is a settled rule of law that foreclosure is proper when the debtors
are in default of the payment of their obligation. In fact, the parties stipulated
in their credit agreements, mortgage contracts and promissory notes that
respondent was authorized to foreclose on the mortgages, in case of a
default by petitioners.
Mora solvendi, or debtors default, is defined as a delay in the
fulfillment of an obligation, by reason of a cause imputable to the debtor.
There are three requisites necessary for a finding of default. First, the
obligation is demandable and liquidated; second, the debtor delays

The Insurance Code states that:

Sec. 177. The surety is entitled to payment of the premium as soon as the
contract of suretyship or bond is perfected and delivered to the obligor. No
contract of suretyship or bonding shall be valid and binding unless and until
the premium therefor has been paid, except where the obligee has accepted
the bond, in which case the bond becomes valid and enforceable irrespective
of whether or not the premium has been paid by the obligor to the surety.

Selegna Management and Development Corporation vs. UCPB

Facts:
Petitioners Selegna Management and Development Corporation and
Spouses Edgardo and Zenaida Angeles were granted a credit facility in the

12

performance; third, the creditor judicially or extrajudicially requires the

debtors performance.
The Promissory Note expressly states that petitioners had an
obligation to pay monthly interest on the principal obligation. From
respondents demand letter, it is clear and undisputed by petitioners that they
failed to meet those monthly payments since May 30, 1998. Their
nonpayment is defined as an "event of default" in the parties Credit
Agreement. Considering that the contract is the law between the parties,
respondent is justified in invoking the acceleration clause declaring the entire
obligation immediately due and payable. That clause obliged petitioners to
pay the entire loan on January 29, 1999, the date fixed by respondent. UCPB
had every right to apply for extrajudicial foreclosure on the basis of
petitioners undisputed and continuing default.

To be sure, their partial payment did not extinguish the obligation.

The Civil Code states that a debt is not paid "unless the thing x xx in which
the obligation consists has been completely delivered x xx." Besides, a late
partial payment could not have possibly forestalled a long-expired maturity
date. The only possible legal relevance of the partial payment was to
evidence the mortgagees amenability to granting the mortgagor a grace
period. Because the partial payment would constitute a waiver of the
mortgagees vested right to foreclose, the grant of a grace period cannot be
casually assumed; the banks agreement must be clearly shown. Without a
doubt, no express agreement was entered into by the parties. When creditors
receive partial payment, they are not ipso facto deemed to have abandoned
their prior demand for full payment. Article 1235 of the Civil Code provides:
"When the obligee accepts the performance, knowing its
incompleteness or irregularity, and without expressing any protest or
objection, the obligation is deemed fully complied with."
Thus, to imply that creditors accept partial payment as complete performance
of their obligation, their acceptance must be made under circumstances that
indicate their intention to consider the performance complete and to
renounce their claim arising from the defect. There are no circumstances that
would indicate a renunciation of the right of respondent to foreclose the
mortgaged properties extrajudicially, on the basis of petitioners continuing
default. On the contrary, it asserted its right by filing an application for
extrajudicial foreclosure after receiving the partial payment. Clearly, it did not
intend to give petitioners more time to meet their obligation.

Petitioners Debt Considered Liquidated Despite the Alleged Lack of

Accounting
Petitioners do not even attempt to deny the aforementioned matters.
They assert, though, that they have a right to a detailed accounting before
they can be declared in default. As regards the three requisites of default,
they say that the first requisite -- liquidated debt -- is absent. Continuing with
foreclosure on the basis of an unliquidated obligation allegedly violates their
right to due process. They also maintain that their partial payment of P10
million averted the maturity of their obligation.
A debt is liquidated when the amount is known or is determinable by
inspection of the terms and conditions of the relevant promissory notes and
related documentation. Failure to furnish a debtor a detailed statement of
account does not ipso facto result in an unliquidated obligation.
Petitioners executed a Promissory Note, in which they stated that
their principal obligation was in the amount of P103,909,710.82, subject to an
interest rate of 21.75 percent per annum. Pursuant to the parties Credit
Agreement, petitioners likewise know that any delay in the payment of the
principal obligation will subject them to a penalty charge of one percent per
month, computed from the due date until the obligation is paid in full.
It is in fact clear from the agreement of the parties that when the
payment is accelerated due to an event of default, the penalty charge shall
be based on the total principal amount outstanding, to be computed from the
date of acceleration until the obligation is paid in full. Their Credit Agreement
even provides for the application of payments. It appears from the
agreements that the amount of total obligation is known or, at the very least,
determinable.
Moreover, when they made their partial payment, petitioners did not
question the principal, interest or penalties demanded from them. They only
sought additional time to update their interest payments or to negotiate a
possible restructuring of their account. Hence, there is no basis for their
allegation that a statement of account was necessary for them to know their
obligation.

RCBC VS. ARRO

Facts:
In October 19, 1976 Residoro Chua and Enrique Go, Sr. executed a
comprehensive surety agreement to guaranty among others, any existing
indebtedness of Davao Agricultural Industries Corporation (DAICOR), and/or
to induce the bank at anytime or from time to time thereafter, to make loans
or advances, or to extend credit in any other matter to, or at the request, or
for the account of DAICOR, provided that the liability shall not exceed at any
one time the aggregate principal sum of P100,000.00.
On May 29, 1977 a promissory note in the amount of P100,000.00
was issued in favor of petitioner bank payable on June 13, 1977. Said note
was signed by Enrique Go, Sr. in his personal capacity and in behalf of
DIACOR. The promissory note was not fully paid despite repeated demands.
Hence, petitioner bank filed a complaint for a sum of money against
DIACOR, Enrique Go, Sr. and Residoro Chua. A motion to dismiss was filed
by Chua on the ground that the complaint states no cause of action against
him as he cannot be held liable under the promissory note because he did
not sign the same.

13

The respondent court rendered decision granting Chuas motion to

dismiss. Petitioner bank filed a motion for reconsideration which respondent
court denied.
Issue:
Whether or not private respondent Chua is liable to pay the
obligation evidenced by the promissory note which he did not sign.
SC Ruling:
The comprehensive surety agreement was jointly executed by
Residoro Chua and Enrique Go, Sr., president and general manager,
respectively of DIACOR to cover existing as well as future obligations which
DIACOR may incur with the petitioner bank, subject only to the proviso that
their liability shall not exceed at any one time the aggregate principal sum of
P100,000.00.
The agreement was obviously executed to induce petitioner to grant
any application for a loan DIACOR may desire to obtain from petitioner bank.
The guaranty is a continuing one which shall remain in full force and effect
until the bank is notified of its termination. At the time the loan of
P100,000.00 was obtained from petitioner bank by DIACOR, the
comprehensive surety agreement was admittedly in full force and effect. The
loan was therefore covered by the said agreement, and private respondent
Chua, even if he did not sign the promissory note is liable by virtue of the
surety agreement. By the terms of the agreement, it can be clearly seen that
the surety agreement was executed to guarantee future debts which
DIACOR may incur with the petitioner bank, as is legally allowed under the
Civil Code.
Wherefore, the decision dismissing the complaint is reversed and set
aside. The case is remanded to the court of origin.

