23 September 2018

23 September 2018
CREDTRANS
CASES FOR QUARANTY
LS 206 – Credit Transactions Part 4 – Guaranty
1. ROSALINA CARODAN vs. CHINA BANKING CORPORATION, G.R. No. 210542, February 24, 2016
ROSALINA CARODAN, Petitioner, v. CHINA BANKING CORPORATION, Respondent. G.R. No. 210542,
February 24, 2016 Sereno, C.J.
Solidary Obligation
Facts:
China Bank claimed that Barbara and Rebecca executed and delivered a Promissory Note to respondent
bank under which they promised therein to jointly and severally pay the amount of P2.8 million. As
security for the payment of the loan, Barbara, Rebecca and Rosalina also executed a Real Estate
Mortgage over a property registered in the name of Rosalina. Respondent alleged that a Surety
Agreement in favor of China Bank as creditor was also executed by Barbara and Rebecca as principals
and Rosalina and her niece Madeline as sureties.
Barbara and Rebecca failed to pay their loan despite repeated demands from China Bank. The bank
instituted extrajudicial foreclosure proceedings on the mortgage property. From the extrajudicial sale, it
realized only PI.5 million and would still leave a deficiency of P365,345.77. The bank prayed that the
court order the payment of the deficiency amount. China Bank clarified that it was suing Barbara and
Rebecca as debtors under the Promissory Note and as principals in the Surety Agreement, as well as
Rosalina and Madeline as sureties in the Surety Agreement.
Rosalina averred that when Barbara and Rebecca paid half of the loan under the Promissory Note, the
properties of Barbara covered by the mortgage were released by the bank from liability. The
cancellation of the mortgage lien was effected by an instrument. This cancellation, according to
Rosalina, illegally caused her property to absorb the singular risk of foreclosure. The result, according to
her, was the extinguishment of the indivisible obligation contained in the mortgage pursuant to Article
121632 of the Civil Code.
China Bank alleged that the issue of whether Rosalina obtained material benefit from the loan was not
material, since she had voluntarily and willingly encumbered her property; that the indivisibility of
mortgage does not apply to the case at bar, since Article 208938 of the Civil Code presupposes several
heirs, a condition that is not present in this case; that nothing short of payment of the debt or an
express release would operate to discharge a mortgage; and that, as surety, Rosalina was equally liable
as principal debtor to pay the deficiency obligation.
Issue:
Whether or not petitioner Rosalina is liable jointly and severally with Barbara and Rebecca for the
payment of respondent China Bank's claims.
Ruling
We find that Rosalina is liable as an accommodation mortgagor.
In Belo v. PNB, we had the occasion to declare:
An accommodation mortgage is not necessarily void simply because the accommodation mortgagor did
not benefit from the same. The validity of an accommodation mortgage is allowed under Article 2085 of
the New Civil Code which provides that third persons who are not parties to the principal obligation may
secure the latter by pledging or mortgaging their own property. An accommodation mortgagor,
ordinarily, is not himself a recipient of the loan, otherwise that would be contrary to his designation as
such. Apart from being an accommodation mortgagor, Rosalina is also a surety, defined under Article
2047 of the Civil Code in this wise: Art. 2047. By guaranty a person, called a guarantor, binds himself to
the creditor to fulfill the obligation of the principal debtor in case the latter should fail to do so. If a
person binds himself solidarity with the principal debtor, the provisions of Section 4, Chapter 3, Title 1 of
this Book shall be observed. In such case the contract is called a suretyship.
xxx
In Inciong, Jr. v. CA, we elucidated further in this wise:
While a guarantor may bind himself solidarity with the principal debtor, the liability of a guarantor is
different from that of a solidary debtor. Thus, Tolentino explains:
A guarantor who binds himself in solidum with the principal debtor under the provisions of the second
paragraph does not become a solidary co-debtor to all intents and purposes. There is a difference
between a solidary co-debtor, and a fiador in solidum (surety). The latter, outside of the liability he
assumes to pay the debt before the property of the principal debtor has been exhausted, retains all the
other rights, actions and benefits which pertain to him by reason of the fiansa; while a solidary co-
debtor has no other rights than those bestowed upon him in Section 4, Chapter 3, title I, Book IV of the
Civil Code.
Section 4, Chapter 3, Title I, Book IV of the Civil Code states the law on joint and several obligations.
Under Art. 1207 thereof, when there are two or more debtors in one and the same obligation, the
presumption is that the obligation is joint so that each of the debtors is liable only for a proportionate
part of the debt. There is a solidarity liability only when the obligation expressly so states, when the law
so provides or when the nature of the obligation so requires. (Citations omitted)
xxx
The creditor, respondent China Bank in this Petition, is therefore not precluded, from recovering any
unpaid balance on the principal obligation if the extrajudicial foreclosure sale of the property, subject of
the Real Estate Mortgage, would result in a deficiency. Rosalina protests her liability for the deficiency.
She claims that China Bank cancelled the mortgage lien and released the principal borrowers from
liability. She contends that this act violated Article 2089 of the Civil Code on the indivisibility of mortgage
and ultimately discharged her from liability as a surety.
We disagree.
xxx
We therefore find no merit in Rosalina's protestations in this petition. As provided by the quoted clause
in the contract, she not only waived the rights to demand payment and to receive notice of nonpayment
and protest, but she also expressly agreed that the time for payment may be extended. More
significantly, she agreed that the securities may be "substituted, withdrawn or surrendered at any time"
without her consent or without notice to her. That China Bank indeed surrendered the properties of the
principal debtors was precisely within the ambit of this provision in the contract. Rosalina cannot now
contest that act in light of her express agreement to that stipulation.
2. SPOUSES EDUARDO B. EVANGELISTA and EPIFANIA C. EVANGELISTA vs. MERCATOR FINANCE

CORP., et al., G.R. No. 148864, 21 August 2003
1. Petitioners filed a complaint1 for annulment of titles against respondents, Mercator Finance
Corporation, Lydia P. Salazar, Lamecs Realty and Development Corporation
- they are the registered owners of 5 parcels of land contained in the Real Estate Mortgage executed by
them and Embassy Farms, Inc.
- MAIN CONTENTION: they executed the Real Estate Mortgage in favor of Mercator ONLY as officers of
Embassy Farms.
