under the trust receipts.
BPI made several demands for
Jose C. Tupaz IV and Petronilla Tupaz vs. CA, and BPI
G.R. No. 145578 November 18, 2005
FACTS:
Jose and Petronila Tupaz were Vice-President for
Operations and Vice-President/Treasurer, respectively, of El Oro
Corporation. El Oro Corporation had a contract with the PH
Army to supply the latter with “survival bolos”. To finance the
purchases of the raw materials for the bolos, the petitioners (on
behalf of El Oro) applied with BPI for 2 commercial letters of
credit. The letters of credit were in favor of El Oro’s suppliers,
Tanchaoco Incorporated and Maresco Corporation. BPI granted
the application and issued the letters of credit for P564,871.05
and P294,000.00 to Tanchaoco Incorporated and Maresco
Corporation respectively.
Simultaneous with the issuance of the letters of credit, the
petitioners signed trust receipts in favor of BPI:
a) Jose signed in his personal capacity a trust receipt
corresponding for the first letter of credit, binding
himself to sell the goods and to remit the proceeds to
BPI, if sold, or to return the goods, if not sold, on or
before 29 December 1981.
b) Both petitioners signed in their capacities as officers
of El Oro a trust receipt covering the second letter of
credit to remit proceeds/return goods by 8 December
1981.
Tanchauco Incorporated and Maresco Corp. complied with their
obligation and delivered the raw materials to El Oro. BPI then
paid the 2 corporations P564, 871.05 and P294,000 accordingly.
However, petitioners did not comply with their undertakings
payment but El Oro made partial payments only. Final demand
letters were then sent but El Oro replied that it could not fully
pay its debt because the AFP had delayed in their payment for
the bolos. BPI charged petitioners with estafa under Sec. 13 of
the Trust Receipts Law.
RTC: petitioners acquitted based on reasonable doubt. However,
they are solidarily liable with El Oro for the balance of the
principal debt under the trust receipts.
CA: affirmed RTC. The trust receipts clearly showed the terms
that the petitioners signed the same as surety for the corporation
and that they bound themselves directly and immediately liable
in case of default without need of demand.
ISSUE:
What is the nature of liability of petitioners?
HELD:
Jose is personally liable. However, not solidary as lower
courts said but only as guarantor.
However, respondent bank’s suit against petitioner Jose Tupaz
stands despite the Court’s finding that he is liable as guarantor
only. First, excussion is not a pre-requisite to secure judgment
against a guarantor. The guarantor can still demand deferment of
the execution of the judgment against him until after the assets of
the principal debtor shall have been exhausted. Second, 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
1
[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 solidary guaranty clause makes guarantors signing the trust
receipt solidarily liable with each other; it does not operate to
make them solidarily liable with the company.
As guarantor, petitioner Jose Tupaz is liable for El Oro
Corporation’s 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. That trust receipt (and the
trust receipt dated 9 October 1981) provided for payment of
attorney’s fees equivalent to 10% of the total amount due and an
“interest at the rate of 7% per annum, or at such other rate as the
bank may fix, from the date due until paid xxx.”
FORTUNE MOTORS (PHILS.) CORPORATION and
EDGAR L. RODRIGUEZA, petitioners, vs. THE
HONORABLE COURT OF APPEALS and FILINVEST
CREDIT CORPORATION, respondents.
G.R. No. 112191 February 7, 1997
FACTS:
In 1981, Joseph Chua and Edgar Rodrigueza executed separate
surety agreements in favor of Fortune Motors (Phils.)
Corporation to cover obligations incurred by Fortune Motors
whether they be enforced or thereafter made (from the time of
said surety contracts).
In 1982, Fortune Motors secured cars from Canlubang
Automotive Resources Corporation (CARCO) via trust receipts
and drafts made by CARCO. These were assigned to Filinvest
Credit Corporation. Later Filinvest, when the obligation matured,
demanded payment from Fortune Motor as well as from Chua
and Rodrigueza. No payment was made. A case was filed.
Rodrigueza averred that the surety agreement was void because
when it was signed in 1981, the principal obligation (1982) did
not yet exist.
ISSUE: Whether or not the surety agreement is void.
HELD: No. Future obligations can be covered by a surety.
Comprehensive or continuing surety agreements are in fact quite
commonplace in present day financial and commercial practice.
A bank or financing company which anticipates entering into a
series of credit transactions with a particular company,
commonly requires the projected principal debtor to execute a
continuing surety agreement along with its sureties. By executing
such an agreement, the principal places itself in a position to
2
enter into the projected series of transactions with its creditor; Atok Finance Copr. vs. CA
with such suretyship agreement, there would be no need to G.R. No. 80078, May 18, 1993
execute a separate surety contract or bond for each financing or
credit accommodation extended to the principal debtor. FACTS:

On 27 July 1979, private respondents Sanyu Chemical

Corporation as principal and Sanyu Trading Corporation along
with individual private stockholders of Sanyu Chemical as
sureties, executed a Continuing Suretyship Agreement in favor of
Atok Finance as creditor.

In 1981, Sanyu Chemical assigned its trade receivables

outstanding to Atok Finance in consideration of receipt from
Atok Finance of the amount of P105,000.00. The assigned
receivables carried a standard term of thirty (30) days; it
appeared, however, that the standard commercial practice was to
grant an extension of up to one hundred twenty (120) days
without penalties.

In 1984, Atok Finance commenced action against Sanyu

Chemical, the Arrieta spouses, Pablito Bermundo and Leopoldo
Halili before the Regional Trial Court of Manila to collect a sum
of money plus penalty charges starting from 1 September 1983.
Atok Finance alleged that Sanyu Chemical had failed to collect
and remit the amounts due under the trade receivables.

Sanyu Chemical and the individual private respondents sought

dismissal of Atok's claim upon the ground that such claim had
prescribed under Article 1629 of the Civil Code and for lack of
cause of action. The private respondents contended that the
Continuing Suretyship Agreement, being an accessory contract,
was null and void since, at the time of its execution, Sanyu
Chemical had no pre-existing obligation due to Atok Finance.

3

After trial the trial court rendered a decision in favor of Atok
Finance. On appeal the CA reversed and set aside the decision of
the trial court and entered a new judgment dismissing the
complaint of Atok Finance.
ISSUE(S):
Whether the individual private respondents may be held
solidarily liable with Sanyu Chemical under the provisions of the
Continuing Suretyship Agreement, or whether that Agreement
must be held null and void as having been executed without
consideration and without a pre-existing principal obligation to
sustain it.
Whether private respondents are liable under the Deed of
Assignment which they, along with the principal debtor Sanyu
Chemical, executed in favor of petitioner, on the receivables
thereby assigned.
HELD: (YES/NO, and a short explanation)
Although obligations arising from contracts have the force of law
between the contracting parties, (Article 1159 of the Civil Code)
this does not mean that the law is inferior to it; the terms of the
contract could not be enforced if not valid. So, even if, as in this
case, the agreement was for a continuing suretyship to include
obligations enumerated in the agreement, the same could not be
enforced. First, because this contract, just like guaranty, cannot
exist without a valid obligation (Art. 2052, Civil Code); and,
second, although it may be given as security for future debt (Art.
2053, C.C.), the obligation contemplated in the case at bar cannot
be considered 'future debt' as envisioned by this law.
There is no proof that when the suretyship agreement was
entered into, there was a pre-existing obligation which served as
the principal obligation between the parties. Furthermore, the
'future debts' alluded to in Article 2053 refer to debts already
existing at the time of the constitution of the agreement but the
amount thereof is unknown, unlike in the case at bar where the
obligation was acquired two years after the agreement."
Article 1629 of the Civil Code is not material. The liability of
Sanyu Chemical to Atok Finance rests not on the breach of the
warranty of solvency; the liability of Sanyu Chemical was not ex
lege but rather ex contractu. Under the Deed of Assignment, the
effect of non-payment by the original trade debtors was a breach
of warranty of solvency by Sanyu Chemical, resulting in turn in
the assumption of solidary liability by the assignor under the
receivables assigned. In other words, the assignor Sanyu
Chemical becomes a solidary debtor under the terms of the
receivables covered and transferred by virtue of the Deed of
Assignment. The obligations of individual private respondent
officers and stockholders of Sanyu Chemical under the
Continuing Suretyship Agreement, were activated by the
resulting obligations of Sanyu Chemical as solidary obligor
under each of the assigned receivables by virtue of the operation
of the Deed of Assignment. That solidary liability of Sanyu
Chemical is not subject to the limiting period set out in Article
1629 of the Civil Code.
It follows that at the time the original complaint was filed by
Atok Finance in the trial court, it had a valid and enforceable
cause of action against Sanyu Chemical and the other private
respondents.
4
The Petition for Review is hereby GRANTED DUE COURSE,
and the Decision of the Court of Appeals are hereby THE TEXAS COMPANY (PHIL.), INC., petitioner,
REVERSED and SET ASIDE. A new judgment is hereby vs.
entered REINSTATING the Decision of the trial court. TOMAS ALONSO, respondent.