acquiesce to the obligatory stipulations in the trust receipt. As a

consequence, METROBANK sent letters to the said principal obligor and its
sureties, Norberto Uy and Jacinto UyDio, demanding payment of the
amount due. Informed of the amount due, UTEFS made partial payments to
the Bank which were accepted by the latter.
Dio, thru counsel, denied his liability for the amount demanded and
requested METROBANK to send him copies of documents showing the
source of his liability. The bank informed him that the source of his liability is
the Continuing Suretyship which he in 1977. As a rejoinder, Dio maintained
that he cannot be held liable for the 1979 credit accommodation because it is
a new obligation contracted without his participation. Besides, the 1977 credit
accommodation which he guaranteed has been fully paid.
METROBANK filed a complaint for collection of a sum of money and
impleaded Dio and Uy as parties-defendants. Norberto Uy and Jacinto
UyDio filed a motion to dismiss the complaint on the ground of lack of cause
of action. They maintained that the obligation which they guaranteed in 1977
has been extinguished since it has already been paid in the same year.
Accordingly, the Continuing Suretyships executed in 1977 cannot be availed
of to secure UyTiam's Letter of Credit obtained in 1979 because a guaranty
cannot exist without a valid obligation. It was further argued that they can not
be held liable for the obligation contracted in 1979 because they are not
privies thereto as it was contracted without their participation.
METROBANK filed its opposition to the motion to dismiss. It relied on
Article 2053 of the Civil Code which provides: 'A guaranty may also be given
as security for future debts, the amount of which is not yet 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 revoke it by giving notice to the bank.

DiO vs. CA
Facts:
In 1977, UyTiam Enterprises and Freight Services, thru its
representative UyTiam, applied for and obtained credit accommodations from
METROBANK in the sum of P700,000.00 To secure the aforementioned
credit accommodations, Norberto Uy and Jacinto UyDio executed separate
Continuing Suretyships in favor of the latter. Having paid the obligation under
the above letter of credit in 1977, UTEFS, through UyTiam, obtained another
credit accommodation from METROBANK in 1979. It was applied for and
obtained by UTEFS without the participation of Norberto Uy and Jacinto
UyDio as they did not sign the document denominated as 'Commercial
Letter of Credit and Application.' Also, they were not asked to execute any
suretyship to guarantee its payment. Neither did METROBANK nor UTEFS
inform them that the 1979 Letter of Credit has been opened and that the
Continuing Suretyships separately executed in February, 1977 shall
guarantee its payment.
The 1979 letter of credit was negotiated. UTEFS executed and
delivered to METROBANK a Trust Receipt. However, UTEFS did not

Issue:
Whether or not defendants Jacinto UyDio and Norberto Uy are
liable for the obligation contracted by UyTiam under the Letter of Credit
issued in 1979 by virtue of the Continuing Suretyships they executed in
1977?
SC Ruling:
When Uy and Dio executed the continuing suretyships in 1977,
UyTiam was obligated to the Metrobank in the amount of P700,000.00
and this was the obligation which both defendants guaranteed to pay.
UyTiam paid this 1977 obligation and such payment extinguished the
obligation they assumed as guarantors/sureties.
The 1979 Letter of Credit is different from the 1977 Letter of Credit which
covered the 1977 account of UyTiam. Thus, the obligation under either is
apart and distinct from the obligation created in the other, as evidenced by
the fact that UyTiam had to apply anew for the 1979 transaction. And Dio
and Uy, being strangers thereto, cannot be answerable thereunder.

14

SC Ruling: The petition is meritorious.

A continuing guaranty is a recognized exception to the rule that an
action to foreclose a mortgage must be limited to the amount mentioned in
the mortgage contract. 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 time to time either indefinitely or until a
certain period, especially if the right to recall the guaranty is expressly
reserved.
In the instant case, the language of the real estate mortgage
unambiguously reveals that the security provided in the real estate mortgage
is continuing in nature. Thus, it was intended as security for the payment of
the loans annotated at the back of the CCT, and as security for all amounts
that respondents may owe petitioner bank.It is well settled that mortgages
given to secure future advance or loans are valid and legal contracts, and
that the amounts named as consideration in said contracts do not limit the
amount for which the mortgage may stand as security if from the four corners
of the instrument the intent to secure future and other indebtedness can be
gathered.

Metrobank did not serve notice to Dio and Uy when it extended to

UyTiam the 1979 Letter of Credit at least to inform them that the continuing
suretyships they executed in 1977 will be considered by the plaintiff to secure
the 1979 transaction of UyTiam.
There is no sufficient and credible showing that Dio and Uy were
fully informed of the import of the Continuing Suretyships when they affixed
their signatures thereon; that they are thereby securing all future obligations
which UyTiam may contract with the plaintiff. On the contrary, Dio and Uy
categorically testified that they signed the blank forms in the office of UyTiam
at 623 Asuncion Street, Binondo, Manila, in obedience to the instruction of
UyTiam, their former employer. They denied having gone to the office of the
plaintiff to subscribe to the documents.
Bank of Commerce vs Flores
FACTS:
Respondents are the registered owners of a condominium unit in
Quezon City. Respondents borrowed money from petitioner bank in the
amount of (P900,000.00). Respondents executed a Real Estate Mortgage
over the condominium unit as collateral, and the same was annotated at the
back of the CCT. Respondents again borrowed (P1,100,000.00) from
petitioner bank, which was also secured by a mortgage over the same
property.
Respondents paid (P1,011,555.54), as evidenced by an Official
Receipt issued by petitioner bank. On the face of the receipt, it was written
that the payment was "in full payment of the loan and interest." Respondents
then asked petitioner bank to cancel the mortgage annotations since the
loans secured by the real estate mortgage were already paid in full.
However, the bank refused to cancel the same and demanded payment of
(P4,633,916.67), representing the outstanding obligation of respondents.
Petitioner bank applied for extra-judicial foreclosure of the mortgages over
the condominium unit.
Respondents assailed the validity of the foreclosure and auction sale
of the property. They averred that the loans secured by the property had
already been paid in full. Petitioner bank admitted that there were only two
(2) mortgage loans annotated at the back of the CCT, but denied
thatrespondents had already fully settled their outstanding obligations with
the bank.It averred that several credit lines were granted by petitioner bank
that were secured by promissory notes executed by him, and which were
either increased or extended from time to time.

