JOSE M. A. ARROYO, guardian of Tito Jocsing, an imbecile vs.

FLORENTINO HILARIO JUNGSAY, ET AL. ( July 22, 1916)

FACTS: Plaintiff Arroyo, in this case is the guardian of one Tito Jocsing, an
imbecile, appointed by the court to succeed Jungsay, the former guardian, who
absconded with the funds of his ward. The defendants are the absconding guardian
(Jungsay) and his bondsmen.

The lower court rendered judgment against the defendants for the sum of P6,000,
together with interest and costs, the bondsmen appealed. Appellants (bondsmen)
claimed that they should be credited with P4,400, the alleged value of certain
property attached as that of the absconding guardian, all of which is in the
exclusive possession of third parties under claim of ownership. (In other words,
that they should be given the benefit of excussion)

ISSUE: WON the appellants (bondsmen) should be credited with P4,400 and
thus benefit from the principle of excusion?

HELD: NO.

The appellants in contending for the credit, rely upon article 1834 of the Civil
Code ( Old civil code to, about partnership na yung art. 1834), which gives to the
surety the benefit of a levy (excusion), even when a judgment is rendered against
both the surety and the principal. But, according to article 1832, before the surety
is entitled to this benefit, he must point out to the creditor property of the principal
debtor which can be sold and which is sufficient to cover the amount of the debt.

The court cited Manresa who stated that: it is not sufficient that the surety claim
the benefit of discussion in time, nor point out the property of the debtor to satisfy
the debt. It is also a necessary condition that such property is REALIZABLE and it
is SITUATED IN SPANISH TERRITORY.

PAG NATANONG: This is logical because if the property is situated a great

distance, it would be a lengthy and extremely difficult proceeding and if it is not
actually opposed to, it would defeat the purpose of the bond (to insure fulfilment of
the obligation and furnish the creditor with the means of obtaining its fulfillment
without delays). The same may be said of property that is not readily realizable.
The surety is tasked with designating the property for he is the one who will benefit
from it.
The same requirements were also cited in the case of Hill & Co. vs. Bourcier and
Pond:

1. The surety who wants to claim the benefit of excussion must demand it in
limine (on the institution of the proceedings)
2. He must point out to the creditor property of the principal debtor
3. The property must not be encumbered, subject to seizure and must furnish a
sufficient sum to have the discussion carried into effect

PAG NATANONG: It also stated that: the plea of excusion does not stay the
proceedings but judgment will be modified so as to require the creditor to proceed
by execution against the property of the principal and to exhaust it before resorting
to the property of the surety.

In this case, the property pointed out by the sureties is not sufficient to pay the
indebtedness; it is not salable; it is so incumbered that third parties have full
possession under claim of ownership without leaving to the absconding guardian a
fractional interest without determining first whether the claim of one or more of the
occupants is well founded. In all these respects the sureties have failed to meet the
requirements of article 1832 of the Civil Code.

Where a guardian absconds or is beyond the jurisdiction of the court, the proper
method, under article 1834 of the Civil Code and section 577 of the Code of Civil
Procedure, in order to ascertain whether such guardian is liable and to what extent,
in order to bind the sureties on his official bond, is by a proceeding in the nature of
a civil action wherein the sureties are made parties and given an opportunity to be
heard. All this was done in the instant case.

LUZON STEEL CORPORATION, represented by TOMAS AQUINO CU

vs.JOSE O. SIA, TIMES SURETY & INSURANCE CO. INC. (May 15, 1969)

FACTS: Luzon sued its former manager Sia and Metal Manufacturing of the
Philippines for breach of contract and damages. It obtained a writ of preliminary
attachment of the properties of the defendants, but the attachment was lifted upon a
P25,000 counterbond executed by Sia, as principal, and the Times Surety &
Insurance Co., Inc. (hereinafter designated as the surety), as solidary guarantor.

Luzon and Sia entered into a compromise without the intervention of Times Surety
whereby Sia agreed to settle the Luzons claim for the amount of P25,000.The
compromise was submitted to the court and the latter rendered judgment according
to such compromise. However, Sia failed to comply and Luzon moved for and
obtained a writ of execution against him and the joint and several counterbond.
Times Surety moved to quash the writ of execution against it, averring that it was
not a party to the compromise.

CFI Manila: set aside the writ of execution, and later cancelled the counterbond.

ISSUES:

(1) WON the judgment upon the compromise discharged the surety from its
obligation under its attachment counterbond? (NO)

Both questions can be solved by bearing in mind that we are dealing with
a counterbond filed to discharge a levy on attachment.

Rule 57, section 12, specifies that an attachment may be discharged upon the
making of a cash deposit or filing a counterbond "in an amount equal to the value
of the property attached as determined by the judge"; that upon the filing of the
counterbond "the property attached ... shall be delivered to the party making the
deposit or giving the counterbond, or the person appearing on his behalf, the
deposit or counterbond aforesaid standing in place of the property so released".

Whether the judgment be rendered after trial on the merits or upon compromise,
such judgment undoubtedly may be made effective upon the property released; and
since the counterbond merely stands in the place of such property, there is no
reason why the judgment should not be made effective against the counterbond
regardless of the manner how the judgment was obtained.

PAG NATANONG: Anzures vs. Alto Surety & Insurance Co., Inc., et al.: There is
no point in the contention of the respondent Surety Company that the compromise
was entered into without its knowledge and consent, thus becoming as to it
essentially fraudulent. The Surety is not a party to the former civil case and,
therefore, need not be served with notice of the petition for judgment. As against
the conjecture of said respondent that the parties may easily connive by means of a
compromise to prejudice it, there is also the likelihood that the same end may be
attained by parties acting in bad faith through a simulated trial. At any rate, it is
within the power of the Surety Company to protect itself against a risk of the kind.