- They did not receive the proceeds of the loan evidenced by a promissory note, as all of it went to
Embassy Farms.
- So the mortgage was without any consideration as to them since they did not personally obtain any
loan or credit accommodations. There being no principal obligation on which the mortgage rests, the
real estate mortgage is void.
- Now they're assailing the validity of the foreclosure proceedings by mercator , the sale in the public
auction, new tct's, and subsequent sale to Salazar, and the subsequent sale and transfer to herein
respondent Lamecs.
2. Mercator:
- contended that "on February 16, 1982, plaintiffs executed a Mortgage in favor of defendant Mercator
for and in consideration of certain loans and other forms of credit accommodations given by mercator,
amounting to P844,625, and those that mortgagee may extend to the plaintiff mortgagors.
- since petitioners and Embassy Farms signed the promissory note as co-makers, aside from the
Continuing Suretyship and the succeeding promissory notes restructuring the loan, then petitioners are
jointly and severally liable with Embassy Farms.
- Due to their failure to pay the obligation, the foreclosure and subsequent sale of the mortgaged
properties are valid.
3. Respondents Salazar and Lamecs:
- Innocent purchasers for value and in good faith, relying on the validity of the title of Mercator.
- They are guilty of laches and estoppel. It was only after a lapse of almost ten (10) years from the
foreclosure of the property and the subsequent sales that they made their claim.
4. After pre-trial, Mercator moved for summary judgment on the ground that except as to the amount
of damages as petitioners had admitted the existence of the promissory note, the continuing suretyship
agreement and the subsequent promissory notes restructuring the loan, hence, there is no genuine
issue regarding their liability. All transacations were valid.
5. Petitioners opposed the motion for summary judgment claiming that because their personal liability
to Mercator is at issue, there is a need for a full-blown trial.
6. RTC granted the motion for summary judgement and dismissed the complaint:
- The liability of the signatories thereto are solidary in view of the phrase "jointly and severally."
- On the promissory note the signatures of Eduardo B. Evangelista, Epifania C. Evangelista and another
signature of Eduardo B. Evangelista below the words Embassy Farms, Inc. It is crystal clear then that the
plaintiffs-spouses signed the promissory note NOT only as officers of Embassy Farms but in their
personal capacity.
- Plaintiffs by affixing their signatures thereon in a dual capacity have bound themselves as solidary
debtor(s) with Embassy Farms, Inc. to pay Mercator
- That the principal contract of loan is void for lack of consideration, in the light of the foregoing is
untenable. MFR denied.
ISSUE: WON they are not personally liable, Embassy Farms only
HELD: No
1. Summary judgement proper: there are no genuine issues raised by petitioners. Petitioners do not
deny that they obtained a loan from Mercator. They merely claim that they got the loan as officers of
Embassy Farms without intending to personally bind themselves or their property. However, a simple
perusal of the promissory note and the continuing suretyship agreement shows otherwise. These
documentary evidence prove that petitioners are solidary obligors with Embassy Farms.
2. The note was signed at the bottom by petitioners Eduardo B. Evangelista and Epifania C. Evangelista,
and Embassy Farms, Inc. with the signature of Eduardo B. Evangelista below it.
3. The Continuing Suretyship Agreement also proves the solidary obligation of petitioners ((3) The
obligations hereunder are joint and several and independent of the obligations of the Principal. )
4. As to the argument that there is an ambiguity in the wording of the promissory note and that since it
was Mercator who provided the form, then the ambiguity should be resolved against it.
SC SAYS: Courts can interpret a contract only if there is doubt in its letter.25 But, an examination of the
promissory note shows no such ambiguity. Besides, assuming arguendo that there is an ambiguity,
Section 17 of the Negotiable Instruments Law states, viz:
SECTION 17. Construction where instrument is ambiguous. – Where the language of the instrument is
ambiguous or there are omissions therein, the following rules of construction apply:
(g) Where an instrument containing the word "I promise to pay" is signed by two or more persons, they
are deemed to be jointly and severally liable thereon.
5. As to the argument that: the promissory note does not convey their true intent in executing the
document.
SC SAYS: NO. Even if petitioners intended to sign the note merely as officers of Embassy Farms, still they
executed a continuing suretyship agreement. A surety is one who is solidarily liable with the principal.
Petitioners cannot claim that they did not personally receive any consideration for the contract for well-
entrenched is the rule that the consideration necessary to support a surety obligation need not pass
directly to the surety, a consideration moving to the principal alone being sufficient. A surety is bound
by the same consideration that makes the contract effective between the principal parties thereto.
IN VIEW WHEREOF, the petition is dismissed.
3. JACINTO UY DIÑO and NORBERTO UY vs. HON. COURT OF APPEALS and METROPOLITAN BANK
AND TRUST COMPANY, G.R. No. 89775 November 26, 1992
FACTS:
Uy Tiam Enterprises and Freight Services or UTEFS, thru its representative Uy Tiam (“the borrower”),
applied for and obtained credit accommodations (letter of credit and trust receipt accommodations)
from the Metropolitan Bank and Trust Company or METROBANK in the sum of P700, 000. 00. To secure
the aforementioned credit accommodations, Norberto Uy and Jacinto Uy Diño executed separate
Continuing Suretyships, in favor of UTEFS, whereby Norberto Uy agreed to pay METROBANK any
indebtedness of UTEFS up to the aggregate sum of P300,000.00 while Jacinto Uy Diño agreed to be
bound up to the aggregate sum of P800,000.00.
Having paid the obligation under the above letter of credit in 1977, UTEFS obtained another credit
accommodation from METROBANK in 1978. This Irrevocable Letter of Credit which is in the sum of P815,
600.00, covered UTEFS' purchase of "8,000 Bags Planters Urea and 4,000 Bags Planters 21-0-0."
Pursuant to the above commercial transaction, UTEFS executed and delivered to METROBANK a Trust
Receipt whereby the former acknowledged receipt in trust from the latter of the aforementioned goods
from Planters Products which amounted to P815, 600.00. Being the entrusted, the former agreed to
deliver to METROBANK the entrusted goods in the event of non-sale or, if sold, the proceeds of the sale
thereof.
However, UTEFS did not acquiesce to the obligatory stipulations in the trust receipt. As a consequence,
METROBANK sent letters to the said principal obligor and its sureties, Norberto Uy and Jacinto Uy Diño,
demanding payment of the amount due.