WILLEX PLASTIC INDUSTRIES CORP. VS. CA

Facts:
Sometime in 1978, Inter-Resin Industrial Corporation (IRIC)opened a
letter of credit with the Manila Banking Corporation. To secure payment of
the credit accommodation, Inter-Resin Industrial and the Investment and
Underwriting Corporation of the Philippines (IUCP) executed two "Continuing
Surety Agreement" whereby they bound themselves solidarily to pay
Manilabank "obligations of every kind. In 1979, IRIC and Willex executed a
"Continuing Guaranty" in favor of IUCP.
Subsequently, IUCP paid to Manilabank the sum owed by InterResin Industrial. Atrium Capital Corp., which succeeded IUCP and, later on
succeeded by respondent, demanded from Inter-Resin Industrial and Willex
Plastic the payment of what it had paid to Manilabank.
Inter-Resin Industrial admitted that the "Continuing Guaranty" was intended
to secure the payment which the IUCP had paid to Manilabank. It claimed,
however, that it had already fully paid its obligation to Atrium Capital.
In denying liability to Interbank for the amount, Willex 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 Inter-Resin Industrial.
The case then proceeded to trial. The trial court declared Inter-Resin
Industrial to have waived the right to present evidence for its failure to appear
at the hearing despite due notice. On the other hand, Willex Plastic rested its
case without presenting any evidence. The trial court rendered judgment,
ordering Inter-Resin Industrial and Willex Plastic jointly and severally to
Interbank.

ISSUE:
Whether or not the real estate mortgage over the subject
condominium unit is a continuing guaranty for the future loans of respondent
spouses despite the full payment of the principal loans annotated on the title
of the subject property.

15

On appeal, the Court of Appeals rendered a decision affirming the

ruling of the trial court. Willex 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.

Macondray& Co., Inc. vs. Pinon 2 SCRA 1109 August 31, 1961
Facts:
On 11 May 1955 the plaintiff Macondray& Co. filed a complaint
aginst defendant Pinon, et. Al. in the CFI of Manila alleging that upon
representation and undertaking made by Ruperto K. Kangleon, then a
member of the Senate, in a letter addressed to the plaintiff dated 30 January
1954, that he would guarantee payment of his vo-defendants obligations,
should they fail to pay on the due date, on February 2 and 9, 1954, the
plaintiff sold on credit and delivered to the defendants Perfecto Pinon and
ConradoPiring, known in the theater and entertainment business as Tugak
and Pugak, respectively and transacting business under a common name
known as All Stars Productions 127 rolls of cinematographic films, for the
total sum of P6,985 payable on or before May 9, 1954, 12% interest thereon
from the date of maturity and 20% thereof for attorneys fees in case of suit
for collection.

Issue:
Whether or not under the "Continuing Guaranty" signed by Willex, it
may be held jointly and severally liable with Inter-Resin Industrial for the
amount by Interbank to Manilabank.
SC Ruling:
The contention is untenable. What Willex has overlooked is the fact
that evidence 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.
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.
Accordingly, the trial court found that it was "to secure the guarantee
made by plaintiff of the credit accommodation granted to defendant IRIC 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.
Similarly, the Court of Appeals found it to be an undisputed fact that
"to secure the guarantee undertaken by Interbank it required Willex to sign a
Continuing Guaranty." Nor does the record show any other transaction under
which Inter-Resin Industrial may have obtained sums of money from
Interbank. It can reasonably be assumed that Inter-Resin Industrial and
Willex intended to indemnify Interbank for amounts which it may have paid
Manilabank on behalf of Inter-Resin Industrial.
Willex Plastic argues that the "Continuing Guaranty," being an
accessory contract, cannot legally exist because of the absence of a valid
principal obligation. Its contention is based on the fact that it is not a party
either to the "Continuing Surety Agreement" or to the loan agreement
between Manilabank and Interbank Industrial.
Put in another way the consideration necessary to support a surety obligation
need not pass directly to the surety, a consideration moving to the principal
alone being sufficient. For a "guarantor or surety is bound by the same
consideration that makes the contract effective between the principal parties
thereto. . . . It is never necessary that a guarantor or surety should receive
any part or benefit, if such there be, accruing to his principal."
Willex Plastic contends that the "Continuing Guaranty" cannot be
retroactively applied so as to secure the payments made by Interbank under
the two "Continuing Surety Agreements." Willex Plastic conteds that a
contract of suretyship or guaranty should be applied prospectively.

SC Ruling:
Appellant Kangleons very letter constitutes his undertaking of
guaranty. Contracts shall be obligatory in whatever form they may have
been entered into, provided all the essential elements for their validity is
present. A contract of guaranty is not a formal contract and shall be valid in
whatever form it may be, provided that it complies with the Statute of Frauds.
Kangleon states that assuming that the letter constitutes a contract
of guaranty, the films actually sold to the principal debtors were 127 rolls of
F.G, release positive type825B, 35mm. x 1,000 ft at P 55 a roll, payable May
9, 1954, while what he undertook to guarantee payment was 10 rolls
negative at 157 each and 100 rolls positive at 55 each, payable within three
months ending April 1954. Citing Art. 2055 of the Civil Code that a guarantee
cannot extend to more than what is stipulated therein, the appellant contends
that he cannot be held liable for the contract in view of the variation in his
undertaking. The total cost of what was actually sold to and bought by the
principal debtors is P6,985, which is less that the total cost of what was
originally intended to be bought by them amounting to P7,070. The variation
was merely in kind and not in subject matter-cinematographic films which
did not render the appellants obligation more burdensome. Instead his
obligation was rendered less onerous by the reduction in the original price of
P7,070 to P6, 985.

Wise & Co., Inc. vs. Tanglao 63 PHIL. 372 August 29, 1936
Facts:
Plaintiff WCI obtained a preliminary attachment of Cornelio Davids
property. To avoid execution of said attachment, Cornelio David obtained a
special power of attorney from his lawyer DionisioTanglao, authorizing him to
sign for his lawyer as guarantor for himself in his indebtedness to plaintiff and

16

to mortgage his lawyers lot to guarantee said obligation to plaintiff. Cornelio

David confessed judgement for P640 payable monthly and secured by a
pledge to plaintiff of a house, apartment and a parcel of land recorded in the
name of DionisioTanglao. David made only partial payment of said judgment
debt. Plaintiff brought an action to recover the balance.

Eugenio Solon, as surety of said Montalban. It cannot therefore be believed

that Andres Montalban had been making statements to the effect that
Apolonia Solon had paid nothing for the transfer made in her favor by
Eugenio Solon, for the reason that the same was not real but only stimulated
and that it was made solely for the sole purpose of placing the land in
question beyond the reach of any action that might be brought by Macleod
&Company against said Eugenio Solon as surety to the obligation of
Montalban; and that Apolonia Solon had been telling her tenant named
Eugenio Labra that there had been an understanding among her brothers of
the whole blood that they would cede the said land to her as part of her
inheritance from their father, because, in the first place, there was no reason
to fear that Macleod & Company would bring an action against Eugenio
Solon for the collection of an amount greater than P5,000 which as surety, he
had bound himself to pay; and, in the second place, Apolonia Solon could
have made the above statement attributed to her for the simple reason that
she was then already the owners of the land aforesaid by virtue of the
purchase