PAG NATANONG: The lower court and the appellee herein appear to be confused
as to the difference between bonds filed by a plaintiff for the issuance of writs of
attachment and bonds an filed by a defendant for the lifting of writs of attachment
already issued and levied. Thus, in Cajefe vs. Judge Fernandez, et al., this Court
pointed out that

Counterbonds posted to obtain the lifting of a writ of attachment : security for

the payment of any judgment that the attaching party may obtain; they are thus
mere replacements of the property formerly attached, and just as the latter may be
levied upon after final judgment in the case in order to realize the amount
adjudged, so is the liability of the countersureties ascertainable after the judgment
has become final.

Injunction counterbonds: sureties in the latter case merely undertake "to pay all
damages that the plaintiff may suffer by reason of the continuance ... of the acts
complained of" and not to secure payment of the judgment recovered.1

It was, therefore, error on the part of the court below to have ordered the surety
bond cancelled, on the theory that the parties' compromise discharged the
obligation of the surety.

(2) WON the writ of execution could be issued against the surety without
previous exhaustion of the debtor's properties? (YES)

The surety in the present case insists that the execution issued against it was
invalid because the writ issued against its principal, Jose O. Sia, et al., defendants
below, had not been returned unsatisfied; and the surety invoked in its favor
Section 17 of Rule 57 of the Revised Rules of Court (old Rule 59), couched in the
following terms:

SEC. 17. When execution returned unsatisfied, recovery had upon bond.
If the execution be returned unsatisfied in whole or in part, the surety or
sureties on any counterbond given pursuant to the provisions of this rule to
secure the payment of the judgment shall become charged on such counter-
bond, and bound to pay to the judgment creditor upon demand, the amount
due under the judgment, which amount may be recovered from such surety
or sureties after notice and summary hearing in the same action.

The rule heretofore quoted cannot be construed as requiring that an execution

against the debtor be first returned unsatisfied even if the bond were a solidary one;
for a procedural rule may not amend the substantive law expressed in the Civil
Code, and further would nullify the express stipulation of the parties that the
surety's obligation should be solidary with that of the defendant.
Even if the surety's undertaking were not solidary with that of the principal debtor,
still he may not demand exhaustion of the property of the latter, unless he can point
out sufficient leviable property of the debtor within Philippine territory. There is no
record that the appellee surety has done so.

Under the rule and its own terms, the counter-bond is only conditioned upon the
rendition of the judgment. Payment under the bond is not made to depend upon the
delivery or availability of the property previously attached, as it was under Section
440 of the old Code of Civil Procedure. Where under the rule and the bond the
undertaking is to pay the judgment, the liability of the surety or sureties attaches
upon the rendition of the judgment, and the issue of an execution and its
return nulla bona is not, and should not be, a condition to the right to resort to the
bond.

It is true that under Section 17 recovery from the surety or sureties should be "after
notice and summary hearing in the same action". But this requirement has been
substantially complied with from the time the surety was allowed to move for the
quashal of the writ of execution and for the cancellation of their obligation.

RULING: the court of origin is ordered to proceed with the execution against the
surety appellee, Times Surety & Insurance Co., Inc.

MIRA HERMANOS, INC. vs. MANILA TOBACCONISTS, INC., ET AL.

PROVIDENT INSURANCE CO. (September 29, 1943)

FACTS: Under a contract, Mira Hermanos, Inc. agreed to deliver to Manila

Tobacconist Inc. merchandise for sale on consignment under certain terms and the
latter agreed to pay to the former the invoice value of all the merchandise sold
monthly.

Mira required of the Tobacconists a bond of P3,000, which was executed by the
Provident Insurance Co. (Spet. 2, 1939) to secure the fulfillment of the obligation
of the Tobacconists under the contract up to the sum of P3,000.

(October 1940) Due to the increase in volume of business of the Tobacconist

(which resulted to the merchandise received by it from Mira exceeding P3,000)
Mira required of the Tobacconist an additional bond of P2,000, and so Manila
Compaia de Seguros (October 16, 1940) executed a bond of P2,000 with the same
terms and conditions (except as to the amount) as the bond of the Provident
Insurance Co.

June 1, 1941, a final and complete liquidation of the transactions between

Hermanos and the Tobacconists, showed an indebtedness of Tobacconnist to Mira
of P2,272.79, in which it was not able to pay. After demand by Mira, Provident
Insurance only payed P1,363.67, (only 60% of the debt) alleging that the remaining
40% should be paid by the other surety, Manila Compaia de Seguros, in
accordance with article 8137 of the Civil Code.

Manila Compaia de Seguros refused to pay contending that so long as the liability
of the Tobacconists did not exceed P3,000, it was not bound to pay anything
because its bond referred only to the obligation of the Tobacconists in excess of
P3,000 and up to P5,000.

To recover the remaining P909.12, Mira sued the Tobacconist, Provident Insurance
and Manila Compaia de Seguros.

Trial court: in favor of Manila Compaia de Seguros

ISSUE: WON Provident Insurance is entitled to the benefit of division? (NO)

Held: The benefit of division applies only when there are several sureties of only
one debtor for the same debt. In the instant case, altho the two bonds on their face
appear to guarantee the same debt co-extensively up to P2,000 that of the
Provident Insurance 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 over and
above said amount up to P5,000. Article 1837 does not apply to this factual
situation.