On November 5, 1935 Leonor S. Bantug and Tomas Alonso

were sued by the Texas Company (P.I.), Inc. in the Court of First
Instance of Cebu for the recovery of the sum of P629, unpaid
balance of the account of Leonora S. Bantug in connection with
the agency contract with the Texas Company for the faithful
performance of which Tomas Alonso signed.

Leonor S. Bantug was declared in default as a result of her

failure to appear or answer, but Tomas Alonso filed an answer
setting up a general denial and the special defenses that Leonor
S. Bantug made him believe that he was merely a co-security of
one Vicente Palanca and he was never notified of the acceptance
of his bond by the Texas Company. After trial, the Court of First
Instance of Cebu rendered judgment on July 10, 1973, which was
amended on February 1, 1938, sentencing Leonor S. Bantug and
Tomas Alonso to pay jointly and severally to the Texas
Company the sum of P629, with interest at the rate of six per
cent (6%) from the date of filing of the complaint, and with
proportional costs. Upon appeal by Tomas Alonso, the Court of
Appeals modified the judgment of the Court of First Instance of
Cebu in the sense that Leonor S. Bantug was held solely liable
for the payment of the aforesaid sum of P629 to the Texas
Company, with the consequent absolution of Tomas Alonso.
This case is now before us on petition for review by certiorari of
the decision of the Court of Appeals.

5
Issue: sureties as shall be satisfactory hereto; in other words, the bond
Won the Court of Appeals erred in holding that there was merely is subject to petitioner's approval. The logical implication arising
an offer of guaranty on the part of the respondent, Tomas from this requirement is that, if the petitioner is satisfied with
Alonso, and that the latter cannot be held liable thereunder any such bond, notice of its acceptance or approval should
because he was never notified by the Texas Company of its necessarily be given to the property party in interest, namely, the
acceptance. surety or guarantor. In this connection, we are likewise bound by
the finding of the Court of Appeals that there is no evidence in
Held: this case tending to show that the respondent, Tomas Alonso,
The Court of Appeals has placed reliance upon our decision in ever had knowledge of any act on the part of petitioner
National Bank vs. Garcia (47 Phil., 662), while the petitioner amounting to an implied acceptance, so as to justify the
invokes the case of National Bank vs. Escueta, (50 Phil., 991). In application of our decision in National Bank vs. Escueta.
the first case, it was held that there was merely an offer to give
bond and, as there was no acceptance of the offer, this court
refused to give effect to the bond. In the second case, the sureties
were held liable under their surety agreement which was found to
have been accepted by the creditor, and it was therein ruled that
an acceptance need not always be express or in writing. For the
purpose of this decision, it is not indispensable for us to invoke
one or the other case above cited. The Court of Appeals found as
a fact, and this is conclusive in this instance, that the bond in
question was executed at the request of the petitioner by virtue of
the following clause of 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.

In view of the foregoing clause which should be the law between

the parties, it is obvious that, before a bond is accepted by the
petitioner, it has to be in such form and amount and with such

6
 Bank of Commerce vs Flores
G.R. No. 174006
December 8, 2010
Facts:
Spouse Flores borrowed money from petitioner bank in the
amount of Nine Hundred Thousand Pesos (P900,000.00) on Oct
1993. Respondents executed a Real Estate Mortgage5 over the
condominium unit as collateral, and the same was annotated at
the back of CCT No. 2130. Two years later again the spouses
borrowed One Million One Hundred Thousand Pesos
(P1,100,000.00) from petitioner bank, which was also secured by
a mortgage over the same property annotated at the back of CCT
No. 2130.
On Jan 1996 respondents paid One Million Eleven Thousand
Five Hundred Fifty-Five Pesos and 54 centavos (P1,011,555.54),
as evidenced by Official Receipt No. 1477417 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 on CCT No. 2130 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 Four
Million Six Hundred Thirty-Three Thousand Nine Hundred
Sixteen Pesos and Sixty-Seven Centavos (P4,633,916.67), then
petitioner bank applied for extra-judicial foreclosure of the
mortgages over the condominium unit. The public auction sale
was scheduled on September 4, 1998.
Respondents filed suit with the RTC, Quezon City, assailing the
validity of the foreclosure and auction sale of the property.
RTC granted respondents’ prayer for issuance of a writ of
preliminary injunction, restraining petitioner bank from
foreclosing on the mortgage and ordered that specific
performance with damages and injunction filed by plaintiffs, Sps.
Andres and Eliza Flores against defendants, Bank of Commerce
and Stephen Z. Taala, is hereby DISMISSED. Likewise, the
counterclaim filed by defendants, Bank of Commerce and
Stephen Z. Taala against plaintiffs, Sps. Andres and Eliza Flores
is DISMISSED for insufficiency of evidence.
Upon appeal, CA rendered a Decision reversing the decision and
the resolution of the RTC entering a new order:
(a) ordering the cancellation of the real estate mortgage
annotations on the dorsal side of CCT No. 2130 of the Registry
of Deeds of Quezon City;
(b) ordering appellee Bank to issue a corresponding release of
mortgages to plaintiffs-appellants’ CCT No. 2130;
(c) declaring null and void the challenged extra-judicial
foreclosure and public auction sale held on March 25, 2004
together with the Certificate of Sale dated April 14, 2004 issued
in favor of appellee Bank; and,
(d) appellees’ counterclaims are ordered dismissed, for lack of
sufficient basis therefor.
Issue:
WON 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.
Held:
7
Yes, A continuing guaranty is a recognized exception to the rule by the express terms of the mortgage, it was meant to secure all
that an action to foreclose a mortgage must be limited to the future debts of the spouses and such debts had been obtained and
amount mentioned in the mortgage contract.23 Under Article remain unpaid. Unless full payment is made by the spouses of all
2053 of the Civil Code, a guaranty may be given to secure even the amounts that they have incurred from petitioner bank, the
future debts, the amount of which may not be known at the time property is burdened by the mortgage.
the guaranty is executed. This is the basis for contracts
denominated as a continuing guaranty or suretyship. A Decision of the CA is REVERSED and SET ASIDE. The
continuing guaranty is not limited to a single transaction, but decision of the Regional Trial Court dated December 4, 2002 is
contemplates a future course of dealing, covering a series of hereby REINSTATED.
transactions, generally for an indefinite time or until revoked. It
is prospective in its operation and is generally intended to
provide security with respect to future transactions within certain
limits, and contemplates a succession of liabilities, for which, as
they accrue, the guarantor becomes liable. In other words, a
continuing guaranty is one that covers all transactions, including
those arising in the future, which are within the description or
contemplation of the contract of guaranty, until the expiration or
termination thereof.

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 CCT No. 2130,
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.

Respondents’ full payment of the loans annotated on the title of

the property shall not effect the release of the mortgage because,

8
 Pacionaria Baylon vs Court of Appeals and Leonila
Tomacruz
August 17, 1999
Facts:
Pacionara Baylon introduced Rosita Luanzon to Leonila
Tomacruz which is the co-manager of her husband in PLDT.
Baylon invited Leonila to lend Rosita money for her business as
contractor and in return pay the amount and a monthly interest
rate of 5%.
Persuaded by Baylon’s assurances that the business was stable
and the high interest rate Leonila lent Rosita P 150,000. Rosita
on the other hand issued and signed a promissory note
acknowledging the receipt of P 150,000 payable on August 22,
1987. Baylon signed the promissory note as “guarantor”.
Later on, Rosita failed to pay the said amount forcing Leonila to
file a case for collection of sum of money against Rosita and
Baylon. However summons were never served to Rosita.
Baylon denied having guaranteed the payment of the promissory
note and claims that the money given to Rosita was not a loan
but an investment and that assuming that the loan was guaranteed
Leonila has not exhausted the property of Rosita nor resorted to
all legal remedies against Rosita as required by law.
Trial court ruled in favor of Leonila making Baylon liable for the
said amount. This decision was affirmed by the C.A.
Issue: WON Baylon should be held liable for the amount of the
promissory note.
Ruling: No.
Rationale:
Petitioner is invoking the benefit of excussion pursuant to article
2058 of the Civil Code, which provides that —
The guarantor cannot be compelled to pay the creditor unless the
latter has exhausted all the property of the debtor, and has
resorted to all the legal remedies against the debtor.
It is axiomatic that the liability of the guarantor is only
subsidiary. All the properties of the principal debtor must first be
exhausted before his own is levied upon. Thus, the creditor may
hold the guarantor liable only after judgment has been obtained
against the principal debtor and the latter is unable to pay, "for
obviously the 'exhaustion of the principal's property' — the
benefit of which the guarantor claims — cannot even begin to
take place before judgment has been obtained." This rule is
embodied in article 2062 of the Civil Code which provides that
the action brought by the creditor must be filed against the
principal debtor alone, except in some instances when the action
may be brought against both the debtor and the principal debtor.
Under the circumstances availing in the present case, the court
held that it is premature to even determine whether or not
petitioner is liable as a guarantor and whether she is entitled to
the concomitant rights as such, like the benefit of excussion,
since the most basic prerequisite is wanting — that is, no
judgment was first obtained against the principal debtor Rosita
B. Luanzon. It is useless to speak of a guarantor when no debtor
has been held liable for the obligation which is allegedly secured
by such guarantee. Although the principal debtor Luanzon was
impleaded as defendant, there is nothing in the records to show
that summons was served upon her. Thus, the trial court never
even acquired jurisdiction over the principal debtor. The court
held that private respondent must first obtain a judgment against
the principal debtor before assuming to run after the alleged
guarantor.
9