SC Ruling:
Under the power of attorney, tanglao empowered David to enter into
a contract of suretyship and a contract of mortgage of the property described
in the document. David, however, used said power of attorney only to
mortgage the property and did not enter into a contract of suretyship.
Nothing is stated in the compromise agreement to the effect that
Tanglao became Davids surety for the payment of the judgment debt.
Neither is this inferable from any of the clauses thereof, even if this inference
might be made, it would be insufficient to create an obligation of suretyship
which under the law must be expressed and cannot be presumed.
Solon v. Solon
Facts: Eugenion Solon during his lifetime bought a parcel of land on
instalment from the Bureau of Lands describe as Lot 903 of the Banilad
Friar Lands Estate having an area of 6 hectares, 46 ares, and 13
centaresassessd by the Bureau at P403 payable in 13 years (P31 1s
payment and P21 for the next 12 years). Eugenio later with P126 as
balance sold the land to Apolonia Solon (his daughter) for P1k who agreed
to pay the installments still owing to the Bureau of Lands. Apolonia paid the
entire balance later on. A year after their transaction, Eugenio died without
livil a will. A TCT was issued in favour of Apolonia The latter took charge of
the property, occupying it as her own through tenants from the time she
bought the same, according to the evidence for the defendants, and from
the death of Eugenio Solon, according to that for the plaintiffs.

When Eugenio Solon bound himself as surety for Andres Montalban for the
payment to Macleod & Company of the amount of P5,000 which Montalban
owed to the latter, he limited himself to giving as security, by way of
mortgage, the land descried as Lot 892 of of the Banilad Friar Lands
Estate. . It is not possible that Macleod & Company could have ever
contemplated bringing an action against Eugenio Solon to obtain possession
not only of the land expressly mortgaged to it, which, as has been said, is lot
No. 892 but also of any other belonging to him or of lot No. 903 itself, for the
purpose of collecting its credit against Andres Montalban, because that the
contract of suretyship in its favor does not admit of the interpretation that it
could make Eugenio Solon liable for an amount greater than P5,000 and that
it could require him to pay Montalban's indebtedness, should the latter fail to
do so, with lands other than that he had mortgaged. This is so because the
clauses of a contract of suretyship determine the extent of the liability of the
surety ; because said liability should not be extended farther than the clear
terms of the contract of guarantee by mere implications; and because the
surety should be liable only in the manner and to the extent, and under the
circumstances pointed out in the contract of suretyship or which may be
clearly deduced therefrom.

Plaintiffs surnamed Solon, all of whom are children of the deceased Eugenio
nd
Solon in his marriage with his widow Manuela Ibaez (2 marriage) filed this
suit maintaining that the transfer to Apolonia was false and simulated and
that if the same had been executed by Eugenio Solon, it was without just
consideration, they prayed among others (1) that said document be declared
null and void because false and simulated, (2) that they be adjudged the
absolute owners pro indiviso of the land in question together with the other
heirs of Eugenio Solon, Trial court ruled in favour of Apolonia.
ISSUE: WON the transaction between Eugenio and Apolonia was valid.
HELD Yes.the transfer of the land in question made by Eugenio Solon to
Apolonia Solon, according to Exhibit B, had taken place long before the
commencement of the suit of Macleod & Co. against Montalban , and

General Insurance Corp v. Republic

17

Facts: the Central Luzon Educational Foundation, Inc. operating the Sison
and Aruego Colleges in Urdaneta, Pangasinan and the General Insurance
and Surety Corporation posted in favor of the Department of Education a
bond, the terms of which provide among others that:

P820.65, there was no basis for the action; that the bond is illegal and that
the Government has no capacity to sue.
The surety also filed a third-party complaint against TeofiloSison and Jose M.
Aruego on the basis of the indemnity agreement. While admitting the
allegations of the third-party complaint, Sison and Aruego claimed that
because of the cancellation and withdrawal of the bond, the indemnity
agreement ceased to be of force and effect.

1. The foundation will comply with all obligations, including the payment
of the salaries of all its teachers and employees, past, present, and
future.
2. The CLEF and the GISCas surety, are held bound, jointly and firmly,
unto DepEd in the sum of TEN THOUSAND PESOS (P10,000.00),
for the payment thereof we bind themselves, their heirs, executors,
administrators, successors, and assigns, jointly and severally.
3. WHEN the Secretary of Education is satisfied that said institution of
learning had defaulted in any of the foregoing particulars, this bond
may immediately thereafter be declared forfeited
4. LIABILITY of Surety under this bond will expire on June 15, 1955,
unless sooner revoked.

CFI rendered judgment holding the principal and the surety jointly and
severally liable to the Government in the sum of P10,000.00.
ISSUE: WON the surety is no longer liable on its bond after August 24, 1954
(when the 60-day notice of cancellation and withdrawal ended), or, at the
latest, after June 15, 1955. (NOTE that the action was filed on July 1956)
HELD: NO. It must be remembered that, by the terms of the bond the surety
guaranteed to the Government "compliance (by the Foundation) with all
obligations, including the payment of the salaries of its teachers and
employees, past, present and future. Now, it is not disputed that even before
the execution of the bond the Foundation was already indebted to two of its
teachers for past salaries. From the moment, therefore, the bond was
executed, the right of the Government to proceed against the bond accrued
because since then, there has been violation of the terms of the bond
regarding payment of past salaries of teachers at the Sison and Aruego
Colleges. The fact that the action was filed only on July 11, 1956 does not
militate against this position because actions based on written contracts
prescribe in ten years.

On the same day, May 15, 1954, the Central Luzon Educational Foundation,
Inc., TeofiloSison and Jose M. Aruego executed an indemnity agreement
binding themselves jointly and severally to indemnify the surety of xxx any
payments advances and expenses of whatever kind and nature, including
attorney's fees and legal costs, which the COMPANY may, at any time
sustain or incur and to and to reimburse the Company of all sums and
amounts of money which the COMPANY or its representatives shall or may
pay or cause to be paid or become liable to pay, on account of or arising
from the execution of the above mentioned Bond."
On June 25, 1954, the surety advised the Secretary of Education that it was
withdrawing and cancelling its bond. It appears that on the date of execution
of the bond, the Foundation was indebted to two of its teachers for salaries,
to wit: to RemediosLaoag, in the sum of P685.64, and to H.B. Arandia, in the
sum of P820.00, or a total of P1,505.64. Demand for the above amount
having been refused, OSG filed a complaint for the forfeiture of the
bondon July 11, 1956.

The surety cited some cases but those cases were not applied by the SC
because in those cases, the acts for which the bond was posted happened
after its expiration. In this case the right of the Government to collect on the
bond arose while the bond was in force, because, as earlier noted, even
before the execution of the bond, the principal had already been indebted to
its teachers.
Neither does the NARIC case support the surety's position. In that case, the
bond provided that

GSIC set up special defenses and a cross-claim against the Foundation and
prayed that the complaint be dismissed and that it be indemnified by the
Foundation of any amount it might be required to pay the Government, plus
attorney's fees. For its part, the Foundation denied the cross-claim and
contended that, because RemediosLaoag owed Fr. Cinense the amount of

This bond expires on March 20th, 1949 and will be cancelled TEN
DAYS after the expiration, unless the surety is notified of any existing

18

obligation thereunder, or unless the surety renews or extends it in

writing for another term.

the surety contends that it was released from its obligation under the bond
when on February 4, 1955, RemediosLaoag and the Foundation agreed that
the latter would pay the former's salaries, which were then already due, on
March 1, 1955. In support of this proposition, the surety cites Article 2079 of
the Code which provides as follows:

and We held that giving notice of existing obligation was a condition

precedent to further liability of the surety and that in default of such notice,
liability on the bond automatically ceased.