Theere would have been no need for the additional bond of P2,000 if its purpose
were to cover the first P2,000 already covered by the P3,000 bond of the Provident
Insurance. As a matter of fact, when the Provident gave its bond and fixed the
premiums thereon it assumed an obligation of P3,000 in solidum with the
Tobacconists without any expectation of any benefit of division with any other
surety. The additional bond of P2,000 was, more than a year later, required by the
creditor of the principal debtor for the protection of said creditor and certainly not
for the benefit of the original surety, which was not entitled to expect any such
benefit.
Ruling: The judgment of the trial court is affirmed, with the only modification that
it shall be entered against the defendants Manila Tobacconists, Inc., and Provident
Insurance Co. jointly and severally

How Manila Compaia de Seguros proved its defense: undisputed testimony of

the witnesses

Applicable Law NOW: Article 2065

(OLD CIVIL CODE--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
solidum has 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.)

JN DEVELOPMENT CORPORATION, and SPS. RODRIGO and LEONOR

STA. ANA vs. PHILIPPINE EXPORT AND FOREIGN LOAN
GUARANTEE CORPORATION (August 31, 2005)
Note: This case is consolidated with NARCISO V. CRUZ vs. PHILIPPINE
EXPORT and FOREIGN LOAN GUARANTEE CORPORATION
FACTS: December 13, 1979, Traders Royal Bank (TRB) extended an Export
Packing Credit Line for P2,000,000 in favor of JN Development Corporation (JN).
It was covered by:
-several securities
-a REM
- a letter of guarantee from respondent Philippine Export and Foreign Loan
Guarantee Corporation (PhilGuarantee), covering 70% of the credit line.
JN, spouses Sta. Ana and Narciso Cruz executed a Deed of Undertaking to
assure repayment to PhilGuarantee. JN failed to pay and on Oct. 8, 1980, TRB
requested PhilGuarantee to make good its guarantee.
After inquiring and receiving no response from JN, PhilGuarantee paid TRB
P934,824.34. Subsequently, PhilGuarantee made several demands on JN, but the
latter failed to pay.
 JN, through Rodrigo Sta. Ana, proposed to settle the obligation by way of
development and sale of the mortgaged property. PhilGuarantee, however, rejected
the proposal.
PhilGuarantee thus filed a Complaint for collection of money and damages
against herein petitioners.
RTC = (Aug. 20, 1888) dismissed PhilGuarantees Complaint as well as the
counterclaim of petitioners. Ruled that petitioners are not liable to reimburse
PhilGuarantee what it had paid to TRB.
It found that TRB was able to foreclose the REM executed by JN, thus
extinguishing petitioners obligation. Moreover, there was no showing that after the
said foreclosure, TRB had demanded from JN any deficiency or the payment of the
difference between the proceeds of the foreclosure sale and the actual loan.
Also held that since PhilGuarantees guarantee was good for only one year from
17 December 1979, or until 17 December 1980, and since it was not renewed after
the expiry of said period, PhilGuarantee had no more legal duty to pay TRB on 10
March 1981.
The failure of TRB to sue JN for the recovery of the loan precludes
PhilGuarantee from seeking recoupment from the spouses Sta. Ana and Cruz what
it paid to TRB. Thus, PhilGuarantees payment to TRB amounts to a waiver of its
right under Art. 2058 of the Civil Code.
C.A. = reversed RTC ruling. Ordered petitioners to pay Philguarantee
P934,624.34, plus service charge and interest. The find finding that the foreclosure
sale extinguished the loan is negated by Rodrigo Sta. Anas testimony that JN did
not receive any notice of foreclosure. Sta. Ana even offered the same mortgaged
property to PhilGuarantee to settle its obligations with the latter.
Also ruled that JNs obligation had become due and demandable within the
one-year period of effectivity of the guarantee; thus, PhilGuarantees payment to
TRB conformed with its guarantee, although the payment itself was effected one
year after the maturity date of the loan.
The contract of guarantee was not extinguished by the alleged lack of evidence
on PhilGuarantees consent to the extensions granted by TRB to JN. Interpreting
Art. 2058 of the Civil Code,[24] the appellate court explained that while the
provision states that the guarantor cannot be compelled to pay unless the properties
of the debtor are exhausted, the guarantor is not precluded from waiving the
benefit of excussion and paying the obligation altogether.
ISSUE: WON petitioner is still liable to indemnify Philguarantee?
HELD: YES.
It is clear that excussion may only be invoked after legal remedies against the
principal debtor have been expanded. Thus, it was held that the creditor must first
obtain a judgment against the principal debtor before assuming to run after the
alleged guarantor, for obviously the exhaustion of the principals property cannot
even begin to take place before judgment has been obtained.
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.
PhilGuarantees 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.
The guarantee was only up to 17 December 1980. JNs obligation with TRB fell
due on 30 June 1980, and demand on PhilGuarantee was made by TRB on 08
October 1980. That payment was actually made only on 10 March 1981 does not
take it out of the terms of the guarantee. What is controlling is that default and
demand on PhilGuarantee had taken place while the guarantee was still in force.
The is no basis for petitioners claim that PhilGuarantee was a mere volunteer
payor and had no legal obligation to pay TRB. The law does not prohibit the
payment by a guarantor on his own volition, heedless of the benefit of excussion.
In fact, it recognizes the right of a guarantor to recover what it has paid, even if
payment was made before the debt becomes due, or if made without notice to the
debtor, subject of course to some conditions.
The case of Willex Plastic vs C.A does not apply in this case. PhilGuarantee is
not invoking the benefit of excussion. It cannot be overemphasized that excussion
is a right granted to the guarantor and, therefore, only he may invoke it at his
discretion.
The benefit of excussion, as well as the requirement of consent to extensions of
payment, is a protective device pertaining to and conferred on the guarantor. These
may be invoked by the guarantor against the creditor as defenses to bar the
unwarranted enforcement of the guarantee. However, PhilGuarantee did not avail
of these defenses when it paid its obligation according to the tenor of the guarantee
once demand was made on it.
Petitioners have no one to blame but themselves, having allowed the
foreclosure of the property for the full value of the loan despite knowledge of
PhilGuarantees payment to TRB. Having been aware of such payment, they should
have opposed the foreclosure, or at the very least, filed a supplemental pleading
with the trial court informing the same of the foreclosure sale.
Likewise, petitioners cannot invoke the pari-passu clause in the guarantee, not
being parties to the said agreement. The clause is clearly for the benefit of the
guarantor and no other.
BENJAMIN BITANGA vs
PYRAMID CONSTRUCTION August 28, 2008
ENGINEERING CORP. ,

FACTS: On 6 September 2001, respondent filed with the RTC a Complaint for
specific performance and damages with application for the issuance of a writ of
preliminary attachment against the petitioner and Marilyn. The Complaint was
docketed as Civil Case No. Q-01-45041.