Mariano lim vs security bank corporation
GR no. 188539
Facts:
Petitioner executed a Continuing Suretyship in favor of
respondent to secure "any and all types of credit accommodation
that may be granted by the bank hereinto and hereinafter" in
favor of Raul Arroyo for the amount of ₱2,000,000.00 which is
covered by a Credit Agreement/Promissory Note.3 Said
promissory note stated that the interest on the loan shall be 19%
per annum, compounded monthly, for the first 30 days from the
date thereof, and if the note is not fully paid when due, an
additional penalty of 2% per month of the total outstanding
principal and interest due and unpaid, shall be imposed.
In turn, the Continuing Suretyship executed by petitioner
stipulated that:
3. Liability of the Surety. - The liability of the Surety is solidary
and not contingent upon the pursuit of the Bank of whatever
remedies it may have against the Debtor or the collaterals/liens it
may possess. If any of the Guaranteed Obligations is not paid or
performed on due date (at stated maturity or by acceleration), the
Surety shall, without need for any notice, demand or any other
act or deed, immediately become liable therefor and the Surety
shall pay and perform the same.5
Guaranteed Obligations are defined in the same document as
follows:
a) "Guaranteed Obligations" - the obligations of the Debtor
arising from all credit accommodations extended by the Bank to
the Debtor, including increases, renewals, roll-overs, extensions,
restructurings, amendments or novations thereof, as well as (i) all
obligations of the Debtor presently or hereafter owing to the
Bank, as appears in the accounts, books and records of the Bank,
whether direct or indirect, and (ii) any and all expenses which the
Bank may incur in enforcing any of its rights, powers and
remedies under the Credit Instruments as defined hereinbelow.6
The debtor, Raul Arroyo, defaulted on his loan obligation.
Thereafter, petitioner received a Notice of Final Demand dated
August 2, 2001, informing him that he was liable to pay the loan
obtained by Raul and Edwina Arroyo, including the interests and
penalty fees amounting to ₱7,703,185.54, and demanding
payment thereof. For failure of petitioner to comply with said
demand, respondent filed a complaint for collection of sum of
money against him and the Arroyo spouses. Since the Arroyo
spouses can no longer be located, summons was not served on
them, hence, only petitioner actively participated in the case.
RTC: held judgment against petitioner ordering to petitioners to
pay Lim
Petioners filed in CA and affirmed judgment of RTC, and thus
this case
Issue:
whether petitioner may validly be held liable for the principal
debtor's loan obtained six months after the execution of the
Continuing Suretyship.
Held:
A contract of suretyship is an agreement whereby a party, called
the surety, guarantees the performance by another party, called
10
the principal or obligor, of an obligation or undertaking in favor
of another party, called the obligee. Although the contract of a
surety is secondary only to a valid principal obligation, the surety
becomes liable for the debt or duty of another although it
possesses no direct or personal interest over the obligations nor
does it receive any benefit therefrom. This was explained in the
case of Stronghold Insurance Company, Inc. v. Republic-Asahi
Glass Corporation, where it was written:
The surety's obligation is not an original and direct one for the
performance of his own act, but merely accessory or collateral to
the obligation contracted by the principal. Nevertheless, although
the contract of a surety is in essence secondary only to a valid
principal obligation, his liability to the creditor or promisee of
the principal is said to be direct, primary and absolute; in other
words, he is directly and equally bound with the principal.
xxxx
Thus, suretyship arises upon the solidary binding of a person
deemed the surety with the principal debtor for the purpose of
fulfilling an obligation. A 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, and their liabilities are
interwoven as to be inseparable. x x x.12
In this case, what petitioner executed was a Continuing
Suretyship, which the Court described in Saludo, Jr. v. Security
Bank Corporation13 as follows:
The essence of a continuing surety has been highlighted in the
case of Totanes v. China Banking Corporation in this wise:
Comprehensive or continuing surety agreements are, in fact,
quite commonplace in present day financial and commercial
practice. A bank or financing company which anticipates
entering into a series of credit transactions with a particular
company, normally requires the projected principal debtor to
execute a continuing surety agreement along with its sureties. By
executing such an agreement, the principal places itself in a
position to enter into the projected series of transactions with its
creditor; with such suretyship agreement, there would be no need
to execute a separate surety contract or bond for each financing
or credit accommodation extended to the principal debtor.14
The terms of the Continuing Suretyship executed by petitioner,
quoted earlier, are very clear.1âwphi1 It states that petitioner, as
surety, shall, without need for any notice, demand or any other
act or deed, immediately become liable and shall pay "all credit
accommodations extended by the Bank to the Debtor, including
increases, renewals, roll-overs, extensions, restructurings,
amendments or novations thereof, as well as (i) all obligations of
the Debtor presently or hereafter owing to the Bank, as appears
in the accounts, books and records of the Bank, whether direct or
indirect, and
(ii) any and all expenses which the Bank may incur in enforcing
any of its rights, powers and remedies under the Credit
Instruments as defined hereinbelow."15 Such stipulations are
valid and legal and constitute the law between the parties, as
Article 2053 of the Civil Code provides that "[a] guaranty may
also be given as security for future debts, the amount of which is
not yet known; x x x." Thus, petitioner is unequivocally bound
by the terms of the Continuing Suretyship. There can be no cavil
then that petitioner is liable for the principal of the loan, together
with the interest and penalties due thereon, even if said loan was
11
obtained by the principal debtor even after the date of execution
of the Continuing Suretyship.
Willex Plastic Industries Corp. v. CA,
April 25, 1996
facts:
Sometime in 1978, Inter-Resin Industrial Corporation 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 documents, both entitled Continuing Surety
Agreement and dated December 1, 1978, whereby they bound
themselves solidarily to pay Manilabank obligations of every
kind, on which the [Inter-Resin Industrial] may now be indebted
or hereafter become indebted to the [Manilabank]. The two
agreements (Exhs. J and K) are the same in all respects, except as
to the limit of liability of the surety, the first surety agreement
being limited to US$333,830.00, while the second one is limited
to US$334,087.00.
On April 2, 1979, Inter-Resin Industrial, together with Willex
Plastic Industries Corp., executed a Continuing Guaranty in favor
of IUCP whereby For and in consideration of the sum or sums
obtained and/or to be obtained by Inter-Resin Industrial
Corporation from IUCP, Inter-Resin Industrial and Willex Plastic
jointly and severally guaranteed the prompt and punctual
payment at maturity of the NOTE/S issued by the DEBTOR/S . .
. to the extent of the aggregate principal sum of FIVE MILLION
PESOS (P5,000,000.00) Philippine Currency and such interests,
charges and penalties as hereafter may be specified.
On January 7, 1981, following demand upon it, IUCP paid to
Manilabank the sum of P4,334,280.61 representing Inter-Resin
Industrials outstanding obligation. (Exh. M-1) On February 23
and 24, 1981, Atrium Capital Corp., which in the meantime had
succeeded IUCP, demanded from Inter-Resin Industrial and
Willex Plastic the payment of what it (IUCP) had paid to
Manilabank. As neither one of the sureties paid, Atrium filed this
case in the court below against Inter-Resin Industrial and Willex
Plastic.
12
On August 11, 1982, Inter-Resin Industrial paid Interbank, which
had in turn succeeded Atrium, the sum of P687,500.00
representing the proceeds of its fire insurance policy for the
destruction of its properties.
In its answer, Inter-Resin Industrial admitted that the Continuing
Guaranty was intended to secure payment to Atrium of the
amount of P4,334,280.61 which the latter had paid to
Manilabank. It claimed, however, that it had already fully paid its
obligation to Atrium Capital.
On the other hand, Willex Plastic denied the material allegations
of the complaint and interposed the following Special
Affirmative Defenses:
Xxx (d) WILLEX is only a guarantor of the principal obligor,
and thus, its liability is only secondary to that of the principal;
xxx
On April 5, 1988, the trial court rendered judgment, ordering
Inter-Resin Industrial and Willex Plastic jointly and severally to
pay to Interbank
Inter-resin industrial and willex plastic appealed to CA but this
was denied.
Hence this case
Issue: whether under the Continuing Guaranty signed on April 2,
1979 petitioner Willex Plastic may be held jointly and severally
liable with Inter-Resin Industrial for the amount paid by
Interbank to Manilabank.
Held:
The pertinent portion of the Continuing Guaranty executed by
Willex Plastic and Inter-Resin Industrial in favor of IUCP (now
Interbank) reads:
If default be made in the payment of the NOTE/s herein
guaranteed you and/or your principal/s may directly proceed
against Me/Us without first proceeding against and
exhausting DEBTOR/s properties in the same manner as if
all such liabilities constituted My/Our direct and primary
obligations. (italics supplied)
This stipulation embodies an express renunciation of the right of
excussion. In addition, Willex Plastic bound itself solidarily
liable with Inter-Resin Industrial under the same agreement
For its part 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. Interbanks witness testified
under cross- examination by counsel for Willex Plastic that
Willex guaranteed the exposure/of whatever exposure of ACP
[Atrium Capital] will later be made because of the guarantee to
Manila Banking Corporation.
It has been held that explanatory evidence may be received to
show the circumstances under which a document has been made
and to what debt it relates. At all events, Willex Plastic cannot
now claim that its liability is limited to any amount which
Interbank, as creditor, might give directly to Inter-Resin
Industrial as debtor because, by failing to object to the parol
evidence presented, Willex Plastic waived the protection of the
parol evidence rule.
13
Accordingly, the trial court found that it was to secure the
guarantee made by plaintiff of the credit accommodation granted
to defendant IRIC [Inter-Resin Industrial] 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 Plastic Industries Corporation.
Similarly, the Court of Appeals found it to be an undisputed fact
that to secure the guarantee undertaken by plaintiff-appellee
[Interbank] of the credit accommodation granted to Inter-Resin
Industrial by Manilabank, plaintiff-appellee required defendant-
appellants to sign a Continuing Guaranty. These factual findings
of the trial court and of the Court of Appeals are binding on us
not only because of the rule that on appeal to the Supreme Court
such findings are entitled to great weight and respect but also
because our own examination of the record of the trial court
confirms these findings of the two courts.
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 Plastic intended to indemnify Interbank for
amounts which it may have paid Manilabank on behalf of Inter-
Resin Industrial.
Indeed, in its Petition for Review in this Court, Willex Plastic
admitted that it was to secure the aforesaid guarantee, that
INTERBANK required principal debtor IRIC [Inter-Resin
Industrial] to execute a chattel mortgage in its favor, and so a
Continuing Guaranty was executed on April 2, 1979 by
WILLEX PLASTIC INDUSTRIES CORPORATION (WILLEX
for brevity) in favor of INTERBANK for and in consideration of
the loan obtained by IRIC [Inter-Resin Industrial].
Pacific Building Corp v IAC
G.R. No. 72275
Facts:
This is a petition for certiorari of the decision set by the IAC
which modified the decision of the trial court against private
defendant in the case for sum of money filed by Pacific Banking
Corporation.
Defendant Celia Regala obtained from the plaintiff bank a
Pacificard credit card and as a condition, her spouse, the
defendant-appellant herein, Roberto Regala Jr., executed a
Guarantor’s Undertaking on the same day whereby the latter
agreed “jointly and severally of Celia Aurora Syjuco Regala, to
pay the Pacific Banking Corporation upon demand, any and all
indebtedness, obligations, charges or liabilities due and incurred
by said Celia Aurora Syjuco Regala with the use of the
Pacificard, or renewals thereof, issued in her favor by the Pacific
Banking Corporation”.
Celia Regala’s purchased goods and services thru the use of her
Pacificard amounted to P92, 803.98. She also used Pacificard
beyond its one-year due date. Celia Regala, however, failed to
settle her account. Despite the written demand sent to the Celia
Regala and also to her spouse under his “Guarantor’s
Undertaking”, they still were not able to settle their account, and
the bank, thereafter, filed a complaint with the trial court.
In his answer, Roberto Regala admitted his execution of the
“Guarantor’s Undertaking”, but asserted that his liability was
limited to P2,000.00 a month, the agreed credit limit.
The RTC decided in favor of the bank, declaring Roberto to be
jointly and severally liable to pay the total charges with his wife,
Celia. However, upon appeal, appellant court modified the
judgment and decided Roberto to be liable from Celia Regala’s
14
use of the Pacificard from Oct. 29, 1975 up to October 29, 1976
up to the amount of P2,000.00 per month only.
Issue:
Is Roberto’s liability only up to P2,000.00 a month?
solidarily liable with the principal debtor, is different from the
debtor. It does not mean, however, that the surety cannot be held
liable to the same extent as the principal debtor. The nature and
extent of the liabilities of a guarantor or a surety is determined by
the clauses in the contract of suretyship.