An extension granted to the debtor by the creditor without the

consent of the guarantor extinguishes the guaranty. . . .

Similarly, in the case of Santos, et. al. v. Mejia, et al., G.R. No. L-6383,
December 29, 1953, the bond provided that

But the above provision does not apply to this case. The supposed extension
of time was granted not by the Department of Education or the Government
but by the teachers. The creditors on the bond are not the teachers but the
Department of Education or the Government. Even granting that an
extension of time was granted without the consent of the surety, still that fact
would not help the surety, because as earlier pointed out, the Foundation
was also arrears in the payment of the salaries of H. B. Arandia. The case of
Arandia alone would be enough basis for the Government to proceed against
the bond.

Liability of the surety on this bond will expire in THIRTEEN DAYS

and said bond will be cancelled 10 DAYS after its expiration unless
surety is notified of any existing obligation thereunder.
and We held that the surety could not be held liable because the bond was
cancelled when no notice of existing obligations was given within ten days.
In the present case, there is no provision that the bond will be cancelled
unless the surety is notified of any claim and so no condition precedent has
to be complied with by the Government before it can bring an action. Indeed,
the provision of the bond in the NARIC and Santos cases that it would be
cancelled ten days after its expiration unless notice of claim was given was
inserted precisely because, without such a provision, the surety's liability for
obligations arising while the bond was in force would subsist even after its
expiration.

the surety contends that it cannot be made answer for more than the unpaid
salaries of H. B. Arandia, which it claimed amounted to P720.00 only,
because Article 2054 states that
A guarantor may bind himself for less, but not for more than the
principal debtor, both as regards the amount and the onerous nature
of the conditions.

The 60-day notice is not a period of prescription of action. The provision

merely means that the surety can withdraw as in fact it did in this case
even before June 15, 1955 provided it gave notice of its intention to do so at
least 60 days in advance. If at all, the condition is a limitation on the right of
the surety to withdraw rather than a limitation of action on the bond.

Should he have bound himself for more, his obligations shall be

reduced to the limits of that of the debtor.
The penal nature of the bond would suffice to dispose of this claim. For
whatever may be the amount of salaries due the teachers, the fact remains
that the condition of the bond was violated and so the surety became liable
for the penalty provided for therein.

The argument hat the bond is void for being contrary to public policy insofar
as it requires the surety to pay P10,000.00 regardless of the amount of the
salaries of the teachers is unavailing because the bond is penal in nature.
Article 1226 of the Code states that in obligation with a penal clause,
the penalty shall substitute the indemnity for damages and the payment
of interests in case of non-compliance, if there is no stipulation to the
contrary, and the party to whom payment is to be made is entitled to
recover the sum stipulated without need of proving damages because
one of the primary purposes of a penalty clause is to avoid such
necessity.The mere non-performance of the principal obligation gives
rise to the right to the penalty.

PNB v. Luzon Surety

Facts: Villarosaa sugar planter adhered to the Lopez Sugar Central Milling
Company, Inc. applied for a crop loan with the PNB. The application was
approved in the amount of P32,400 and the planter Villarosa executed a
Chattel Mortgage on standing crops to guarantee the crop loan. The credit
line was increased and as of 27 September, 1953there was a balance of
P63,222.78 but the amount increased as of the date of filing of the complaint
because of the interest accrued. The complaint sought relief not only against
the planter but also against the three (3) bondsmen, one of which is the

19

Luzon Surety filed a bond in the sum of 10k to guarantee the faithful
performance of the obligation of the planter with PNB. The bond executed
by Luzon Surety undertook to "comply with all the terms and conditions
stipulated in said crop loan contract," the same being incorporated in the
bond as essential part thereof.The trial court adjudged in favor of the PNB,
but the Court of Appeals reversedthe judgment, and absolved the surety on
the ground that PNB's evidence did not establish a cause of action, since the
bond made references to a crop loan contract executed in February, 1952,
and therefore the chattel mortgage dated March 6, 1962 could not have been
the obligation guaranteed by the surety bond; and that there had been
material alterations in the principal obligation, if any, guaranteed by it.

as its defense the alleged material alteration of the terms and conditions of
the contract as the basis of its prayer for release. Even this defense of
respondent Luzon Surety Co.,Inc. is untenable under the facts obtaining. As
a surety, said bonding company is charged as an original promissor and is
an insurer of the debt. While it is an accepted rule in our jurisdiction that an
alteration of the contract is a ground for release, this alteration, We stress
must be material.
In this case the alterations in the form of increases were made with the full
consent of Luzon Surety because it is explicityly provided in the Chattel
Mortgage that the Mortgagee may increase or decrease the amount of the
loan as well as the installment as it may deem convenient.

ISSUE:1.WON was justified in absolving Luzon Surety Co., Inc. from liability
to petitioner Philippine National Bank.

2. If a surety upon demand fails to pay, he can be held liable for interest,
even if in thus paying, the liability becomes more than that in the principal
obligation. The increased liability is not because of the contract but because
of the default and the necessity of judicial collection. It should be noted,
however, that the interest runs from the time the complaint is filed, not from
the time the debt becomes due and demandable.

2.WON is liable for the interest which, it contends, would increase its liability
to more than P10,000 which is the maximum of its bond.
HELD: No. CA did not give credence to an otherwise significant and
unrebutted testimony of petitioner's witnessthat the chattel mortgage was the
only contract executed by Villarosa evidencing the crop loan and upon
which Luzon Surety agreed to assume liability up to the amount of
P10,000.We have likewise gone over the answer of Luzon Surety Company
dated June 17, 1960 (p. 73 Record on Appeal) and noted the following:

Commonwealth Insurance v. CA
Facts:In 1984, plaintiff-appellant Rizal Commercial Banking Corporation
(RCBC) granted two export loan lines, one, for P2,500,000.00 to Jigs
Manufacturing Corporation (JIGS) and, the other, for P1,000,000.00 to Elba
Industries, Inc. (ELBA). JIGS and ELBA which are sister corporations both
drew from their respective credit lines, the former in the amount of
P2,499,992.00 and the latter for P998,033.37 plus P478,985.05 from the
case-to-case basis and trust receipts. These loans were evidenced by
promissory notes (Exhibits A to L, inclusive JIGS; Exhibits V to BB,
inclusive ELBA) and secured by surety bonds (Exhibits M to Q inclusive
JIGS; Exhibits CC to FF, inclusive ELBA) executed by defendantappellee Commonwealth Insurance Company (CIC).

xxxxxxxxx
"3. Defendant LUZON admits the portion of
paragraph 3 referring to the grant of P32,400
secured by a Chattel Mortgage dated March 6,
1952, copy of which is attached as Annex "A" of the
complaint.
xxxxxxxxx
As special defenses:

JIGS and ELBA defaulted in the payment of their respective loans. On

October 30, 1984, appellant RCBC made a written demand (Exhibit N) on
appellee CIC to pay JIGs account to the full extend (sic) of the suretyship. A
similar demand (Exhibit O) was made on December 17, 1984 for appellee
CIC to pay ELBAs account to the full extend (sic) of the suretyship. In
response to those demands, appellee CIC made several payments from
February 25, 1985 to February 10, 1988 in the total amount of
P2,000,000.00. There having been a substantial balance unpaid, appellant
RCBC made a final demand for payment (Exhibit P) on July 7, 1988 upon
appellee CIC but the latter ignored it. Thus, appellant RCBC filed the
Complaint for a Sum of Money on September 19, 1988 against appellee CIC.