March 26 1997, Pyramid Construction entered into an agreement

with Macrogen Realty, of which Bitanga is the President, to construct for the latter
the Shoppers Gold Building, located at Sucat, Paranaque City. Pyramid
Construction commenced civil, structural, and architectural works on the
construction project. However, Macrogen Realty failed to settle respondents
progress billings. Bitanga, through his representatives and agents, assured Pyramid
Construction that the outstanding account of Macrogen Realty would be paid, and
requested the Pyramid Construction to continue working on the construction
project.Relying on the assurances made by Bitanga, who was no less than the
President of Macrogen Realty, respondent continued the construction project.

Macrogen failed to settle its accounts and comply with the conditions of
Pyramid Construction , so the latter suspended work on the project. On September
1999, Pyramid Construction instituted with the Construction Industry Arbitration
Commission (CIAC) a case for arbitration against Macrogen Realty seeking
payment by the latter of its unpaid billings and project costs.
Before the arbitration case could be set for trial, Pyramid Construction
and Macrogen entered into a Compromise Agreement, with Bitanga acting as
signatory for and in behalf of MacrogenRealty. Under the Compromise
Agreement, Macrogen Realty agreed to pay Pyramid Construction P6,000,000 in
six equal monthly instalments.
 Macrogen Realty agreed that if it would default in the payment of 2
successive monthly installments, immediate execution could issue against it for the
unpaid balance, without need of judgment or decree from any court or
tribunal. Bitanga guaranteed the obligations of Macrogen under the Compromise
Agreement.

Macrogen Realty failed and refused to pay all the monthly installments
agreed upon in the Compromise Agreement. Sept. 7, 2000, Pyramid Construction
moved for the issuance of a writ of execution against Macrogen Realty, which
CIAC granted.

On November 29, 2000, the sheriff filed a return stating that he was unable
to locate any property of Macrogen Realty, except its bank deposit of P20,242.33,
with the Planters Bank, Buendia Branch.

Respondent then made, a written demand on petitioner, as guarantor of Macrogen

to pay the liability or to point out available properties of the Macrogen within the
Philippines sufficient to cover the obligation guaranteed. It also made verbal
demands on petitioner. Yet, respondents demands were left unheeded.

Petitioner filed with the RTC his Answer to respondents Complaint. As a special
and affirmative defense, petitioner argued that the benefit of excussion was still
available to him as a guarantor since he had set it up prior to any judgment against
him. According to petitioner, respondent failed to exhaust all legal remedies to
collect from Macrogen the amount due under the Compromise Agreement,
considering that Macrogen Realty still had uncollected credits which were more
than enough to pay for the same. Given these premise, petitioner could not be held
liable as guarantor.

RTC= rendered a summary judgment ordering the spouses Bitanga to

pay P6,000,000.00, less P20,242.23 (representing the amount garnished
bank deposit of MACROGEN in the Planters Bank, BuendiaBranch); and
the costs of suit.
C.A. = modified RTC ruling . Marilyn Bitanga is not liable under the
compromise agreement or the contract of guaranty stating that a contract
cannot be enforced against one who is not a party to it.
ISSUES:
PAG NATANONG LANG: (1)Whether or not there was proper service
of notice to petitioner considering the said letter of demand was
allegedly received by one Dette Ramos at Macrogen office and not by
him at his residence

The issue regarding the propriety of the service of a copy of the demand
letter on the petitioner in his office is a sham issue. It is not a bar to the issuance of
a summary judgment in respondents favor.

Significantly, petitioner does not deny the receipt of the demand letter from
the respondent. He merely raises a howl on the impropriety of service thereof,
stating that the address to which the said letter was sent was not his residence but
the office of Macrogen Realty, thus it cannot be considered as the correct manner
of conveying a letter of demand upon him in his personal capacity.

When petitioner signed the Contract of Guaranty and assumed obligation as

guarantor, his address in the said contract was the same address where the demand
letter was served. He does not deny that the said place of service, which is the
office of Macrogen, was also the address that he used when he signed as guarantor
in the Contract of Guaranty. Nor does he deny that this is his office address;
instead, he merely insists that the person who received the letter and signed the
receiving copy is not an employee of his company. Petitioner could have easily
substantiated his allegation by a submission of an affidavit of the personnel
manager of his office that no such person is indeed employed by petitioner in his
office, but that evidence was not submitted.
Moreover, under Section 6, Rule 13 of the Rules of Court, there is
sufficiency of service when the papers, or in this case, when the demand letter is
personally delivered to the party or his counsel, or by leaving it in his office with
his clerk or with a person having charge thereof, such as what was done in this
case.

(B) Whether or not petitioner is entitled to the benefit of excussion?

NO.
 Article 2060 of the Civil Code clearly requires that in order for the
guarantor to make use of the benefit of excussion, he must set it up against the
creditor upon the latters demand for payment and point out to the creditor available
property of the debtor within the Philippines sufficient to cover the amount of the
debt.