Diño denied his liability for the amount demanded and requested METROBANK and maintained that he
cannot be held liable for the 1979 credit accommodation because it is a new obligation contracted
without his participation. Besides, the 1977 credit accommodation which he guaranteed has been fully
paid. He invoked Article 2052 of the Civil Code which provides that a guaranty "cannot exist without a
valid obligation.” and Article 2055 which provides that, “A guaranty is not presumed; it must be express
and cannot extend to more than what is stipulated therein.” Moreover, they cannot be held liable for
more than what they guaranteed to pay because it s axiomatic that the obligations of a surety cannot
extend beyond what is stipulated in the agreement.
In its reply, METROBANK argued that the Continuing Suretyship Agreements separately executed by the
petitioners in 1977 were intended to guarantee payment of Uy Tiam's outstanding as well as future
obligations; each suretyship arrangement was intended to remain in full force and effect until
METROBANK would have been notified of its revocation. Hence, petitioners bound themselves as
solidary obligors of Uy Tiam to both existing obligations and future ones based on Article 2053 of the
new Civil Code which provides that, "A guaranty may also be given as security for future debts, the
amount of which is not yet known; . . . ."; and since no such notice was given by the petitioners, the
suretyships are deemed outstanding and hence, cover even the 1979 letter of credit issued by
METROBANK in favor of Uy Tiam. Moreover, Article 2052 speaks about a valid obligation, as
distinguished from a void obligation, and not an existing or current obligation.
Having sent the last demand letter to UTEFS, METROBANK filed a complaint for collection of a sum of
money with a prayer for the issuance of a writ of preliminary attachment, against Uy Tiam, and
impleaded Diño and Uy as parties-defendants. The attachment writ was granted which writ was
returned unserved and unsatisfied as Uy Tiam was nowhere to be found at his given address and his
commercial enterprise was already non-operational.
Hence, this petition.
ISSUE:
(1) Whether or not Jacinto Uy Diño and Norberto Uy may be held liable as sureties for the
obligation contracted by Uy Tiam with METROBANK.
(2) If yes, what would be the extent of their liabilities for said 1979 obligations?
HELD:
A guaranty may be given to secure even future debts, the amount of which may not known at the time
the guaranty is executed. A continuing guaranty is one which is not limited to a single transaction, but
which contemplates a future course of dealing, covering a series of 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. Otherwise stated, a continuing
guaranty is one which 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.
A guaranty shall be construed as continuing when by the terms thereof it is evident that the object is to
give a standing credit to the principal debtor to be used from time to time either indefinitely or until a
certain period, especially if the right to recall the guaranty is expressly reserved. Hence, where the
contract of guaranty states that the same is to secure advances to be made "from time to time" the
guaranty will be construed to be a continuing one. In other jurisdictions, it has been held that the use of
particular words and expressions such as payment of "any debt," "any indebtedness," "any deficiency,"
or "any sum," or the guaranty of "any transaction" or money to be furnished the principal debtor "at any
time," or "on such time" that the principal debtor may require, have been construed to indicate a
continuing guaranty.
By the terms of the Agreement executed by herein petitioners, each suretyship is a continuing one and
which shall remain in full force and effect until the bank is notified of its revocation. Moreover, in the
case of Tagawa vs. Aldanese, 43 Phil. 852, “creditors suing on a suretyship bond may recover from the
surety as part of their damages, interest at the legal rate even if the surety would thereby become liable
to pay more than the total amount stipulated in the bond.”
Hence, they are jointly and severally liable to appellant METROBANK of UTEFS' outstanding obligation in
the sum of P2, 397,883.68 (as of July 17, 1987) — P651, 092.82 representing the principal amount, P825,
133.54, for past due interest (5-31-82 to 7-17-87) and P921,657.32, for penalty charges at 12% per
annum as shown in the Statement of Account. They are further declared liable for and are ordered to
pay, up to the maximum limit only of their respective Continuing Suretyship Agreement, the remaining
unpaid balance of the principal obligation of UTEFS together with the interest due thereon at the legal
rate commencing from the date of the filing of the complaint as well as the adjudged attorney's fees and
costs.
4. FORTUNE MOTORS (PHILS.) CORPORATION and EDGAR L. RODRIGUEZA vs. THE HONORABLE
COURT OF APPEALS and FILINVEST CREDIT CORPORATION, G.R. No. 112191 February 7, 1997
Art 1292 New Civil Code. In order that an obligation may be extinguished by another which substitute
the same, it is imperative that it be so declared in unequivocal terms, or that the old and the new
obligations be on every point incompatible with each other.
Facts:
Petitioners herein executed an undated “Surety Undertaking” where they “absolutely, unconditionally
and solidarily guarantee the “full, faithful and prompt performance, payment and discharge of any and
all obligations and agreements” of Fortune Motor (Phils) Corporation to Respondent and its affiliated
and subsidiary companies.
The following year, Petitioner Fortune, Respondent Filinvest and Canlubang Automotive Resources
Corporation (“CARCO”) entered into an “Automotive Wholesale Financing Agreement” wherein CARCO
will deliver motor vehicles to Fortune for the purpose of resale in the latter’s ordinary course of
business; Fortune, in turn, will execute trust receipts over said vehicles and accept drafts drawn by
CARCO, which will discount the same together with the trust receipts and invoices and assign them in
favor of Respondent Filinvest, which will pay the motor vehicles for Fortune. Under the same
agreement, Petitioner Fortune, as trustee of the motor vehicles, was to report and remit proceeds of
any sale for cash or on terms to Respondent Filinvest immediately without necessity of demand.
Several vehicles were delivered by CARCO to Petitioner Fortune and trust receipts covered by demand
drafts and deeds of assignment were executed in favor of Respondent Filinvest. But when the demand
drafts matured, not all the proceeds of the vehicles which petitioner had sold were remitted and
likewise failed to turn over several unsold vehicles covered by the trust receipts.
Thus, Respondent Filinvest through counsel, sent a demand letter to petitioner fortune. Despite said
demands, the amount was still not paid. Hence, respondent filed in the RTC of Manila a complaint for a
sum of money with preliminary attachment against the petitioners.