"8. The
terms
and
conditions
of
the surety bond as well as the contract it guaranteed
was materially altered and or novated without the
knowledge and consent of the surety, thereby
releasing the latter from liability.
"11. The maximum liability,
defendant LUZON is P10,000.00.

if

any,

of

The principal obligation, therefore, has never been put in issue by then
defendant now respondent Luzon Surety Co., Inc. On the other hand it raised

20

Issue: Whether or not petitioner should be held liable to pay legal

interest over and above its principal obligation under the surety
bonds issued by it.

It was subsequently found that the work had not been carried in accordance
with the specifications. Hospicio de San Jose refused to pay the balance of
the contract price. Machetti brought an action to recover said amount.
Hospicio de San Jose presented a counterclaim for damages resulting from
the partial non-compliance of the agreement, in the total sum of P71,350. On
petition of his creditors, Machetti was declared insolvent. Upon motion of
Hospicio de San Jose, Fidelity & Surety Co. was made cross-defendant and
proceedings continued as to it, to the exclusion of Machetti. Hospicio filed a
complaint against the Fidelity and Surety Company asking for a judgment for
P12,800 against the company upon its guaranty which was later granted by
the CFI.

Held: Yes.Petitioner argues that it should not be made to pay interest

because its issuance of the surety bonds was made on the condition
that its liability shall in no case exceed the amount of the said bonds.
We are not persuaded. Petitioners argument is misplaced.
Jurisprudence is clear on this matter. As early as Tagawa vs. Aldanese and
Union Gurantee Co. and reiterated in Plaridel Surety & Insurance Co., Inc.
vs. P.L. GalangMachinero., Inc. and more recently, in Republic vs. Court of
Appeals and R & B Surety and Insurance Company, Inc., we have sustained
the principle that 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
Petitioners liability under the suretyship contract is different from its liability
under the law. There is no question that as a surety, petitioner should not be
made to pay more than its assumed obligation under the surety bonds.
However, it is clear from the above-cited jurisprudence that petitioners
liability for the payment of interest is not by reason of the suretyship
agreement itself but because of the delay in the payment of its obligation
under the said agreement.

Issue: WON CFI erred in granting the motion that Machetti be substituted by
Fidelity and Surety Company, the original plaintiff's guarantor
Held: NO. The contract of guarantee is given in English, and the terms
employed must be given the significance which, ordinarily attaches to them in
the language used. In English, the term guarantor implies an undertaking of
guaranty as distinguished from suretyship. It is true that notwithstanding the
use of the words guarantee or guaranty circumstances may be shown
which convert the contract into one of suretyship, but such circumstances do
not exist in the present case. On the contrary it appears affirmatively that the
contract is the guarantors separate undertaking in which the principal does
not join, that it rest on a separate consideration moving from the principal,
and that although it is written in continuation of the contract for the
construction of the building, it is collateral undertaking separate and distinct
from the latter. All of these circumstances are distinguishing features of
contracts of guaranty.

The issue of petitioners payment of interest is a matter that is totally different

from its obligation to pay the principal amount covered by the surety bonds it
issued. Petitioner offered no valid excuse for not paying the balance of its
principal obligation when demanded by RCBC. Its failure to pay is, therefore,
unreasonable. Thus, we find no error in the appellate courts ruling that
petitioner is liable to pay interest.

While a surety undertakes to pay if the principal does not pay, a guarantor
only binds himself to pay if the principal cannot pay. A surety is insurer of the
debt; the guarantor is the insurer of the solvency of the debtor. The latter
liability is what Fidelity & Surety Co. assumed in the present case. Fidelity &
Surety Co. having bound itself to pay only in the event its principal, Machetti
cannot pay, it follows that it cannot be compelled to pay until it is shown that
Machetti is unable to pay. Such inability to pay may be proven by the
return of a writ of execution unsatisfied or by other means, but it is not
sufficiently established by the mere fact that Machetti has been
declared insolvent in an insolvency proceeding in which the extent of
the insolvents liability to pay is not determined until the final
liquidation of his estate.

Machetti vs. Hospicio de San Jose 43 Phil. 297 April 10, 1922
Facts: Machetti by a written agreement undertook to construct a building for
Hospicio de San Jose the contract price being 64k. One of the conditions of
the agreement was that the contractor should obtain the guarantee of Fidelity
and Surety Co. to the amount of P12, 800. The following endorsement in the
English language appears on the contract; for value received, we hereby
guarantee compliance with the terms and conditions as outlined in the above
contract. Machetti constructed the building under the supervision of
architects representing the Hospicio de San Jose and, as the work
progressed, payments were made to him from time to time upon the
recommendation of the architects, until the entire contract price, with the
exception of the sum of P4,978.08, was paid.

Towers Assurance Corp v. Ororama Supermarket

Facts: See Hong, the proprietor of Ororama Supermart in CDO sued
Spouses Ong for the collection of the sum of P58,400 plus litigation

21

expenses and attorney's fees. Writ of preliminary attachment was issued.

The deputy sheriff attached the properties of the Ong spouses in Valencia,
Bukidnon and in Cagayan de Oro City.

of the Labor Code with claims for refund of a total amount of P30,000.00.
POEA
impleaded
herein
petitioner
surety Finman General Assurance Corporation (hereinafter referred to
as Finman), in the latter's capacity as Pan Pacific's bonding company.
Summons were served upon both Pan Pacific and Finman, but they failed to
answer. Despite being deemed in default for failing to answer,
both Finman and Pan Pacific were still notified of the scheduled hearing.
Again they failed to appear. Thus, ex-parte proceedings ensued.

To lift the attachment, Spouses Ong filed a counterbondcounterbond in the

amount of P58,400 with Towers Assurance Corporation as surety. In that
undertaking, the Ong spouses and Towers Assurance Corporation bound
themselves to pay solidarily to See Hong the sum of P58,400. Spouses Ong
was later declared in default. The lower court rendered a decision, ordering
not
only
the
Ong
spouses
but
also
their
surety, Towers Assurance Corporation, to pay solidarily to See Hong the sum
of P58,400. The writ of execution was issued on March 14 against the
judgment debtors and their surety. TAC filed a petition for certiorari where it
assails the decision and writ of execution.