It must be stressed that despite having been served a demand letter at his office,
petitioner still failed to point out to the respondent properties of Macrogen Realty
sufficient to cover its debt as required under Article 2060 of the Civil Code. Such
failure on petitioners part forecloses his right to set up the defense of excussion.
Worthy of note as well is the Sheriffs return stating that the only property
of Macrogen Realty which he found was its deposit of P20,242.23 with the
Planters Bank.

Article 2059(5) of the Civil Code thus finds application and precludes petitioner
from interposing the defense of excussion. We quote:

Art. 2059. This excussion shall not take place:

xxxx

(5) If it may be presumed that an execution on the property of the

principal debtor would not result in the satisfaction of the obligation.

As the Court of Appeals correctly ruled:

We find untenable the claim that the Benjamin Bitanga cannot be

compelled to pay Pyramid because the Macrogen Realty has allegedly
sufficient assets. Reason: The said had not genuinely controverted the
return made by Sheriff. Bisnar, who affirmed that, after exerting
diligent efforts, he was not able to locate any property belonging to
the Macrogen , except for a bank deposit with the Planters Bank
at Buendia, in the amount of P20,242.23. It is axiomatic that the
liability of the guarantor arises when the insolvency or inability of the
 debtor to pay the amount of debt is proven by the return of the writ of
execution that had not been unsatisfied.

IN ALL, we fail to point out any impropriety in the rendition of a summary

judgment in favor of the respondent.

C.A. ruling affirmed.

Saenz vs. Yap Chuan (1910)

Facts: By order of the court, Engracio Palanca, as judicial administrator of an estate, gave a
bond to guarantee his administration. The judicial bond was executed by Palanca,
Vizmanos, and others jointly and severally in favor of the Government for the sum of 60K.
In turn, Palanca and 5 others executed in favor of Vizmanos another bond.
As guarantor in solidum of Palanca who was replaced by Yap Chengtua as the new
administrator, Vizmanos was ordered by the court to pay to the estate the sum of 48K.
Vizmanos paid 8K and still owed 40K. Palanca could not pay Vizmanos.

On April 2, 1908, he instituted suit against the five sureties above named who, with
Engracio Palanca, executed the bond before mentioned in his favor, praying the Court of
First Instance of the city of Manila to sentence them to pay him: Yap Chuangco, P20,000,
and the other four sureties, Yap Chutco, Carlos Palanca Tanguinaly, Serafin Palanca Yap
Poco, and Lim Pongco, each P5,000, that is, these four together P20,000 more, and jointly
the costs of the action.

Issue: WON the other creditors should reimburse Vizmanos each or a total of 20K
notwithstanding that Vizmanos had paid only 8K of his bond?

Held: No
1. Guarantors rights of reimbursement is limited to the amount paid
2. An action of subrogation is an action of indemnity

Being as it is an action of subrogation, it is not exercisable except in the case of payment.

The surety is subrogated by the payment, says the law, in all the rights that the creditor had
against the debtor. Being as it is an action of indemnity it is not conceived how, rationally,
the damage not yet caused can be anticipated. When the purse of the surety has suffered no
detriment, to sue the debtor in order that he provide funds for the surety in expectancy of
the action of the creditor, is not to ask an indemnity, but to demand a guaranty to recover
the loss when it may occur, and this guaranty is that already obtained by the surety
Vizmanos from Engracio Palanca on the latter's placing beforehand four parties in his stead
in order that they may the proper time ensure him of the restitution, the reimbursement of
what he shall have paid. To ask an indemnity of twenty, when the loss to be
indemnified is but eight, can in no wise be authorized either by law or by reason.

Art. 2067 the guarantor who pays is subrogated by virtue thereof of all the rights which the
creditor had against the debtor. If the guarantor has compromised with the creditor, he
cannot demand of the debtor more than what he has really paid.
Tuason, Tuason, Inc. vs. Machuca (1924)

Facts: Manila Compania de Seguros signed a note for P10,000 in favor of Tuason, Tuason
Inc. to guarantee a liability of Universal Trading Co, In turn, Universal Trading Co. and its
president, Antonio Machuca, in his personal capacity, executed a document wherein they
bound themselves solidarily to reimburse Manila Compania de Seguros all of such sum it
may pay or become bound to pay, upon its obligation to Tuason, Tuason Inc. whether or not
it shall have actually paid such sums or any part thereof. Universal Trading Co. was
declared insolvent.

Tuason, Tuason, Inc. brought action against Manila Compania De Seguros to recover the
value of the note and obtained final judgment. Later, Manila Compania De Seguros filed a
complaint against Machuca to recover the amount which Manila Compania De Seguros was
sentenced to pay Tuason, Tuason, Inc, plus attorneys fees, judicial costs and sheriffs fees,
and interest, although Manila Compania De Seguros had not, in fact, paid the amount of the
judgment.

Issue:
a) WON Tuason, Tuason Inc. Is entitled to the relief sought in view of the above facts?
b) WON Tuason, Tuason Inc. has the right to recover from Machuca more than the
value of the note executed by Tuason, Tuason, Inc. in favor of Manila Compania de
Seguros?
Held:
a. Yes. It is indispensable that Universal Trading Co. became bound by virtue of final
judgment to pay the value of the note executed by it in favor of Manila Compania de
Seguros, and according to the document executed solidarily by Universal Trading
Co. and Machuca, Machuca bound himself to pay Tuason, Tuason, Inc. as soon as the
latter may have become bound and liable, whether or not it shall have actually paid.
b. Machuca must not be responsible for the expenses incurred by Manila Compania De
Seguros in the litigation between it and Tuason, Tuason, Inc. and it cannot charge
Machuca with expenses it was compelled to make by reason of its fault. It is entitled
only to expenses incurred by it in the action against Machuca.