The trial court declared that there was no factual issue to be resolved except for the correct balance of
defendant’s account with Filinvest as agreed upon by the parties during pre-trial.
Filinvest presented testimonial and documentary evidence but defendants, instead of presenting their
evidence filed a “motion for judgement on demurrer to evidence” anchored principally on the ground
that the Surety Undertakings were null and void because at the time they were executed, there was no
principal obligation existing. The trial court denied the motion and scheduled the case for reception of
defendant’s evidence, however, defendats failed to present their evidence prompting the court to deem
them have waived their right to present evidence.
Issue: Whether or no the Court of Appeals erred when it declared that there was no novation?
Ruling: NO
On the matter of novation, this has already been ruled upon when this Court denied defendants’ Motion
to dismiss on the argument that what happened was really an assignment of credit, and not a novation
of contract, which does not require the consent of the debtors. The fact of knowledge is enough.
Besides, as explained by the plaintiff, the mother or the principal contract was the Financing Agreement,
whereas the trust receipts, the sight drafts, as well as the Deeds of assignment were only collaterals or
accidental modifications which do not extinguish the original contract by way of novation. This
proposition holds true even if the subsequent agreement would provide for more onerous terms for, at
any rate, it is the principal or mother contract that is to be followed. When the changes refer to
secondary agreements and not to the object or principal conditions of the contract, there is no novation;
such changes will produce modifications of incidental facts, but will not extinguish the original
obligation.
5. MARIANO LIM vs. SECURITY BANK CORPORATION, G.R. No. 188539 March 12, 2014
SUMMARY: Mariano Lim is the surety (Continuing Suretyship) of principal Raul Arroyo for “any and all
types of credit accommodations” to be granted by Security Bank. Arroyo defaulted, resulting to Security
Bank’s dem and for Lim to pay for the said loan. Upon Lim’s failure to comply with the demand, a
complaint was filed against Arroyo & Lim. The Arroyos can no longer be located (no summons) thus the
RTC judgment was rendered against Lim, making him liable to pay for the amount. CA affirmed said
judgment. Petitioner brought this petition to the Supreme Court, contending that he cannot be made
liable for a loan that was contracted 6 months after the Continuing Suretyship was executed. The SC
held that a Continuing Suretyship is normally entered into by a bank which anticipates entering into a
series of credit transactions with a particular company (or client), thereby making it unnecessary to
execute a separate surety contract or bond for each financing or credit accommodation extended to the
principal debtor. The terms of the Continuing Suretyship are clear between the parties. Petition partially
GRANTED, as SC reduced the attorney’s fees, but petitioner is still liable for the loan amount plus
interest and penalties.
DOCTRINES: A contract of suretyship is an agreement whereby a party, called the surety, guarantees
the performance by another party, called 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. 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. 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.
FACTS: Petition for review on certiorari of CA decision & resolution
• Mariano Lim executed a Continuing Suretyship in favor of Security Bank Corporation 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 P2,000,000.00 which is covered by a Credit Agreement /
Promissory Note.
• Pertinent stipulations: (slightly rephrased) Liability of surety – The liability of surety is solidary. If
any of the Guaranteed Obligations is not paid or performed on due date, the Surety shall be
immediately liable therefor and shall pay the same without any need for any notice, demand or any
other act or deed. Guaranteed Obligations – obligations of Debtor arising from ALL1 credit transactions,
as well as (i) all obligations of the Debtor presently and hereinafter owing to the Bank , and (ii) any and
all expenses which the Bank may incur after enforcing any of its rights, powers, and remedies.
• Arroyo defaulted on his loan. Thereafter, Lim received a Notice of Final Demand informing him
that he was liable to pay the loan of the Arroyos, including interests and penalty fees totaling to
P7,703,185.54, and demanding payment thereof.
A complaint was instituted against the principal & surety for Lim’s failure to comply with said demand.
RTC Davao
• Arroyo spouses can no longer be located so summons was not served on them & only Lim
actively participated in the case.
• Judgment rendered against Lim making him liable to pay the following
o 1. P2-M principal sum + 19% interest from Jan. 28, 1997 until fully paid + 2% penalty interest per
month to be computed from Feb. 28, 1997 until fully paid
o 2. P400k attorney’s fees
o 3. P30k litigation expenses
CA
• Only modified the date from where interest will be computed – Aug. 1, 1997 for monetary
interest & Aug. 28, 1997 for penalty interest. Attorney’s fees set at 10% of total amount due.
P92,321.10 for litigation expenses
• MR denied
ISSUE (HELD): WON petitioner may validly be held liable for the principal debtor’s loan obtained 6
months after the execution of the Continuing Suretyship? (YES)
RATIO DECIDENDI:
Nature of a suretyship
As elucidated in Philippine Charter Insurance Corporation v. Petroleum Distributors & Service

Corporation, a contract of suretyship is an agreement whereby a party, called the surety, guarantees the
performance by another party, called 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.
As explained in Stronghold Insurance Company, Inc. v. Republic Asahi Glass Corporation, t he 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.
Continuing Suretyship as described in Saludo Jr. vs. Security Bank
As highlighted in Totanes vs. Chinabank (citation in a citation lol), 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.
The terms of the Continuing Suretyship between the parties are very clear, as quoted (see emphasized
portion in guaranteed obligations definition in facts). 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 whic h is not yet known;” 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 obtained by the principal debtor even after the date of execution of the Continuing
Suretyship.
6. PHILIPPINE CHARITY SWEEPSTAKES OFFICE (PCSO) vs. NEW DAGUPAN METRO GAS
CORPORATION, PURITA E. PERALTA and PATRICIA P. GALANG, G.R. No. 173171 July 11, 2012
NATURE:
This is a petition for review under Rule 45 of the Rules of Court, assailing the Decision dated September
29, 2005and Resolution dated June 9, 2006 of the Court of Appeals in CA-GR CV No. 59590
FACTS:
Respondent Peralta is the registered owner of a parcel of land located at Bonuan Blue Beach
Subdivision, Dagupan City under TCT No. 52135.
On March 8, 1989, a Real Estate Mortgage was constituted over such property in favor of PCSO tosecure
the payment of the sweepstakes tickets purchased by Galang, its provincial distributor.