Finman, in an answer which was not timely filed, alleged, among others, that
herein private respondents do not have a valid cause of action against it;
that Finman is not privy to any transaction undertaken by Pan Pacific with
herein private respondents; that herein private respondents claims are barred
by the statute of frauds and by the fact that they executed a waiver; that the
receipts presented by herein private respondents are mere scraps of paper;
that it is not liable for the acts of Mrs. Egil; that Finman has a cash bond of
P75,000.00 only which is less than the required amount of P100,000.00; and
that herein private respondents should proceed directly against the cash
bond of Pan Pacific or against Mrs. Egil.

Issue: WON the court erred in issuing a writ of execution against the surety.
Held: No. The surety should have been given an opportunity to be heard as
required in Sec. 17 of Rule 57 of the Rules of Court. Under this Section in
order that the judgment creditor might recover from the surety on the
counterbond, it is necessary (1) that execution be first issued against the
principal debtor and that such execution was returned unsatisfied in whole or
in part; (2) that the creditor made a demand upon the surety for the
satisfaction of the judgment, and (3) that the surety be given notice and a
summary hearing in the same action as to his liability for the judgment under
his counterbond.

Drilon (then Sec. of Labor) issued an order for the payment of 5k each for
Salik et al. jointly and severally on the part of Pan Pacific and Finman.
Issue: WON Drilon acted with grave abuse of discretion in directing Finman
to pay jointly and severally with Pan Pacific the claims of Salik et al.
Held: No. In the case at bar, it remains uncontroverted that herein petitioner
and Pan Pacific entered into a suretyship agreement. It is understood that
under the suretyship agreement, herein petitioner undertook itself to be
jointly and severally liable for all claims arising from recruitment violation of
Pan Pacific in keeping with Section 4, Rule V, Book I of the Implementing
Rules of the Labor Code which provides that the surety bond will answer for
valid and legal claims arising from violations of the conditions of the license
or the contracts of employment and guarantee compliance with the
provisions of the Code, its implementing rules and regulations.

The first requisite mentioned above is not applicable to this case

because Towers Assurance Corporation assumed a solidary liability for the
satisfaction of the judgment. A surety is not entitled to the exhaustion of the
properties of the principal debtor.
But certainly, the surety is entitled to be, heard before an execution can be
issued against him since he is not a party in the case involving his principal.
Notice and hearing constitute the essence of procedural due process.
WHEREFORE, the order and writ of execution, insofar as they
concern Towers Assurance Corporation, are set aside. The lower court is
directed to conduct a summary hearing on the surety's liability on its
counterbond.

The nature of Finmans obligation under the Suretyship agreement makes it

privy to the proceeding against the principal. As such Finman is bound, in the
absence of collusion, by a judgment against the principal even though it was
not a party to the proceedings. In some cases the court ruled that were the
surety bound itself solidarily with the principal obligor, the former is so
dependent on 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. Applying the foregoing principles to the
case at bar, it can be very well said that even if herein Finman was not
impleaded in the instant case, still it can be held jointly and severally liable
for all claims arising from the recruitment violation of Pan Pacific. Moreover
as correctly stated by the Solicitor General, private respondents have a legal

Finman General Assurance Corp. v. Salik

Facts: Salik, et al allegedly applied with Pan Pacific Overseas Recruiting
Services, Inc. and were assured employment abroad by a certain Mrs.
NormitaEgil. In consideration thereof, they allegedly paid fees totalling
P30,000.00. But despite numerous assurances of employment abroad given
by Celia Arandia and Mrs. Egil, they were not employed. They filed a
complaint with the POEA against Pan Pacific for violation of certain provision

22

claim against Pan Pacific and its insurer for the placement and processing
fees they paid, so much so that in order to provide a complete relief to private
respondents, petitioner have to be impleaded in the case.

Whether or not Respondent, being a guarantor, can get reimbursement from

Petitioner even if Respondent had not exercised its right to exhaustion
Ruling:

As regards the third assigned error, herein petitioner maintains that the
findings of fact made by the POEA upon which respondent Secretary of
Labor based his questioned Orders are not supported by substantial
evidence and are contrary to law, is likewise untenable. Well-settled is the
rule that findings of facts of the respondent Secretary are generally accorded
great weight unless there was grave abuse of discretion or lack of jurisdiction
in arriving at such findings.
In the case at bar, it is undisputed that when the case was first set for
hearing, only the private respondents appeared, despite summons having
been served upon both herein petitioner and Pan Pacific. This,
notwithstanding, both herein petitioner and Pan Pacific were again notified of
the scheduled hearing, but, as aforestated they also failed to appear. Owing
to the absence of any controverting evidence, respondent Secretary of Labor
admitted and considered private respondents' testimonies and evidence as
substantial. Under the circumstances, no justifiable reason can be found to
justify disturbance of the findings of facts of the Secretary of Labor,
supported as they are by substantial evidence and in the absence of grave
abuse of discretion ); and in line with the well established principle that the
findings of administrative agencies which have acquired expertise because
their jurisdiction is confined to specific matters are generally accorded not
only respect but at times even finality.

Respondent can get reimbursement.

While a guarantor enjoys the benefit of excussion, nothing prevents him from
paying the obligation once demand is made on him. Excussion, after all, is a
right granted to him by law and as such he may opt to make use of it or
waive it. Phil. Guarantees waiver of the right of excussion cannot prevent it
from demanding reimbursement from petitioners. The law clearly requires the
debtor to indemnify the guarantor what the latter has paid.
Machetti v. Hospicio de San Jose
Facts:
Hospicio de San Jose filed a case against the Fidelity & Surety Co.for a
collection of a sum of money. Hospicio argued that the Fidelity & Surety Co.
is the guarantor of Machetti in a contract between Machetti and Hospicio
wherein Machetti, by a written agreement, undertook to construct a building
on Calle Rosario in the city of Manila for Hospicio, the contract price being
P64,000. Machetti failed to comply with the specifications of the contract.
Hence, Machetti was asked for damages but he was not able to pay and was
even declared insolvent. Fidelity & Surety Co., being a guarantor, still refuses
to pay to Hospicio.

JN Development Corp. v. Phil. Export and Foreign Loan Guarantee

Corp.

Issue:

Facts:

Whether or not the Fidelity & Surety Co., being the guarantor, is obliged to
pay to Hospicio because of the insolvency of Machetti

Respondent Phil. Export filed a case against Petitioner for recovery of a sum
of money. Respondent Argued that it is the guarantor of Petitioner of a
contract of loan between Petitioner and Traders Royal Bank (TRB) whereby
TRB would extend to Petitioner JN an Export Packing Credit Line for Two
Million Pesos (P2,000,000.00). Petitioner was not able to pay the loan, so
Respondent was the one who paid it. Despite such, Petitioner refuses to
reimburse Respondent.