Art. 2071 the guarantor, even before having paid, may proceed against the principal debtor:
1. When he is being sued for the payment
2. In the case of insolvency of the principal debtor
3. When the debtor has bound himself to relieve him from the guaranty within specified period,
and this period has expired
4. When the debt has become demandable, by reason of the expiration of the period of the payment
5. After the lapse of ten years, when the principal obligation has no fixed period for its maturity,
unless it be such nature that it cannot be extinguished except within a period longer than ten
years
6. If there are reasonable grounds to fear that the principal debtor intends to abscond
7. If the principal debtor is in imminent danger of becoming insolvent
In all these, cases, the action of the guarantor is to obtain release from the guaranty, or to demand a
security that shall protect him from any proceedings by the creditor and from the danger of the
insolvency of the debtor.
Kuenzle & Streiff vs. Tan Sunco (1909)

Facts: Kuenzle & Streiff instituted an action against Chung Chu Sing for the recovery of
indebtedness. Before Kuenzle & Streiff could secure judgment, Tan Sunco brought an action
against Chung Chu Sing for the payment of another obligation from Ed. and A. Keller and
Co. for which Tan Sunco acted as guarantor. The total debt was composed of four invoices
of varying amounts P395.50, P450, P565, and P320.20. Chung Chu Sing confessed
judgment in favor of Tan Sunco. Immediately after obtaining judgment, Tan Sunco caused
to be levied upon under execution all the properties of Chung Chu Sing. Kuenzle & Streiff
commenced an action to set aside the judgment, claiming it was obtained by the fraud and
collusion, and that Tan Sunco had not paid the debt for which as guarantor he obtained the
judgment.

Issue: WON a guarantor who sues his principal debtor before paying the debt himself
entitled to recover judgment for the debt?

Held: No, while the surety has the right to obtain judgment against his principal debtor, he
will not be permitted to realize on said judgment to the point of actual collection until he
has satisfied, or caused to be satisfied, the obligation the payment of the obligation of which
he assures. Sunco shall not execute said judgments against the property of the judgment
debtor until he has paid the debt for which he stands surety.
A guarantor who obtains judgment against his principal cannot execute said
judgment against the latters property until he has paid the debt for which he stands as
guarantor.
The Surety Bond was not novated by the Trust Agreement. Both agreements can co-exist. The Trust
Agreement merely furnished to PNB another party obligor to the Principal Obligation in addition to
PAGRICO and R & B Surety.

Cochingyan, Jr. v. R&B Surety and Insurance Co., Inc.

June 30, 1987

Feliciano, J.
Petition: for review on certiorari of a decision of the Court of Appeals involving questions of law

Parties:
Joseph Cochingyan, Jr. and Jose Villanueva petitioners
R&B Surety and Insurance Company, Inc. - respondent

Facts: (Who are the actors? What is the contract? Cause of Action? Injury? Damage? Lower Court Ruling?)

In November 1963, Pacific Agricultural Suppliers, Inc. (PAGRICO) was granted an increase in its line of credit from
P400,000.00 to P800,000.00 (the Principal Obligation), with the Philippine National Bank (PNB).

PAGRICO submitted Surety Bond No. 4765, issued by respondent R&B Surety and Insurance Co., (R&B Surety) in the
amount of P400,000.00 in favor of the PNB. In consideration of R & B Surety's issuance of the Surety Bond, two
identical indemnity agreements were entered into with R & B Surety executed by the Catholic Church Mart (CCM) and
by petitioner Joseph Cochingyan, Jr, and (b) another agreement dated 24 December 1963 was executed by PAGRICO.

Under both indemnity agreements, the indemnitors bound themselves jointly and severally to R & B Surety to pay an
annual premium of P5,103.05 and "for the faithful compliance of the terms and conditions set forth in said SURETY
BOND for a period beginning ... until the same is CANCELLED and/or DISCHARGED."

When PAGRICO failed to comply with its Principal Obligation to the PNB, the PNB demanded payment from R & B
Surety of the sum of P400,000.00, the full amount of the Principal Obligation. R & B Surety made a series of payments
to PNB by virtue of that demand totalling P70,000.00 evidenced by detailed vouchers and receipts.

R & B Surety in turn sent formal demand letters to petitioners Joseph Cochingyan, Jr. and Jose K. Villanueva for
reimbursement of the payments made by it to the PNB and for a discharge of its liability to the PNB under the Surety
Bond. When petitioners failed to heed its demands, R & B Surety brought suit against Joseph Cochingyan, Jr., Jose K.
Villanueva and Liu Tua Ben.

The lower court rendered a decision in favor of R & B Surety, ordering the Cochingyan and Villanueva to pay the
plaintiff, jointly and severally, the total amount of their liability on Surety Bond No. 4765, at the interest rate of 6% per
annum.

Issue: Whether or not the Trust Agreement had extinguished, by novation, the obligation of R & B Surety to the PNB
under the Surety Bond which, in turn, extinguished the obligations of the petitioners under the Indemnity Agreements

Ruling:
NO.

It is at once evident that the Trust Agreement does not expressly terminate the obligation of R & B Surety under the
Surety Bond. On the contrary, the Trust Agreement expressly provides for the continuing subsistence of that obligation
by stipulating that "[the Trust Agreement] shall not in any manner release" R & B Surety from its obligation under the
Surety Bond.

Neither can the petitioners anchor their defense on implied novation. Absent an unequivocal declaration of
extinguishment of a pre-existing obligation, a showing of complete incompatibility between the old and the new
obligation (and nothing else) would sustain a finding of novation by implication. But where, as in this case, the parties
to the new obligation expressly recognize the continuing existence and validity of the old one, where, in other words, the
parties expressly negated the lapsing of the old obligation, there can be no novation. The issue of implied novation is not
reached at all.