Held:
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. As a surety he bound himself
jointly and severally with the debtor Celia Regala "to pay the
Pacific Banking Corporation upon demand, any and all
indebtedness, obligations, charges or liabilities due and incurred
by said Celia Syjuco Regala with the use of Pacificard or
renewals thereof issued in (her) favor by Pacific Banking
Corporation."
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. We do not
agree however, that Roberto Jr.'s liability should be limited to
that extent.
A guarantor or surety does not incur liability unless the principal
debtor is held liable. It is in this sense that a surety, although

15
 SECURITY BANK AND TRUST COMPANY, Inc vs.
CUENCA G.R. No. 138544
FACTS:
Defendant-appellant Sta. Ines Melale (‘Sta. Ines’/SIMC) is a
corporation engaged in logging operations. It was a holder of a
Timber License Agreement issued by the DENR
On 10 November 1980, Security Bank and Trust Co. granted
appellant Sta. Ines a credit line in the amount of (P8,000,000.00)
effective until November 30, 1981 to assist the latter in meeting
the additional capitalization requirements of its logging
operations.
To secure payment, it executed a chattel mortgage over some of
its machineries and equipments and as an additional security, its
President and Chairman of the Board of Directors Rodolfo
Cuenca, executed an Indemnity agreement in favor of Security
Bank whereby he bound himself jointly and severally with Sta.
Ines.
Specific stipulations:
The bank reserves the right to amend any of the aforementioned
terms and conditions upon written notice to the Borrower.
As additional security for the payment of the loan, Rodolfo M.
Cuenca executed an Indemnity Agreement dated 17 December
1980 solidary binding himself:
‘Rodolfo M. Cuenca x x x hereby binds himself x x x jointly and
severally with the client (SIMC) in favor of the bank for the
payment, upon demand and without the benefit of excussion of
whatever amount x x x the client may be indebted to the bank x x
x by virtue of aforesaid credit accommodation(s) including the
substitutions, renewals, extensions, increases, amendments,
conversions and revivals of the aforesaid credit
accommodation(s) x x x .’
1985: Cuenca resigned as President and Chairman of the Board
of Directors of defendant-appellant Sta. Ines. Subsequently, the
shareholdings of Cuenca in Sta. Ines were sold at a public
auction to Adolfo Angala. Before and after this, Sta Ines availed
of its credit line.
Sta Ines encountered difficulty in making the amortization
payments on its loans and requested SBTC for a complete
restructuring of its indebtedness. SBTC accommodated SIMC’s
request and signified its approval in a letter dated 18 February
1988 wherein SBTC and Sta. Ines, without notice to or the prior
consent of ] Cuenca, agreed to restructure the past due
obligations of defendant-appellant Sta. Ines. To formalize their
agreement to restructure the loan obligations of Sta. Ines,
Security Bank and Sta. Ines executed a Loan Agreement dated 31
October 1989 ‘ Sta Ines made payments up to (P1,757,000.00)
The defaulted in the payment of its restructured loan obligations
to SBTC despite demands made upon appellant SIMC and
CUENCA,
SBTC filed a complaint for collection of sum of resulting after
trial on the merits in a decision by the court a quo, from which
Cuenca appealed
CA: Released Cuenca from liability because 1989 Loan
Agreement novated the 1980 credit accommodation which
extinguished the Indemnity Agreement for which Cuenca was
liable solidarily. No notice/consent to restructure. Since with
expiration date, liable only up to that date and up to that amount
(8M). Amounted to extension.of time with no notice to suret
therefore released from liability.
ISSUES:
(a) whether the 1989 Loan Agreement novated the original credit
accommodation and Cuenca’s liability under the Indemnity
Agreement YES
16
(b) whether Cuenca waived his right to be notified of and to give
consent to any substitution, renewal, extension, increase,
amendment, conversion or revival of the said credit
accommodation. NO
HELD: Petition of Bank no merit.CA affirmed.
RATIO: Original Obligation Extinguished by Novation
An obligation may be extinguished by novation, pursuant to
Article 1292 of the Civil Code, Novation of a contract is never
presumed. Indeed, the following requisites must be established:
(1) there is a previous valid obligation; (2) the parties concerned
agree to a new contract; (3) the old contract is extinguished; and
(4) there is a valid new contract.
We reject these contentions. Clearly, the requisites of novation
are present in this case. The 1989 Loan Agreement extinguished
the obligation obtained under the 1980 credit accomodation. This
is evident from its explicit provision to "liquidate" the principal
and the interest of the earlier indebtedness, as the following
shows:
"1.02. Purpose. The First Loan shall be applied to liquidate the
principal portion of the Borrower’s present total outstanding
Indebtedness to the Lender (the "Indebtedness") while the
Second Loan shall be applied to liquidatethe past due interest and
penalty portion of the Indebtedness.
Since the 1989 Loan Agreement had extinguished the original
credit accommodation, the Indemnity Agreement
NOT mere renewal/ Extension
1989 Loan Agreement expressly stipulated that its purpose was
to "liquidate," not to renew or extend, the outstanding
indebtedness. Moreover, respondent did not sign or consent to
the 1989 Loan Agreement, which had allegedly extended the
original P8 million credit facility. Hence, his obligation as a
surety should be deemed extinguished, "[a]n extension granted to
the debtor by the creditor without the consent of the guarantor
extinguishes the guaranty. x x x."
Binding Nature of the Credit Approval Memorandum
Bank objects to the appellate court’s reliance on that document,
contending that it was not a binding agreement because it was
not signed by the parties. It adds that it was merely for its
internal use. Indeed, it cannot take advantage of that document
by agreeing to be bound only by those portions that are favorable
to it, while denying those that are disadvantageous.
NO Waiver of Consent
In the Indemnity Agreement, while respondent held himself
liable for the credit accommodation or any modification thereof,
such clause should be understood in the context of the P8 million
limit and the November 30, 1981 term. It did not give the bank or
Sta. Ines any license to modify the nature and scope of the
original credit accommodation, without informing or getting the
consent of respondent who was solidarily liable.
A contract of surety "cannot extend to more than what is
stipulated. It is strictly construed against the creditor, every doubt
being resolved against enlarging the liability of the surety."
Likewise, the Court has ruled that "it is a well-settled legal
principle that if there is any doubt on the terms and conditions of
the surety agreement, the doubt should be resolved in favor of
the surety x x x. Ambiguous contracts are construed against the
party who caused the ambiguity. In the absence of an
unequivocal provision that respondent waived his right to be
notified of or to give consent to any alteration of the credit
accommodation, we cannot sustain petitioner’s view that there
was such a waiver.
It should also be observed that the Credit Approval
Memorandum clearly shows that the bank did not have absolute
authority to unilaterally change the terms of the loan
accommodation. At most, the alleged basis of respondent’s
17
waiver is vague and uncertain. It confers no clear authorization agree to act as surety in the 1989 Loan Agreement, because at
on the bank or Sta. Ines to modify or extend the original that time, he was no longer an officer or a stockholder of the
obligation without the consent of the surety or notice thereto. debtor-corporation. Verily, he was not in a position then to
NOT Continuing Surety ensure the payment of the obligation. Neither did he have any
That the Indemnity Agreement is a continuing surety does not reason to bind himself further to a bigger and more onerous
authorize the bank to extend the scope of the principal obligation obligation.
inordinately.
To repeat, in the present case, the Indemnity Agreement was
subject to the two limitations of the credit accommodation: (1)
that the obligation should not exceed P8 million, and (2) that the
accommodation should expire not later than November 30, 1981.
Hence, it was a continuing surety only in regard to loans
obtained on or before the aforementioned expiry date and not
exceeding the total of P8 million.
NO PROVISION: ”each suretyship is a continuing one which
shall remain in full force and effect until this bank is notified of
its revocation.
Special Nature of the JSS
It is a common banking practice to require the JSS ("joint and
solidary signature") of a major stockholder or corporate officer,
as an additional security for loans granted to corporations. There
are at least two reasons for this. First, in case of default, the
creditor’s recourse, which is normally limited to the corporate
properties under the veil of separate corporate personality, would
extend to the personal assets of the surety. Second, such surety
would be compelled to ensure that the loan would be used for the
purpose agreed upon, and that it would be paid by the
corporation.
Following this practice, it was therefore logical and reasonable
for the bank to have required the JSS of respondent, who was the
chairman and president of Sta. Ines in 1980 when the credit
accommodation was granted. There was no reason or logic,
however, for the bank or Sta. Ines to assume that he would still