Ruling:
The Fidelity & Surety Co. is not obliged to pay.
Now, while a surety undertakes to pay if the principal does not pay, the
guarantor only binds himself to pay if the principal cannot pay. The one is the
insurer of the debt, the other an insurer of the solvency of the debtor. This
latter liability is what the Fidelity and Surety Company assumed in the
present case.

In its defense, Petitioner JN argued that it is not liable to reimburse

Respondent because Respondent did not exercise its right to exhaustion.
Being so, Respondent waived its right to reimbursement

The Fidelity and Surety Company having bound itself to pay only the event
its principal, Machetti, cannot pay it follows that it cannot be compelled to pay
until it is shown that Machetti is unable to pay. Such ability may be proven by

Issue:

23

the return of a writ of execution unsatisfied or by other means, but is not

sufficiently established by the mere fact that he has been declared insolvent
in insolvency proceedings under our statutes, in which the extent of the
insolvent's inability to pay is not determined until the final liquidation of his
estate

In his defense, Petitioner Bitanga argued that it is not liable because

Respondent had not yet exhausted the properties of Macrogen.
Issue:

Tupaz v. CA

Whether or not Petitioner Bitanga, as guarantor, is liable to Respondent even

if Respondent had not yet exhausted the properties of Macrogen

Facts:
Ruling:Petitioner Bitanga, as guarantor, is liable to Respondent.
BPI filed a case against Tupaz for collection of a sum of money. BPI argued
that Tupaz is a guarantor of El Oro Corp. in a contract between El Oro and
BPI regarding two commercial letters of credit. El Oro then failed to comply
with its obligation to BPI. However, Tupaz, as a guarantor, still refused to pay
BPI.

We further affirm the findings of both the RTC and the Court of Appeals that,
given the settled facts of this case, petitioner cannot avail himself of the
benefit of excussion.
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.

In his defense, Tupaz argued that he is not obliged to pay BPI because BPI
had not yet exhausted the properties of El Oro.
Issue:Whether or not Tupaz, as guarantor, is obliged to pay BPI even if BPI
had not yet exhausted the properties of El Oro
Ruling:Tupaz is obliged to pay BPI.

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 benefit of excussion may be waived. Under the trust receipt dated 30
September 1981, petitioner Jose Tupaz waived excussion when he agreed
that his "liability in [the] guaranty shall be DIRECT AND IMMEDIATE, without
any need whatsoever on xxx [the] part [of respondent bank] to take any steps
or exhaust any legal remedies xxx." The clear import of this stipulation is that
petitioner Jose Tupaz waived the benefit of excussion under his guarantee.

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.

As guarantor, petitioner Jose Tupaz is liable for El Oro Corporations

principal debt and other accessory liabilities (as stipulated in the trust receipt
and as provided by law) under the trust receipt dated 30 September 1981
Bitanga v. Pyramid Construction Engineering Corp.
Facts:

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.

Respondent Pyramid filed a case against Petitioner Bitanga for collection of

sum of money. Respondent Pyramid argued that Petitioner is the guarantor
of Macrogen Realty in a contract entered into by Macrogen and Pyramid
wherein the latter will construct for the former the Shoppers Gold Building,
located at Dr. A. Santos Avenue corner Palayag Road, Sucat, Paraaque
City. Macrogen then failed to failed to settle Respondents progress billings.
Petitioner Bitanga, as guarantor, also refused to pay to Respondent.

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.

24

Mira Hermanos v. Manila Tobacconists

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:
x xxx
(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.

Facts:
Plaintiff Hermanos filed a case to recover a sum of money against Defendant
Manila Tobacconists and its guarantor Respondent Provident Insurance.
Hermanos argued that Defendant Manila Tobacconists failed to comply with
its obligation in their contract wherein the former agreed to deliver to the
latter merchandise for sale on consignment under certain specified terms and
the latter agreed to pay to the former on or before the 20th day of each
month the invoice value of all the merchandise sold during the preceding
month. Respondent Provident Insurance, as the guarantor, also failed to pay.

De Guzman v. Santos
Facts:
Plaintiff De Guzman filed a case to recover a sum of money against
Defendant Santos. De Guzman argued that he is the guarantor of Defendant
Santos in a contract of loan between Defendant and PaulinoCandelaria.
Defendant then failed to comply with his obligation. Hence, De Guzman was
the one who paid to PaulinoCandelaria. However, Defendant refuses to
reimburse De Guzman.

In its defense, Respondent Provident Insurance argued that it should have its
benefit of division with Manila Compaia de Seguros, the co-guarantor.
Issue:

In his defense, Defendant Santos argued that he is not liable to reimburse

Plaintiff De Guzman because he did not give his consent to Plaintiff to be a
guarantor.

Whether or not Respondent Provident Insurance can exercise its benefit of

division with Manila Compaia de Seguros, the co-guarantor
Ruling:

Issue:Whether or not Defendant, as the debtor, is obliged to reimburse

Plaintiff, the guarantor, even if Defendant did not give his consent to Plaintiff
to be a guarantor

Respondent Provident Insurance cannot exercise its benefit of division.

Appellant Provident Insurance Co. having limited the issue in this appeal to
whether or not it is entitled to the "benefit of division" provided in article 1837
of the Civil Code, which reads as follows:
Art. 1837. Should there be several sureties of only one debtor for the
same debt, the liability therefor shall be divided among them all. The
creditor can claim from each surety only his proportional part unless
liability in solidumhas been expressly stipulated.
The right to the benefit of division against the co-sureties for their
respective shares ceases in the same cases and for the same
reason as that to an exhaustion of property against the principal
debtor.

Ruling:Defendant is obliged to reimburse Plaintiff.

In the present case, the guarantor was the deceased Santiago Lucero, now
represented by the plaintiff in her capacity as judicial administratrix, and the
debtor is the defendant-appellant. Applying the provision of the last cited
article, it is obvious that the appellant is legally bound to pay what the plaintiff
had advanced to the creditor upon the judgment, notwithstanding the fact
that the bond had given without his knowledge.
The obligation of the appellant to pay the plaintiff what the latter had
advanced is further sanctioned by the general provisions of the Civil Code
regarding obligations. Article 1158 provides that "payment may be made by
any person, whether he has an interest in the performance of the obligation
or not, and whether the payment is known and approved by the debtor or
whether he is unaware of it. Any person who makes a payment for the
account of another may recover from the debtor the amount of the payment,
unless it was made against the express will of the latter. In the latter case he
can only recover from the debtor in so far as the payment has been
beneficial to the latter."

That article refers to several sureties of only one debtor for the same debt. In
the instant case, although the two bonds on their face appear to guarantee
the same debt co-extensively up to P2,000 that of the Provident Insurance
Co. alone extending beyond that sum up to P3,000 it was pleaded and
conclusively proven that in reality said bonds, or the two sureties, do not
guarantee the same debt because the Provident Insurance Co. guarantees
only the first P3,000 and the Manila Compaia de Seguros, only the excess

25

over and above said amount up to P5,000. Article 1837 does not apply to this
factual situation.

26