On July 31, 1990, Peralta sold, under a Conditional Sale, the subject property to New Dagupan, the
conveyance to be absolute upon the latter’s full payment of the price of P800,000.00
Peralta showed New Dagupan a photocopy of TCT52135, which bore no liens and encumbrances, and
undertook to deliver the owner’s duplicate within 3months from the execution of the contract.
New Dagupan executed an affidavit of adverse claim, which was annotated on the TCT on October 1,
1991.
In view of Peralta’s continued failure to deliver a deed of absolute sale and the owner’s duplicate
Of the title, New Dagupan filed a complaint for specific performance against her with the RTC.
On May 20, 1992, during the pendency of New Dagupan’s complaint against Peralta, PCSO caused the
registration of the mortgage.
On February 10, 1993, PCSO filed an application for the extrajudicial foreclosure sale of the subject
property in view of Galang’s failure to fully pay the sweepstakes she purchased in 1992. A public auction
took place where PCSO was the highest bidder.
The certified true copy of the TCT 52135 that New Dagupan obtained from ROD reflected PCSO’s
mortgage lien.
Arguments: PCSO:
It maintains that it’s right over the subject property are superior to those of New Dagupan. Considering
that the contract between New Dagupan is a conditional sale, there was no conveyance of ownership at
the time of the execution thereof on July 31, 1989.
It likewise attributes bad faith to New Dagupan, claiming that Peralta’s presentation of a mere
photocopy of TCT, albeit without any annotation of a lien or encumbrance, sufficed to raise reasonable
suspicions against Peralta’s claim of a clean title.
New Dagupan:
It avers that it was a purchaser in good faith and it has a superior right to the subject property,
considering that PCSO’s mortgage lien was annotated only on May 20, 1992 or long after the execution
of the conditional sale on July 31, 1990and annotation of its adverse claim on October 1,1991. While the
subject mortgage antedated the subject sale, PCSO was already aware of the latter at the time of its
belated registration of its mortgage lien. PCSO’s registration was therefore in bad faith, rendering its
claim over the subject property defeasible by New Dagupan’s adverse claim.
ISSUE:
Who has a better title, PCSO or New Dagupan?
HELD:
New Dagupan has the better title.
At the time of PCSO’s registration of its mortgage lien on May 20, 1992, the subject mortgage had
already been discharged by Galang’s full payment of P450,000.00, the amount specified in the Deed of
Undertaking with First Real Estate Mortgage. Assuming the contrary, New Dagupan is not bound by
PCSO’s mortgage lien and was a purchaser in good faith and for value.While the subject mortgage
predated the sale of the subject property to New Dagupan, the absence of any evidence that the latter
had knowledge of PCSO’s mortgage lien at the time of the sale and its prior registration of an adverse
claim created a preference in its favor.
A purchaser in good faith and for value is one who buys property of another, without notice that some
other person has a right to, or interest in, such property, and pays full and fair price for the same, at the
time of such purchase, or before he has notice of the claim or interest of some other person in the
property. Good faith is the opposite of fraud and of bad faith, and its non-existence must be established
by competent proof. Sans such proof, a buyer is deemed to be in good faith and his interest in the
subject property will not be disturbed. A purchaser of a registered property can rely on the guarantee
afforded by pertinent laws on registration that he can take and hold it free from any and all prior liens
and claims except those set forth in or preserved against the certificate of title.
Xxx a person dealing with registered property need not go beyond the title and is not required to
explore outside the 4 corners thereof in search for any hidden defect or inchoate right that may turn out
to be superior.
7. BA FINANCE CORPORATION vs. HON. COURT OF APPEALS and TRADERS ROYAL BANK, G.R. No.
94566 July 3, 1992
Under the deed of chattel mortgage, B.A. Finance Corporation was constituted attorney-in-fact with full
power and authority to file, follow-up, prosecute, compromise or settle insurance claims; to sign
execute and deliver the corresponding papers, receipts and documents to the Insurance Company as
may be necessary to prove the claim, and to collect from the latter the proceeds of insurance to the
extent of its interests, in the event that the mortgaged car suffers any loss or damage.
Facts: Spouses Manuel and Lilia Cuady obtained from Supercars, Inc. bought a Ford Escort 1300, four-
door sedan in installments. To secure the faithful and prompt compliance of the obligation under the
said promissory note, the Cuady spouses constituted a chattel mortgage on the aforementioned motor
vehicle. Supercars, Inc. assigned the promissory note, together with the chattel mortgage, to B.A.
Finance Corporation. The Cuadys made partial payment leaving an un paid balance.In addition thereto,
the Cuadys owe B.A. Finance .B.A. Finance Corporation, as the assignee of the mortgage lien obtained
the renewal of the insurance coverage over the aforementioned motor vehicle for the with Zenith
Insurance Corporation, when the Cuadys failed to renew said insurance coverage themselves. Under the
terms and conditions of the said insurance coverage, any loss under the policy shall be payable to the
B.A. Finance Corporation.
The motor vehicle figured in an accident and was badly damaged. The unfortunate happening was
reported to the B.A. Finance Corporation and to the insurer, Zenith Insurance Corporation. The Cuadys
asked the B.A. Finance Corporation to consider the same as a total loss, and to claim from the insurer
the face value of the car insurance policy and apply the same to the payment of their remaining account
and give them the surplus thereof, if any. But instead of heeding the request of the Cuadys, B.A. Finance
Corporation prevailed upon the former to just have the car repaired. Not long thereafter, however, the
car bogged down. The Cuadys wrote B.A. Finance Corporation requesting the latter to pursue their prior
instruction of enforcing the total loss provision in the insurance coverage. When B.A. Finance
Corporation did not respond favorably to their request, the Cuadys stopped paying their monthly
installments on the promissory note. In view of the failure of the Cuadys to pay the remaining
installments on the note, B.A. Finance Corporation sued them.
B.A. Finance Corporation contended that even if it failed to enforce the total loss provision in the
insurance policy of the motor vehicle subject of the chattel mortgage, said failure does not operate to
extinguish the unpaid balance on the promissory note, considering that the circumstances obtaining in
the case at bar do not fall under Article 1231 of the Civil Code relative to the modes of extinguishment
of obligations.
Issue: Whether or not BA Finance ca still collect on the deficiency of the Chattel Mortgage.