18
PHIL. BLOOMING MILLS INC. vs. CA., GR. No. 142381,
Oct. 15, 2003
FACTS: Petitioner Philippine Blooming Mills, Inc. (PBM)
obtained a loan from Traders Royal Bank (TRB). Ching, the
Senior Vice-President of PBM, signed Deed of Suretyship in his
personal capacity and not as mere guarantors but as primary
obligors. PBM and Ching filed a petition for suspension
of payments with the SEC, and eventually placed under
rehabilitation receivership. Consequently, TRB dismissed
complaint as to PBM. Ching then alleged that the Deed
of Suretyship executed in 1977 could not answer for obligations
not yet in existence at the time of its execution. It could not
answer for debts contracted by petitioner PBM in 1980 and 1981.
No accessory contract of suretyship could arise without an
existing principal contract of loan.
Issue:
Whether or not Ching is liable for credit obligations contracted
by Philippine Blooming Mills Inc. against Traders Royal Bank
before and after the execution of the Deed of Suretyship.
Held:
Ching is liable for credit obligations contracted by Philippine
Blooming Mills Inc. against Traders Royal Bank before and after
the execution of the Deed of Suretyship. This is evident from the
tenor of the deed itself, referring to amounts to PBM may now be
indebted or may hereafter become indebted to Traders Royal
Bank. The law expressly allows a suretyship for future debts.
Article 2053 provides that a guaranty may also be given as
security for future debts, the amount of which is not yet known,
there can be no claim against the guarantor until the debt is
liquidated.
Escaño and Mario M. Silos vs. Ortigas, Jr.
G. R. No. 151953
Facts: On April 28, 1980, Private Development Corporation of
the Philippines (PDCP) entered into a loan agreement with
Falcon Minerals, Inc. (Falcon) amounting to $320,000.00 subject
to terms and conditions
On the same day, three (3) stockholder-officers of Falcon:
Ortigas Jr., George A. Scholey, and George T. Scholey executed
an Assumption of Solidary Liability “to assume in their
individual capacity, solidary liability with Falcon for due and
punctual payment” of the loan contracted by Falcon with PDCP.
Two (2) separate guaranties were executed to guarantee payment
of the same loan by other stockholders and officers of Falcon,
acting in their personal and individual capacities.
One guaranty was executed by Escaño, Silos, Silverio, Inductivo
and Rodriguez. Two years later, an agreement was developed to
cede control of Falcon to Escaño, Silos and Matti. 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 Escaño, Silos and
Matti.
An Undertaking dated June 11, 1982 was executed by the
concerned parties, namely: with Escaño, Silos and Matti as
“sureties” and Ortigas, Inductivo and Scholeys as “obligors”.
Falcon eventually availed of the sum of $178,655.59 from the
credit line extended by PDCP. It would also execute a Deed of
Chattel Mortgage over its personal properties to further secure
the loan. However, Falcon subsequently defaulted in its
payments. After PDCP foreclosed on the chattel mortgage, there
remained a subsisting deficiency of Php 5,031,004.07 which
falcon did not satisfy despite demands.
Issue:
19
Whether the obligation to repay is solidary, as contended by
respondent and the lower courts, or merely joint as argued by
petitioners.
Held:
The obligation to repay is only jointly as declared by the Court.
In case there is a concurrence of two or more creditors or of two
or more debtors in one and the same obligation, Article 1207 of
the Civil Code states that among them, “there is a solidary
liability only when the obligation expressly so states, or when the
law or the nature of the obligation requires solidarity.” Article
1210 supplies further caution against the broad interpretation of
solidarity by providing: “The indivisibility of an obligation does
not necessarily give rise to solidarity. Nor does solidarity of itself
imply indivisibility.” These Civil Code provisions establish that
in case of concurrence of two or more creditors or of two or more
debtors in one and the same obligation, and in the absence of
express and indubitable terms characterizing the obligation as
solidary, the presumption is that the obligation is only joint. It
thus becomes incumbent upon the party alleging that the
obligation is indeed solidary in character to prove such fact with
a preponderance of evidence. Note that Article 2047 itself
specifically calls for the application of the provisions on joint
and solidary obligations to surety ship contracts. 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).
However, 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. In the
case of joint and several debtors, Article1217 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 co-debtors, 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.
Decision:
Petitioners and Matti are jointly liable to Ortigas, Jr. in the
amount of P1.3M; Legal interest of 12% per annum on P 1.3M
computed from March 14, 1994. Assailed rulings are affirmed.
Costs against petitioners.
20
Philippine Export and Foreign Loan Guarantee Corporation 4. The SOB required the contractors to submit a performance
v V.P. Eusebio Construction Inc.
bond representing 5% of the total contract price, an advance

Facts: payment bond representing 10% of the advance payment to be

1. The State Organization of Buildings (SOB), Ministry of released upon signing of the contract. To comply with these

Housing and Construction, Baghdad, Iraq awarded the requirements 3-Plex and VPECI applied for a guarantee with

construction of the Institute of Physical Therapy-Medical Philguarantee, a government financial institution empowered to

Rehabilitation Center in Iraq to Ayjal Trading and Contracting issue guarantees for qualified Filipino contractors.

Company for a total contract price of about $18M. 5. But what SOB required was a guarantee from the Rafidain

2. Spouses Santos, in behalf of 3-Plex International, Inc., a local Bank of Baghdad so Rafidain Bank issued a performance bond in

contractor engaged in construction business, entered into a joint favor of SOB on the condition that another foreign bank (not Phil

venture agreement with Ayjal wherein the former undertook the Guarantee) would issue the counter-guarantee. Hence, Al Ahli

execution of the entire a project, while the latter would be Bank of Kuwait was chosen to provide the counter guarantee.

entitled to a commission of 4%. 6. Afterwards, SOB and the joint venture of VPECI and Ayjal

3. 3-Plex not accredited by the Philippine Overseas Construction executed the service contract. Under the contract, the joint

Board (POCB) assigned and transferred all its rights and interests venture would supply manpower and materials, SOB would

to VPECI. refund 25% of the project cost in Iraqi Dinar and 75% in US

dollars at an exchange rate of 1 Dinar to $3.37.