What the trust agreement did was, at most, merely to bring in another person or persons-the Trustor[s]-to assume the
same obligation that R & B Surety was bound to perform under the Surety Bond. It is not unusual in business for a
stranger to a contract to assume obligations thereunder; a contract of suretyship or guarantee is the classical example.
The precise legal effect is the increase of the number of persons liable to the obligee, and not the extinguishment of the
liability of the first debtor. Thus, in Magdalena Estates vs. Rodriguez, we held that:
[t]he mere fact that the creditor receives a guaranty or accepts payments from a third person who has
agreed to assume the obligation, when there is no agreement that the first debtor shall be released
from responsibility, does not constitute a novation, and the creditor can still enforce the obligation
against the original debtor.

In the present case, we note that the Trustor under the Trust Agreement, the CCM, was already previously bound to R &
B Surety under its Indemnity Agreement. Under the Trust Agreement, the Trustor also became directly liable to the
PNB. So far as the PNB was concerned, the effect of the Trust Agreement was that where there had been only two, there
would now be three obligors directly and solidarily bound in favor of the PNB: PAGRICO, R & B Surety and the Trustor.
And the PNB could proceed against any of the three, in any order or sequence. Clearly, PNB never intended to release,
and never did release, R & B Surety. Thus, R & B Surety, which was not a party to the Trust Agreement, could not have
intended to release any of its own indemnitors simply because one of those indemnitors, the Trustor under the Trust
Agreement, became also directly liable to the PNB.

Notes:
If objective novation is to take place, it is imperative that the new obligation expressly declare that the old obligation is
thereby extinguished, or that the new obligation be on every point incompatible with the old one. Novation is never
presumed: it must be established either by the discharge of the old debt by the express terms of the new agreement, or
by the acts of the parties whose intention to dissolve the old obligation as a consideration of the emergence of the new
one must be clearly discernible.

Again, if subjective novation by a change in the person of the debtor is to occur, it is not enough that the juridical
relation between the parties to the original contract is extended to a third person. It is essential that the old debtor be
released from the obligation, and the third person or new debtor take his place in the new relation. If the old debtor is
not released, no novation occurs and the third person who has assumed the obligation of the debtor becomes merely a
co-debtor or surety or a co-surety.
Mercantile Insurance Co. v. Ysmael (1989)

Facts: Felipe Ysmael, Jr. & Co., Inc., represented by Felipe Ysmael filed an application for an overdraft
line of Pl,000,000.00 and credit line of Pl,000,000.00 with the Philippine National Bank. The latter was
willing to grant credit accommodation of P2,000,000.00 applied for provided that the applicant shall
have filed a bond in the sum of P140,000.00 to guarantee the payment of the said amount. Felipe
Ysmael Jr. & Co., Inc. as principal and the Mercantile Insurance Co., Inc. executed surety bonds in favour
of PNB.

Felipe Ysmael, Jr. & Co., Inc. and Magdalena Estate, lnc. represented by Felipe Ysmael, Jr. as president
and in his personal capacity executed with the plaintiff Mercantile Insurance Co., Inc. an indemnity
agreement. The defendants Felipe Ysmael, Jr. & Co., Inc. and Felipe Ysmael, Jr. bound jointly and
severally to indemnify the plaintiff, from and against any and all payments, damages, costs, losses,
penalties, charges and expenses which said company as surety (MERICO Bond No. 0007) shall incur or
become liable to pay.

Paragraph 3 of the indemnity agreement expressly provides:

3) ACCRUAL OF ACTION: Notwithstanding the provisions of the next preceding paragraph, where the
obligation involves a liquidated amount for the payment of which the company has become legally liable
under the terms of the obligation and its suretyship undertaking or by the demand of the obligee or
otherwise and the latter has merely allowed the COMPANY a term or extension for payment of the
latter's demand the full amount necessary to discharge the COMPANY's aforesaid liability irrespective of
whether or not payment has actually been made by the COMPANY, the COMPANY for the protection of
its interest may forthwith proceed against the undersigned or either of them by court action or
otherwise to enforce payment even prior to making payment to the obligee which may hereafter be
done by the COMPANY.

Tordesillas and Torres in their official capacities and the defendants executed another indemnity
agreement with the plaintiff in consideration of the surety bond (MERICO Bond No. G (16) 0030. In the
indemnity agreement the same provisions of paragraph 3 is found. Later on, the amount of the Bond
was reduced by P40,000.00 so that the total liability of the plaintiff to the Philippine National Bank in
view of the aforesaid reduction is P100,000.00, P60,000.00 on Surety Bond No. 0007 plus P40,000.00 on
Surety Bond No. 0030. The defendants failed to pay the overdraft and credit line with the Philippine
National Bank demanded from Mercantile, settlement of its obligation under surety bonds No. (G-16)-
0007 for P 60,000.00 which expired on March 6, 1970 and No. G (-16)- 0030 for P 40,000.00 which
expired since September 4, 1968 (Exh. P) Attached to the demand letter is a statement of account. By
letter of December 17, 1970, plaintiff company wrote a letter of demand to the defendants regarding
the the letter of demand of the Philippine National Bank sent to the plaintiff and demanding from the
defendants the settlement of said account. The defendants failed to settle their obligation with the
Philippine National Bank, on February 10, 1971, plaintiff brought the present action.
Lower court dismissed case for lack of cause of action, the plaintiff has paid nothing in the surety bonds,
therefore, they have not suffered any actual damage and held that paragraph 3 of contract is void.
Defendants argued that to allow surety to receive indemnity or compensation for something it has not
paid in its capacity as surety would constitute unjust enrichment at the expense of another.

Issue: WON surety can be allowed indemnification from the defendants-appellants, upon the latter's
default even before the former has paid to the creditor.