Held: In granting B.A. Finance Corporation the aforementioned powers and prerogatives, the Cuady
spouses created in the former’s favor an agency. Thus, under Article 1884 of the Civil Code of the
Philippines, B.A. Finance Corporation is bound by its acceptance to carry out the agency, and is liable for
damages which, through its non-performance, the Cuadys, the principal in the case at bar, may suffer; in
such case, the assignee of the mortgage agreement is bound by the same stipulation and if the assignee
failed to file and prosecute the insurance claim when the car was damaged totally, the mortgagor is
relieved from his obligation to pay as he suffered a loss because of the failure of the mortgagee to file
the claim.
Under the deed of chattel mortgage, B.A. Finance Corporation was constituted attorney-in-fact with full
power and authority to file, follow-up, prosecute, compromise or settle insurance claims; to sign
execute and deliver the corresponding papers, receipts and documents to the Insurance Company as
may be necessary to prove the claim, and to collect from the latter the proceeds of insurance to the
extent of its interests, in the event that the mortgaged car suffers any loss or damage.
8. FIDELIZA J. AGLIBOT vs. INGERSOL L. SANTIA, G.R. No. 185945 December 05, 2012
Facts:
Private respondent-complainant Engr. Ingersol L. Santia (Santia) loaned the amount of P2,500,000.00 to
Pacific Lending & Capital Corporation (PLCC), through its Manager, petitioner Fideliza J. Aglibot (Aglibot).
The loan was evidenced by a Promissory Note dated July 1,... 2003, issued by Aglibot in behalf of PLCC,
payable in one year subject to interest at 24% per annum.
Allegedly as a guaranty or security for the payment of the note, Aglibot also issued and delivered to
Santia eleven (11) post-dated personal checks drawn from her... own demand account maintained at
Metrobank, Camiling Branch.
Aglibot is a major stockholder of PLCC
Upon presentment of the aforesaid checks for payment, they were dishonored by the bank for having
been drawn against insufficient funds or closed account.
Consequently, eleven (11) Informations for violation of Batas Pambansa Bilang 22 (B.P. 22)
Issues:
Still maintaining that she was a mere guarantor of the said debt of PLCC when she agreed to issue her
own checks, Aglibot insists that Santia failed to exhaust all means to collect the debt from PLCC, the
principal debtor, and therefore he cannot now be permitted to go after her... subsidiary liability.
Ruling:
Aglibot cannot invoke the benefit of excussion
The Court must, however, reject Aglibot's claim as a mere guarantor of the indebtedness of PLCC to
Santia for want of proof, in view of Article 1403(2) of the Civil Code, embodying the Statute of Frauds,
which provides:
Art. 1403. The following contracts are unenforceable, unless they are ratified:
(2) Those that do not comply with the Statute of Frauds as set forth in this number. In the following
cases an agreement hereafter made shall be unenforceable by action, unless the same, or some note or
memorandum thereof, be in writing, and subscribed by the party charged, or... by his agent; evidence,
therefore, of the agreement cannot be received without the writing, or a secondary evidence of its
contents:
A special promise to answer for the debt, default, or miscarriage of another;
Under the above provision, concerning a guaranty agreement, which is a promise to answer for the debt
or default of another,[17] the law clearly requires that it, or some note or memorandum thereof, be in
writing. Otherwise, it would be unenforceable unless... ratified,[18] although under Article 1358[19] of
the Civil Code, a contract of guaranty does not have to appear in a public document.
On the other hand, Article 2055 of the Civil Code also provides that a guaranty is not presumed, but
must be express, and cannot extend to more than what is stipulated therein. This is the obvious
rationale why a contract of guarantee is unenforceable unless made in... writing or evidenced by some
writing.
Aglibot is an accommodation party... and therefore liable to Santia
It noted that she could have issued PLCC's checks, but instead she chose to issue her own checks, drawn
against her personal account with Metrobank.
It concluded that Aglibot intended to personally assume the repayment of the loan, pointing out that in
her
Counter-Affidavit, she even admitted that she was personally indebted to Santia, and only raised
payment as her defense, a clear admission of her liability for the said loan.
The facts below present a clear situation where Aglibot, as the manager of PLCC, agreed to
accommodate its loan to Santia by issuing her own post-dated checks in payment thereof.
She is what the Negotiable Instruments Law calls an accommodation party.
Sec. 29. Liability of an accommodation party. An accommodation party is one who has signed the
instrument as maker, drawer, acceptor, or indorser, without receiving value therefor, and for the
purpose of lending his name to some other person. Such... a person is liable on the instrument to a
holder for value notwithstanding such holder at the time of taking the instrument knew him to be only
an accommodation party.
An accommodation party is one who has signed the instrument as maker, drawer, indorser, without
receiving value therefor and for the purpose of lending his name to some other person. Such person is
liable on the instrument to a holder for value, notwithstanding... such holder, at the time of the taking of
the instrument knew him to be only an accommodation party. In lending his name to the
accommodated party, the accommodation party is in effect a surety for the latter. He lends his name to
enable the accommodated party to... obtain credit or to raise money.
The relation between an accommodation party and the party accommodated is, in effect, one of
principal and surety the accommodation party being the surety. It is a settled rule that a surety is bound
equally and absolutely with the principal and is deemed an original... promisor and debtor from the
beginning. The liability is immediate and direct.
Moreover, it was held in Aruego that unlike in a contract of suretyship, the liability of the
accommodation party remains not only primary but also unconditional to a holder for value, such that
even if the accommodated party receives an extension of the period for... payment without the consent
of the accommodation party, the latter is still liable for the whole obligation and such extension does
not release him because as far as a holder for value is concerned, he is a solidary co-debtor.
Principles:
The mere fact, then, that Aglibot issued her own checks to Santia made her personally liable to the latter
on her checks without the need for Santia to first go after PLCC for the payment of its loan.[28] It would
have been otherwise had it been shown... that Aglibot was a mere guarantor, except that since checks
were issued ostensibly in payment for the loan, the provisions of the Negotiable Instruments Law must
take primacy in application.
9. SECURITY BANK AND TRUST COMPANY, Inc. vs. RODOLFO M. CUENCA, G.R. No. 138544 October 3,
2000
petitioner bank cannot hold herein respondent liable for loans obtained in excess of the amount or
beyond the period stipulated in the original agreement, absent any clear stipulation showing that the
latter waived his right to be notified thereof, or to give consent thereto.