21
7. The project was not completed. Upon seeing the impossibility 10. Philguarantee sent letters to respondents demanding the full

of meeting the deadline, the joint venture worked for the renewal payment of the surety bond. Respondents failed to pay so

or extension (12x) of the performance bond up to December petitioner filed a civil case for collection of sum of money.

1986. 11. Trial Court ruling: Dismissed. Philguarantee had no valid

8. In October 1986, Al Ahli Bank sent a telex call demanding full cause of action against the respondents. The joint venture

payment of its performance bond counter-guarantee. Upon incurred no delay in the execution of the project considering that

receipt, VPECI requested Iraq Trade and Economic SOB's violations of the contract rendered impossible the

Development Minister Fadhi Hussein to recall the telex for being performance of its undertaking.

in contravention of its mutual agreement that the penalty will be 12. CA: Affirmed.

held in abeyance until completion of the project. It also wrote Issue:

SOB protesting the telex since the Iraqi government lacks foreign 1. WON the respondent contractor has defaulted in

exchange to pay VPECI and the non-compliance with the 75% its obligations that would justify resort to the

billings in US dollars. guaranty.

9. Philguarantee received another telex from Al Ahli stating that 2. WON petitioner as a guarantor can secure

it already paid to Rafidain Bank. The Central Bank authorized reimbursement from the respondents for what it

the remittance to Al Ahli Bank representing the full payment of has paid under Letter of Guarantee No. 81-194F.

the performance counter-guarantee for VPECI's project in Iraq.

Ruling:

22
1. The trial court and the Court of Appeals were in 2. As a rule, a guarantor who pays for a debtor should be

unison that the respondent contractor cannot be indemnified by the latter and would be legally

considered to have defaulted in its obligations subrogated to the rights which the creditor has against

because the cause of the delay was not primarily the debtor. However, a person who makes payment

attributable to it. The delay or the non -completion without the knowledge or against the will of the

of the Project was caused by factors not imputable to debtor has the right to recover only insofar as the

the respondent contractor. It was rather due mainly payment has been beneficial to the debtor. If the

to the persistent violations by SOB of the terms and obligation was subject to defenses on the part of the

conditions of the contract, particularly its failure to debtor, the same defenses which could have been set

pay 75% of the accomplished work in US up against the creditor can be set up against the

Dollars. Indeed, where one of the parties to a contract paying guarantor.

does not perform in a proper manner the prestation

From the findings of the Court of Appeals and the
which he is bound to perform under the contract, he is
trial court, it is clear that the payment made by the
not entitled to demand the performance of the other
petitioner guarantor did not in any way benefit the
party. A party does not incur in delay if the other
principal debtor, given the project status and the
party fails to perform the obligation incumbent upon
conditions obtaining at the Project site at that
him.

23
time. Moreover, the respondent contractor was or cannot pay, in whole or in part, that the guarantor

found to have valid defenses against SOB, which are should pay. When the petitioner guarantor in this case

fully supported by evidence and which have been paid against the will of the debtor VPECI, the debtor

meritoriously set up against the paying guarantor, the VPECI may set up against it defenses available

petitioner in this case. And even if the deed of against the creditor SOB at the time of payment.

undertaking and the surety bond secured petitioner’s

Stronghold Insurance Co. Inc. v. Tokyu Construction Com.
guaranty, the petitioner is precluded from enforcing Ltd

the same by reason of the petitioner’s undue payment

DOCTRINE:
on the guaranty. Rights under the deed of
The subsequent acts in the insurance policy such as modification
undertaking and the surety bond do not arise because
of the principal agreement affect the insurance bonds and the
these contracts depend on the validity of the
absence of prior principal agreement likewise rendered the
enforcement of the guaranty. The petitioner guarantor
insurance policy void.
should have waited for the natural course of
FACTS:
guaranty: the debtor VPECI should have, in the first
Respondent Tokyu Construction Company was awarded
place, defaulted in its obligation and that the creditor
by Manila International Airport Authority a contract to construct
SOB should have first made a demand from the
NAIA terminal 2.
principal debtor. It is only when the debtor does not

24
 On June 2, 1996 respondent entered into a sub-contract W/N the bonds are null and void having executed without

agreement with Gabriel Enterprise for the construction of storm a valid and existing principal contract since the bond was

drainage and sewage treatment plant in the area. In relations with executed prior to the principal contract.

the agreement Gabriel enterprise obtain surety bond and W/N the bonds were invalidated due to modification in the sub

performance bond with the petitioner Stronghold Insurance contract agreement.

Company valid for the period of one year from the date it was W/N the bond has expired.

issued. RULING:

Subsequently, Gabriel enterprise failed to satisfy its The contention of the petitioner that the surety bond was

obligation on the maturity date, However Tokyu Construction invalid because it was executed a head of the principal contract is

Company modify its sub agreement and extend its completion not entertained since it was not raised before the lower courts, to

which Gabriel enterprise obtained another performance bond allow would violate the basic rule of fair play, justice and due

now on Tico Insurance Company because the one year process. Even assuming to merit the contention would raised

performance insurance bond from petitioner stronghold already questions of facts which the court is not Trier of facts.

expired. The same Gabriel Enterprise defaulted. On the issue whether the bond was terminated due to

ISSUE: certain modifications in the sub-contract agreement without

notice to surety, The court said as early when Gabriel first failed

to comply with its obligation on the due date prior to the

25
modification of the agreement already makes the surety liable.
JN Devt. Corp. v. Philippine Export and Foreign Loan
The consent of the surety to the agreement is not material being Guarantee Corp

not a party thereto, its role only arisen when the debtor failed to
Facts:
satisfy its obligation. The surety can only be released from the
Petitioner JN Development Corporation and Traders
obligation when there is a material alteration in the principal
Royal Bank entered into an agreement that the latter would
contract, in the case at bar there was none.
extend to JN an Export Packing Credit Line for Two Million
W/N the bond was expired, since the sub contract
Pesos. The loan was covered by several securities, including a
agreement was extended for another year wherein Gabriel
real estate mortgage and a letter of guarantee from respondent
obtained a new bond from Tico Insurance Company, the liability
Philippine Export and Foreign Loan Guarantee Corporation,
of the petitioner is limited only when Gabriel enterprise first
covering seventy percent (70%) of the credit line. With Phil
defaulted under petitioner stronghold insurance bond.
Guarantee issuing a guarantee in favor of TRB. For failure of

petitioner JN to pay upon maturity, Phil Guarantee was made to

pay. When JN failed to reimburse the latter, respondent Phil

Guarantee filed a Complaint for collection of money and

damages against herein petitioners.

26
 The RTC dismissed Phil Guarantee’s complaint as well reimbursement from petitioners. The law clearly requires the

as the counterclaim of petitioners. It ruled that the petitioners are debtor to indemnify the guarantor what the latter has paid. Under

not liable to reimburse Phil Guarantee what it had paid to TRB a contract of guarantee, the guarantor binds himself to the credit

since the latter was able foreclose the real estate mortgage to fulfill the obligation of the principal debtor in case the latter

executed by JN, thus, extinguishing petitioner’s obligation. should fail to do so. The guarantor who pays for a debtor, in

According to the RTC, the failure of TRB to sue JN for the turn, must be indemnified by the latter. However, the

recovery of the loan precludes Phil Guarantee from seeking guarantor cannot be compelled to pay the creditor unless the

recoupment from what it had paid to TRB. Thus, Phil latter has exhausted all the property of the debtor and

Guarantee’s payment to TRB amounts to a waiver of its right resorted to all the legal remedies against the debtor. This is

under Art. 2058 of the Civil Code. what is otherwise known as the benefit of excussion.

Issue:

WON petitioner is still liable to indemnify the guarantor

despite the latter seemingly waiving its right to excussion.