Held: The overdraft line of Php1M and the credit line of Php1M applied for by the defendant was
granted by the Philippine National Bank on the strength of the two surety bonds denominated as Bond
No. G(16) 0007 and Bond No. G(16) 0030. As security and in consideration of the execution of the
surety bonds, the defendants executed with the plaintiff identical indemnity agreements which provide
that payment of indemnity or compensation may be claimed whether or not plaintiff company has
actually paid the same as provided in paragraph 3 of contract.

The cause of action was derived from the terms of the Indemnity Agreement, paragraph 3 thereof. By
virtue of the provisions of the Indemnity Agreement, defendants-appellants have undertaken to hold
plaintiff-appellee free and harmless from any suit, damage or liability which may be incurred by reason
of non-performance by the defendants-appellants of their obligation with the Philippine National Bank.
The Indemnity Agreement is principally entered into as security of plaintiff-appellee in case of default of
defendants-appellants; and the liability of the parties under the surety bonds is joint and several, so that
the obligee PNB may proceed against either of them for the satisfaction of the obligation.

There is no dispute as to meaning of the terms of the Indemnity Agreement. Having voluntarily entered
into such contract, the appellants cannot now be heard to complain. Their indemnity agreement have
the force and effect of law.

The principal debtors, defendants-appellants herein, are the same persons who executed the Indemnity
Agreement. Thus, the position occupied by them is that of a principal debtor and indemnitor at the
same time, and their liability being joint and several with the plaintiff-appellee's, the Philippine National
Bank may proceed against either for fulfillment of the obligation as covered by the surety bonds. There
is no principle of guaranty involved and, therefore, the provision of Article 2071 of the Civil Code does
not apply. There is no more need for the plaintiff-appellee to exhaust all the properties of the principal
debtor before it may proceed against defendants-appellants.
Imperial insurance v. De Los Reyes (1982)

Facts: Rosa V. Reyes is the plaintiff in Civil Case N. Q8213 of the Court of First Instance of Rizal, Branch
IV, Quezon City, entitled, Rosa V. Reyes vs. Felicisimo V. Reyes, etc., where she obtained a writ of
preliminary attachment and, accordingly, levied upon all the properties of the defendant, Felicisimo V.
Reyes, in said case. The other two herein private respondents, namely, Pedro V. Reyes and Consolacion
V., Reyes, are the plaintiffs in Civil Case No. Q5214 of the same court entitled. Pedro V. Reyes, etc., and
likewise, obtained a writ of preliminary attachment and, accordingly, levied upon all the properties of
the defendant, Felicisimo V. Reyes, in said case.

For the dissolution of the attachments referred to above, the herein petitioner. The Imperial Insurance,
Inc., as surety, and Felicisimo V. Reyes, as principal, posted a defendants bond for dissolution of
attachment in the amount of P60,000.00 in Civil Case No. Q5213 and another bond of the same nature
in the amount of P40,000.00 in Civil Case No. Q5214. Civil Cases Nos. Q5213 and 5214 were jointly tried
and the decision therein rendered was in favor of the plaintiffs. This decision was affirmed by this Court
on appeal in cases CAG.R. NOS. 33783R and 33784R. The decision of this Court, having become final, the
records of the cases were remanded to the Court of First Instance of Rizal, Quezon City Branch, for
execution of judgment. Accordingly, on June 24, 1966, the Court below, presided by the herein
respondent Judge, Hon. Walfrido de los Angeles, issued the writs of execution of judgment in said cases.
However, on August 20, 1966, the Provincial Sheriff of Bulacan returned the writs of execution
unsatisfied in whole or in part. On September 9, 1966, private respondents filed a motion for
recovery on the surety bonds. Thereafter, said private respondents, thru counsel, sent a letter of
demand upon petitioner asking the latter to pay them the accounts on the counterbonds. On
September 24, 1966, petitioner filed its opposition to the private respondents Motion for recovery on
the surety bonds. Respondent Judge, in his order, dated November 10, 1966, rendered judgment
against the counterbonds. On November 15, 1966, private respondents filed an ex parte motion for
writ of execution without serving copy thereof on petitioner. In the meantime, on or about November
23 1966, petitioner filed a motion for reconsideration of the order, dated November 10, 1966. This
motion was, however, denied by the respondent Judge on January 9, 1967. On or about January 11,
1967, petitioner filed its notice of intention to appeal from the final orders of the respondent Judge,
dated November 10, 1966 and January 9, 1967. On January 19, 1967, the respondent Judge issued an
order granting the issuance of the writ of execution against the bends filed by the petitioner. Felicisimo
Reyes died during the pendency of the case and was substituted by Emilia T. David administratix of his
estate.

Issue: WON Imperial insurance is solidarily liable with Felicisimo Reyes in the counterbond.

Held: Yes, Sec. 17, Rule 57, of the Rules of Court is an ordinary guaranty where the sureties assume a
subsidiary liability, the rule cannot apply to a Counterbond where the surety bound itself "jointly and
severally" (in solidum) with the defendant as in the present case. The counterbond executed by the
deceased defendant Felicisimo V. Reyes, as principal, and the petitioner, The Imperial Insurance, Inc., as
solidary quarantor to lift the attachment in Civil Case No. Q-5213.
Clearly, the petitioner, the Imperial Insurance, Inc., had bound itself solidarily with the principal, the
deceased defendant Felicisimo V. Reyes. In accordance with Article 2059, par. 2 of the Civil Code of the
Philippines, 15 excussion (previous exhaustion of the property of the debtor) shall not take place "if he
(the guarantor) has bound himself solidarily with the debtor." Section 17, Rule 57 of the Rules of Court
cannot be construed that an "execution against the debtor be first returned unsatisfied even if the bond
were a solidary one, for a procedural rule may not amend the substantive law expressed in the Civil
Code, and further would nullify the express stipulation of the parties that the surety's obligation should
be solidary with that of the defendant."