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 DENROn 10 November 1980, Security Bank
and Trust Co. granted appellant Sta. Ines a credit line in the amount of (P8,000,000.00) effective til
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 additionalsecurity, 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
Agreementdated 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 maybe 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
dated18February 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 surety therefore released from liability.
ISSUES:
• whether the 1989 Loan Agreement novated the original credit accommodation and Cuenca’s
liability under the Indemnity Agreement YES(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:
A. 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 accommodation. 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 liquidate the 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."2)
• 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.
B. 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 waiver is vague and uncertain. It confers no clear
authorization on the bank or Sta. Ines to modify or extend the originalobligation without the consent of
the surety or notice thereto.
1) NOT Continuing Surety
That the Indemnity Agreement is a continuing surety does not authorize the bank to extend the scope
of the principal 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.”
2) Special Nature of the JSS
It is a common banking practice to require the JSS ("joint and solidary signature") of a major stockholder
or corporateofficer, 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 corporatepersonality, 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 agree to act as surety in the 1989 Loan
Agreement, because at that time, he was no longer an officer or a stockholder of the debtor-
corporation. Verily, he was not in a position then to ensure the payment of the obligation. Neither did
he have any reason to bind himself further to a bigger and more onerous obligation.
Facts:
Issues:
Ruling:
which provides:
contents:
writing.
her
Principles:
1. SPOUSES ALFREDO and SUSANA ONG vs. PHILIPPINE COMMERCIAL INTERNATIONAL BANK, G.R.
No. 160466 January 17, 2005
FACTS:
Baliwag Mahogany Corp. (BMC) needed additional capital for its business and applied for various loans,
amounting to a total of P 5M with the respondent bank, PCIB. Alfredo (President) and Susana Ong
(Treasurer) acted as sureties for these loans and issued 3 promissory notes for the purpose. It was
stipulated in the notes that the bank may consider BMC in default and demand payment of the
remaining balance of the loan upon the levy, attachment or garnishment of any of its properties, or
upon BMC’s insolvency, or if it is declared to be in a state of suspension of payments. Thereafter, BMC
filed a petition for rehabilitation and suspension of payments with SEC after the creditors attached its
properties. The bank then sought the collection of the payment of the debt from the petitioners as
sureties.
PCIB filed a case for collection of a sum of money against petitioners-spouses. A MOA was executed by
BMC, the petitioners, and the consortium of creditor banks of BMC (including PCIB). Petitioners then
moved to dismiss the complaint arguing that the MOA suspended any pending civil action against BMC.
Hence, the benefits of the MOA should also be extended to the petitioners as sureties. The trial court
denied the motion to dismiss. The CA affirmed the trial court’s ruling that a creditor can proceed against
petitioners as surety independently of its right to proceed against BMC.
ISSUE: Whether or not Art 2063 and 2081 of the NCC apply to suretyship contracts.
HELD: NO, Articles 2063 and 2081 of the NCC refer to contracts of guaranty. They do not apply to
suretyship contracts. Petitioners-spouses are not guarantors but sureties of BMCs debts. There is a sea
of difference in the rights and liabilities of a guarantor and a surety. A guarantor insures the solvency of
the debtor while a surety is an insurer of the debt itself. A contract of guaranty gives rise to a subsidiary
obligation on the part of the guarantor. It is only after the creditor has proceeded against the properties
of the principal debtor and the debt remains unsatisfied that a guarantor can be held liable to answer
for any unpaid amount. This is the principle of excussion. In a suretyship contract, however, the benefit
of excussion is not available to the surety as he is principally liable for the payment of the debt. As the
surety insures the debt itself, he obligates himself to pay the debt if the principal debtor will not pay,
regardless of whether or not the latter is financially capable to fulfill his obligation. Thus, a creditor can
go directly against the surety although the principal debtor is solvent and is able to pay or no prior
demand is made on the principal debtor. A surety is directly, equally and absolutely bound with the
principal debtor for the payment of the debt and is deemed as an original promisor and debtor from the
beginning.
2. ORIX METRO LEASING AND FINANCE CORPORATION vs. CARDLINE INC., MARY C. CALUBAD,
SONY N. CALUBAD, and NG BENG SHENG, G.R. No. 201417, January 13, 2016
Nature of Action: Determination of solidary liability of individual respondents.
FACTS:
Cardline leased four machines from Orix as evidenced by three similarly-worded lease agreements.
Cardline’s principal stockholders and officers (individual respondents) – signed the suretyship
agreements in their personal capacities to guarantee Cardline’s obligations under each lease agreement.
Cardline defaulted in paying the rent and Orix formally demanded payment from Cardline but the latter
refused to pay. Orix filed a complaint for replevin, sum of money, and damages with an application for a
writ of seizure against Cardline and the individual respondents before the RTC. The RTC issued a writ of
seizure allowing Orix to recover the machines from Cardline. The RTC declared the respondents in
default for failing to file an answer, and allowed Orix to present evidence ex parte. The RTC rendered
judgment in Orix’s favor and ordered the respondents to pay Orix. Orix filed a motion for the issuance of
a writ of execution which the RTC granted. Respondents assailed the issuance of the order before the
Court of Appeals, arguing that their rental obligations were offset by the market value of the returned
machines and by the guaranty deposit. The CA granted the petition, annulled the RTC’s order and
prohibited the sheriff from executing the judgment. The CA ruled that the respondents’ debt had been
satisfied when Orix recovered the machines and received the security deposit. Considering that the
judgment had been satisfied in full, the RTC’s issuance of a writ of execution was no longer necessary. In
its petition, Orix argues that the individual respondents are solidarily liable to Orix and are not entitled
to the benefit of excussion while respondents contend that they merely acted as guarantors and not as
sureties.
ISSUE:
Whether the individual respondents are entitled to the benefit of excussion.

RULING:
No. Even assuming that a party is liable only as a guarantor, he can be held immediately liable without
the benefit of excussion if the guarantor agreed that his liability is direct and immediate.
The terms of a contract govern the parties’ rights and obligations. When a party undertakes to be
"jointly and severally" liable, it means that the obligation is solidary. Furthermore, even assuming that a
party is liable only as a guarantor, he can be held immediately liable without the benefit of excussion if
the guarantor agreed that his liability is direct and immediate. In effect, the guarantor waived the
benefit of excussion pursuant to Article 2059(1) of the Civil Code.