Ruling:

Yes. The Court held that Phil Guarantee’s waiver of the

right of excussion cannot prevent it from demanding

27
 JOSE C. TUPAZ v. CA
G.R. No. 145578, November 18, 2005
FACTS:
Petitioners Jose C. Tupaz IV and Petronila C. Tupaz were
Vice-President for Operations and Vice-
President/Treasurer, respectively, of El Oro Engraver
Corporation (“El Oro Corporation”). El Oro Corporation had
acontract with the Philippine Army to supply the latter with
“survival bolos.”
To finance the purchase of the raw materials for the
survival bolos,petitioners, on behalf of El Oro Corporation,
applied with respondent Bank ofthe Philippine Islands for
two commercial letters of credit. The letters of credit were
in favor of El Oro Corporation’s suppliers, Tanchaoco
Manufacturing Incorporated (“Tanchaoco Incorporated”)
and Maresco Rubber and Retreading Corporation
(“Maresco Corporation”).
Respondent bank granted petitioners’ application and
issued letters of credit in their favor. Petitioners also signed
trust receipts in favor of respondent bank. On 30
September 1981, petitioner Jose C. Tupaz IV signed, in his
personal capacity, a trust receipt corresponding to Letter of
Credit No. 2-00896-3(for P564,871.05). Petitioner Jose
Tupaz bound himself to sell the goods covered by the letter
of credit and to remit the proceeds to respondent bank, if
sold, or to return the goods, if not sold, on or before 29
December 1981.On 9 October 1981, petitioners signed, in
their capacities as officers of ElOro Corporation, a trust
receipt corresponding to Letter of Credit No. 2-00914-5 (for
P294,000). Petitioners bound themselves to sell the goods
covered by that letter of credit and to remit the proceeds to
respondent bank, if sold, or to return the goods, if not sold,
on or before 8 December 1981.
After Tanchaoco Incorporated and Maresco Corporation
delivered theraw materials to El Oro Corporation,
respondent bank paid theformer P564,871.05
and P294,000, respectively. Petitioners did not comply
with their undertaking under the trust receipts. Respondent
bank made several demands for payments but El Oro
Corporation made partial payments only. On 27 June 1983
and 28 June1983, respondent bank’s counsel and
its representative respectively sent final demand letters to
El Oro Corporation. El Oro Corporation replied that it could
not fully pay its debt because the Armed Forces of the
Philippines had delayed paying for the survival bolos.
Respondent bank charged petitioners with estafa
under Section 13, Presidential Decree No. 115 (“Section
13”) or Trust Receipts Law (“PD115”).
The RTC acquitted petitioners of estafa based on
reasonable doubtbut found them solidarily liable with El
Oro Corporation for the balance of ElOro Corpoarations
principal debt under the trust receipts. The CA affirmed
the RTC’s ruling. Hence, this petition.
ISSUES:
1) Whether petitioners bound themselves personally
liable for El Oro Corporation’s
debts under the trust receipts or that any of them has
bound himself personally liable for El Oro Corporation’s
debt under any of the trust receipts;
2) If so, what is the extent of the petitioner’/s’ liability?
28
HELD: Second, the benefit of excussion may be waived. Under
1) In the trust receipt dated 9 October 1981, the trust receipt dated 30 September 1981, petitioner Jose
petitioners signed belowthis clause as officers of El Oro Tupaz waived excussion when he agreed that his “liability
Corporation. Thus, under petitioner Petronila Tupaz’s in [the] guaranty shall be DIRECT AND IMMEDIATE,
signature are the words “Vice-Pres–Treasurer” andunder without any need whatsoever onxxx [the] part [of
petitioner Jose Tupaz’s signature are the words “Vice- respondent bank] to take any steps or exhaust any legal
Pres –Operations.” By so signing that trust receipt, remedies xxx.” The clear import of this stipulation is that
petitioners did not bind themselves personally liable for petitioner Jose Tupaz waived the benefit of excussion
El Oro Corporation’s obligation. under his guarantee.
Hence, for the trust receipt dated 9 October 1981, the SC
sustained As guarantor, petitioner Jose Tupaz is liable for El
the petitioners’ claim that they are not personally liable for Oro Corporation’s principal debt and other accessory
El Oro Corporation’s obligation. liabilities (as stipulated in the trust receipt and as provided
by law) under the trust receipt dated 30 September 1981.
However, for the trust receipt dated 30 September 1981,
the dorsalportion of which petitioner Jose Tupaz signed
alone, we find that hedid so in his personal capacity.
Petitioner Jose Tupaz did not indicate that he was signing
as El Oro Corporation’s Vice
-President for Operations. Hence, petitioner Jose
Tupaz bound himself personally liable for El Oro
Corporation’s debts. Not being a party to the trust receipt
dated 30 September 1981, petitioner Petronila Tupaz is
notliable under such trust receipt.

2) Tupaz is liable as a guarantor. Respondent bank’s suit

against petitioner Jose Tupaz stands despite the Court’s
finding that he is liable as guarantor only. First, excussion
is not a pre-requisite tosecure judgment against a
guarantor. The guarantor can still demand deferment of the
execution of the judgment against him untilafter the assets
of the principal debtor shall have been exhausted.

29
 PRUDENTIAL GUARANTEE AND ASSURANCE CORP
v. ANSCOR LAND
Facts:
Anscor Land, Inc. (ALI) and KRDC entered into a
Construction Contract for the construction of an 8-unit
townhouse (project) located in Capitol Hills, Quezon City.
Under the contract, KRDC was to build and complete the
project within 275 continuous calendar days from the date
of receipt of a notice to proceed for the consideration
of P18,800,000.00.
As part of its undertaking, KRDC submitted a surety bond
amounting to P4,500,000.00 to secure the reimbursement
of the down payment paid by ALI in case of failure to finish
the project and a performance bond amounting
to P4,700,000.00 to guarantee the supply of labor,
materials, tools, equipment, and necessary supervision to
complete the project. The said bonds were issued in favor
of ALI by herein petitioner PGAI.
As part of its undertaking, KRDC submitted a surety
bond amounting to P4,500,000.00 to secure the
reimbursement of the down payment paid by ALI in case of
failure to finish the project and a performance bond
amounting to P4,700,000.00 to guarantee the supply of
labor, materials, tools, equipment, and necessary
supervision to complete the project. The said bonds were
issued in favor of ALI by herein petitioner PGAI. Under the
Performance Bond,[4] the parties agreed on a time-bar
provision which states.
PRUDENTIAL GUARANTEE AND
ASSURANCE INC., shall not be liable for any
claim not discovered and presented to the
company within ten days from the expiration
of this bond or from the occurrence of the
default or failure of the principal, whichever is
the earliest, and that the obligee hereby
waives his right to file any claim against the
Surety after the termination of the period of
ten days above mentioned after which time
this bond shall definitely terminate and be
deemed absolutely cancelled.
KRDC then received a notice to proceed 325 days
after KRDC received the notice to proceed, and 50 days
beyond the contract date of completion, ALI sent PGAI a
letter[5] notifying the latter that the contract with KRDC was
terminated due to very serious delays. The letter also
informed PGAI that ALI may be making claims against the
said bonds.
30
 KRDC, through a letter asked ALI to reconsider its
decision to terminate the contract and requested that it be
allowed to continue with the project. On October 27, 2000,
ALI replied[6] with regrets that it stands by its earlier
decision to terminate the construction contract.
Through a letter or exactly one (1) year after the expiration
date in the performance bond, ALI reiterated its claim
against the performance bond issued by PGAI amounting
to P3,852,800.84. PGAI however did not respond to the
letter. ALI commenced arbitration proceedings against
KRDC and PGAI in the CIAC. PGAI answered with cross-
claim contending that it was not a party to the construction
contract and that the claim of ALI against the bonds was
filed beyond the expiration period. CIAC rendered
judgment[8] awarding a total of P7,552,632.74 to ALI and a
total of P1,292,487.81 to KRDC.CIAC also allowed the
offsetting of the awards to both parties which resulted to a
net amount due to ALI of P6,260,144.93 to be paid by
KRDC.Meanwhile, the CIAC found PGAI liable for the
reimbursement of the unliquidated portion of the down
payment as a solidary liability under the surety bond in the
amount of P1,771,264.06.
CIAC ruled that letter of ALI to PGAI did not
constitute a proper claim under the performance bond. In
so ruling, the CIAC relied on the tenor of the letter which
used the phrase may be making claims against the said
bonds. The CIAC interpreted this phrase as tentative at
best and far from a positive claim against PGAI. According
to the CIAC, the letter merely informed PGAI of the
termination of the construction contract between ALI and
KRDC and in no sense did such letter present a valid claim
against the performance bond issued by PGAI.
ISSUE:
Whether or not the respondent made its claim on the
performance bond within the period allowed by the time-
bar provision
HELD:
The time-bar provision in the Performance Bond provides
that any claim against the bond should be discovered and
presented to the company within ten days from the
expiration of this bond or from the occurrence of the default
or failure of the principal, whichever is the earliest. The
purpose of this provision in the performance bond is to give
the issuer, in this case PGAI, notice of the claim at the
earliest possible time and to afford the issuer sufficient time
to evaluate, and examine the validity of the claim while the
evidence or indicators of breach are fresh. In the
construction industry, time is precious, delay costs money
31
and postponement in making a claim could cause
additional expenses.
In line with the rationale behind the time-bar provision, we
rule that the letter dated October 16, 2000 was a sufficient
claim. The tenor of the letter adequately put PGAI on
notice that ALI has terminated the contract because of
serious delays tantamount to breach by KRDC of its
obligations. The letter timely informed PGAI that ALI was in
fact terminating the construction contract and thereby
giving rise to the obligation of PGAI under the performance
bond. PGAI was informed within the time-bar provision and
had all the opportunity to conduct its evaluation and
examination as to the validity of the termination.
or right to payment against PGAI in the maximum amount
of P4,700,000.00 from the moment KRDC failed to comply
with its obligation. According to the time-bar provision, in
order to enforce such claim or recover the said amount,
ALI shall present its claim within ten (10) days from the
occurrence of the default or failure of KRDC.
The October 16, 2000 letter was the presentation of the
claim. ALIs intent to recover its claim was communicated
clearly to PGAI. By informing PGAI of the termination of the
contract with KRDC, ALI in effect presented a situation
where PGAI is put on notice that ALI in fact has a right to
payment by virtue of the performance bond and it intends
to recover it. Undeniably, ALI has substantially complied
with the time-bar provision of the performance bond.

In interpreting the time-bar provision, the absence of any

ambiguity in the words used would lead to the conclusion
that the generally accepted meaning of the words shall
control. In the time-bar provision, the word claim does not
give rise to any ambiguity in interpretation and does not
call for a stretched understanding.

In the case at bar, the claim of ALI against PGAI arose

from the failure of KRDC to perform its obligation under the
construction contract. ALI therefore already had the claim

32
 E. Zobel, Inc. vs. CA, Consolidated Bank and Trust
Corporation (SOLIDBANK) and Sps. Raul and Elea
Claveria [G.R. No. 113931]
FACTS:
1. Spouses Raul and Elea Claveria, doing business under
the name "Agro Brokers," applied for a loan with
respondent Consolidated Bank and Trust Corporation (now
SOLIDBANK) in the amount of P2, 875,000.00 to finance
the purchase of two (2) maritime barges and one tugboat
which would be used in their molasses business.
2. The loan was granted subject to the condition that
respondent spouses execute a chattel mortgage over the
three (3) vessels to be acquired and that a continuing
guarantee be executed by Ayala International Philippines,
Inc., now herein petitioner E. Zobel, Inc. in favor of
SOLIDBANK. The respondent spouses agreed to the
arrangement. Consequently, a chattel mortgage and a
Continuing Guaranty were executed.
3. The spouses defaulted in the payment of the entire
obligation upon maturity. Hence, on January 31,1991,
SOLIDBANK filed a complaint for sum of money with a
prayer for a writ of preliminary attachment, against
respondents spouses and petitioner.
4. Petitioner: (Motion to Dismiss) Its liability as guarantor
of the loan was extinguished pursuant to Article 2080 of the
Civil Code of the Philippines. 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.
5. SOLIDBANK: E. Zobel, Inc. is not a guarantor but a
surety.
6. RTC: Denied Motion to Dismiss. Basis of RTC: 'For and
in consideration of any existing indebtedness to you of
Agro Brokers, a single proprietorship owned by Mr. Raul
Claveria for the payment of which the undersigned is now
obligated to you as surety and in order to induce you, in
your discretion, at any other manner, to, or at the request
or for the account of the borrower, x x x ' · The provisions
of the document are clear, plain and explicit. E. Zobel, Inc.
signed as surety. · Even though the title of the document
is 'Continuing Guaranty', the Court's interpretation is not
limited to the title alone but to the contents and intention of
the parties more specifically if the language is clear and
positive. · Art. 2080 New Civil Code will not apply as it is
only for those acting as guarantor. · In the letter of the
defendants (spouses and Zobel) to the plaintiff it is
requesting that the chattel mortgage on the vessels and
tugboat be waived and/or rescinded by the bank inasmuch
as the said loan is covered by the Continuing Guaranty by
Zobel in favor of the plaintiff thus thwarting the claim of the
defendant now that the chattel mortgage is an essential
condition of the guaranty. · Failure of the plaintiff to
register the chattel mortgage with the proper government
agency, i.e. with the Office of the Collector of Customs or
with the Register of Deeds could not be taken by this Court
as the basis of the extinguishment of the obligation of the
defendant corporation to the plaintiff as surety. · Chattel
mortgage is an additional security and should not be
considered as payment of the debt in case of failure of
payment. The same is true with the failure to register,
extinction of the liability would not lie.
7. CA Affirmed RTC decision.
33
ISSUE:
Whether or not petitioner under the "Continuing Guaranty"
obligated itself to SOLIDBANK as a guarantor or a surety.
HELD/ RATIO:
E. Zobel, Inc. obligated itself as a surety.
Thus, Art 2080 of the Civil Code does not apply to it.
Contract of Surety Contract of Guaranty Accessory
promise by which a person binds himself for another
already bound Collateral undertaking to pay the debt of
another in case the latter does not pay the debt. Surety
agrees with the creditor to satisfy the obligation if the
debtor does not. Guarantor's own separate undertaking, in
which the principal does not join. A surety is usually bound
with his principal by the same instrument, executed at the
same time, and on the same consideration. Usually
entered into before or after that of the principal, and is
often supported on a separate consideration from that
supporting the contract of the principal.
He is an original promissor and debtor from the beginning,
and is held, ordinarily, to know every default of his
principal. The original contract of his principal is not his
contract, and he is not bound to take notice of its non-
performance. He will not be discharged, either by the mere
indulgence of the creditor to the principal, or by want of
notice of the default of the principal, no matter how much
he may be injured thereby. He is often discharged by the
mere indulgence of the creditor to the principal, and is
usually not liable unless notified of the default of the
principal. Surety is the insurer of the debt, and he obligates
himself to pay if the principal does not pay. Guarantor is
the insurer of the solvency of the debtor and thus binds
himself to pay if the principal is unable to pay. 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. One need not look too
deeply at the contract to determine the nature of the
undertaking and the intention of the parties. The contract
clearly discloses that petitioner assumed liability to
SOLIDBANK, as a regular party to the undertaking and
obligated itself as an original promissor.
It bound itself jointly and severally to the obligation with the
respondent spouses. In fact, SOLIDBANK need not resort
to all other legal remedies or exhaust respondent spouses'
properties before it can hold petitioner liable for the
obligation. 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. 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. But even assuming that Article 2080 is
applicable, SOLIDBANK's failure to register the chattel
mortgage did not release petitioner from the obligation. In
the Continuing Guaranty executed in favor of SOLIDBANK,
petitioner bound itself to the contract irrespective of the
34
existence of any collateral. It even released SOLIDBANK
from any fault or negligence that may impair the contract.
CASE LAW/ DOCTRINE: Art. 2080 applies only to
guarantors not sureties. (See table above for the
comparison of Contract of guaranty and Contract of surety)
STRONGHOLD INSURANCE COMPANY, INC. vs.
REPUBLIC-ASAHI GLASS CORPORATION
Facts:
Republic-Asahi entered with Jose Santos Jr., proprietor of
JDS Construction, for the construction of roadways and
drainage system, which was supposed to be completed
within a period of 240 days. In order to guarantee the
faithful and satisfactory performance of its undertakings
JDS post a performance bond of P795,000.00 with
Petitioner Stronghold Insurance Co., Inc. (SICI).
Respondent called the attention of JDS to the alleged
alarmingly slow pace of the construction, which resulted in
the fear that the construction will not be finished within the
stipulated period. However, such was unheeded by JDS.
Dissatisfied with the progress of the work, Republic-Asahi
extrajudicially rescinded the contract, but such rescission
shall not be construed as a waiver of respondents right to
recover damages from JDS and latter’s sureties.
Thus, because of the failure to comply with the provisions
of the contract, it had to hire another contractor to finish the
project, for which it incurred additional expenses.
Thereafter, respondent sent a letter to petitioner SICI filing
its claim under the bond. Respondent then sent again
another letter reiterating the same demand but was
unheeded.
This prompted respondent to file a complaint against JDS
and SICI for payment representing additional expenses
and damages. According to the Sheriff’s Return, summons
were duly served on SICI, however, Jose Santos Jr. died
the previous year, and JDS was no longer at its address,
35
and such whereabouts were unknown. SICI filed its
answer, alleging that the respondent’s money claims have
been extinguished by the death of Santos. Even if this
were not the case, it had been released from liability under
the performance bond because there was no liquidation,
with the active participation and involvement, pursuant to
procedural due process, of herein surety and Santos,
hence there was no ascertainment of the corresponding
liabilities of Santos and SICI under the performance bond.
Thus, such liquidation would be impossible since Santos is
already dead.
The complaint against JDS and SICI was dismissed on the
ground that the claim against JDS did not survive the death
of Santos. On Motion for Reconsideration, the dismissal of
the case was reconsidered and the case was reinstated,
however, the case against Santos remains undisturbed. On
appeal, the Court of Appeals ruled that SICI’s obligation
under the surety agreement was not extinguished by the
death of Santos. Consequently Respondent could still go
after SICI for the bond. Hence, this petition.
of Court expressly allows the prosecution of money claims
arising from a contract against the estate of a deceased
debtor.
Evidently, those claims are not actually extinguished.
What is extinguished is only the obligee’s action or suit
filed before the court, which is not then acting as a probate
court. In the present case, whatever monetary liabilities or
obligations Santos had under his contracts with respondent
were not intransmissible by their nature, by stipulation, or
by provision of law. Hence, his death did not result in the
extinguishment of those obligations or liabilities, which
merely passed on to his estate. Death is not a defense that
he or his estate can set up to wipe out the obligations
under the performance bond. Consequently, petitioner as
surety cannot use his death to escape its monetary
obligation under its performance bond.

Issue: Whether or not the claims against SICI was

extinguished from the death of Santos

Held:
As a general rule, the death of either the creditor or the
debtor does not extinguish the obligation. Obligations are
transmissible to the heirs, except when the transmission is
prevented by the law, the stipulations of the parties, or the
nature of the obligation. Only obligations that are personal
or are identified with the persons themselves are
extinguished by death. Section 5 of Rule 8612 of the Rules

36