In the present case, the records show that the individual respondents bound themselves solidarily with
Cardline. Section 31.1 of the lease agreements states that the persons who sign separate instruments to
secure Cardline’s obligations to Orix shall be jointly and severally liable with Cardline. Even assuming
arguendo that the individual respondents signed the continuing surety agreements merely as
guarantors, they still cannot invoke the benefit of excussion. The surety agreements provide that the
individual respondents’ liability is "solidary, direct, and immediate and not contingent upon" Orix’s
remedies against Cardline. The continuing suretyship agreements also provide that the individual
respondents "individually and collectively waive(s) in advance the benefit of excussion xxx under Articles
2058 and 2065 of the Civil Code."
Without any doubt, the individual respondents can no longer avail of the benefit of excussion.
Facts:
Issues:
Ruling:
which provides:
contents:
writing.
her
Principles:
4. JN DEVELOPMENT CORPORATION, and SPS. RODRIGO and LEONOR STA. ANA vs. PHILIPPINE
EXPORT AND FOREIGN LOAN GUARANTEE CORPORATION, G.R. No. 151060. August 31, 2005
SUMMARY:JN Development obtained a loan from Traders Royal Bank for 2M pesos. It was guaranteed
by PhilGuarantee. JN failed to pay and thus PhilGuarantee was forced to pay the loan. Now
PhilGuarantee wants JN to reimburse the money it paid. RTC held that it was (1) already extinguished as
PhilGuarantee enforced the foreclosure of the mortgaged property already (2) the guarantee was
already expired as it was for one year only (3) that PhilGuarantee’s failure to give its express consent to
the alleged e xtensions granted by TRB to JN had extinguished the guarantee. CA reversed and this was
affirmed by the SC, saying that (1) it could not have been extinguished by the foreclosure which only
happened after the case was already submitted for decision (2) the default of JN and demand of
PhilGuarantee to pay came within the one year period of the guarantee, so still enforceable, and (3) The
requirement that the guarantor should consent to any extension granted by the creditor to the debtor
under Art. 2079 is for the benefit of the guarantor. As such, it is likewise waivable by the guarantor.
FACTS:
• JN Development Corporation (JN) and Traders Royal Bank (TRB) entered into an agreement
whereby TRB would extend to JN an Export Packing Credit Line for Two Million Pesos (P2,000,000.00). o
Covered by several securities, including a real estate mortgageand a letter of guarantee from
respondent Philippine Export and Foreign Loan Guarantee Corporation (PhilGuarantee), now Trade and
Investment Development Corporation of the Philippines.
• JN failed to pay the loan to TRB upon its maturity, and thus on Oct. 8 1980 it requested
PhilGuarantee to make good on its loan.o PhilGuarantee informed JN butJN did not respond. On
March 10, 1981, PhilGuarantee paid TRB 934,824.34.
• PhilGuarantee then made several demands on JN but the latter failed to pay. o JN proposed to
settle the obligation by way of development and sale of the mortgaged property. o PhilGuarantee
rejected the proposal.
• PhilGuarantee thus filed a Complaint for collection of money and damages against JN.
• RTC Decision: Dismissed complaint and counterclaim of petitioners. Petitioners are not liable to
reimburse PhilGuarantee what it had paid to TRB. Because TRB was able to foreclose the real estate
mortgage executed by JN, thus extinguishing petitioner’s obligation.
• No evidence that TRB demanded money from JN for the deficiency. o 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. o Ruled that Narcisco Cruz (impleaded) cannot be held liable under
the Undertaking since he was not the one who signed the document, in line with its finding that his
signature found in the records is totally different from the signature on the Undertaking o Appealed to
the CA.
• CA Decision: The appellate court reversed the RTC and ordered petitioners to pay
PhilGuarantee. (P934,624.34) o Finding that the loan was extinguished by virtue of the foreclosure sale
had no factual support.
• Negated by Rodrigo Sta. Ana’s testimony that JN did not receive any notice of foreclosure from
PhilGuarantee or TRB.
• 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.
a. While Art. 2058 of the Civil Code 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.
b. That Narciso Cruz was unable to prove the alleged forgery of his signature in the Undertaking,
the evidence presented not being sufficient to overcome the presumption of regularity of the
Undertaking which is a notarized document
• Thus,these 2 petitions for review. o JN and the spouses Sta. Ana, petitioners in G.R. No. 151060,
posit that the CA erred in interpreting Articles 2079, 2058, and 2059 of the Civil Code in its Decision o
o Meanwhile, petitioner Narciso Cruz in G.R. No. 151311 claims that the CA erred when it held
that petitioners are liable to PhilGuarantee despite its payment after the expiration of its contract of
guarantee and the lack of PhilGuarantees consent to the extensions granted by TRB to JN.
[PRELIMINARIES]
• Under a contract of guarantee, the guarantor binds himself to the creditor to fulfill the
obligation of the principal debtor in case the latter should fail to do so.
o The guarantor who pays for a debtor, in turn, must be indemnified by the latter.
o However, the guarantor cannot be compelled to pay the creditor unless the latter has exhausted
all the property of the debtor and resorted to all the legal remedies against the debtor. This is what is
otherwise known as the benefit of excussion.
Excussion may only be invoked after legal remedies against the principal debtor have been expanded. o
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.
• Thus, in order that the guarantor may make use of the benefit of excussion, he must set it up
against the creditor upon the latters demand for payment and point out to the creditor available
property of the debtor within the Philippines sufficient to cover the amount of the debt.
ISSUE #2: WON the expiration of the guarantee would relieve JN of its liability to reimburse
PhilGuarantee? NO.
• The guarantee states o “In the event of default by JNDC and as a consequence thereof,
PHILGUARANTEE is made to pay its obligation arising under the aforesaid guarantee PHILGUARANTEE
shall pay the BANK the amount of P1.4 million or 70% of the total obligation unpaid”
• “This guarantee shall be valid for a period of one (1) year from date hereof but may be renewed
upon payment by JNDC of the guarantee fee at the same rate of 1.5% per annum.”
• 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.
• Thus, even assuming that extensions were indeed granted by TRB to JN, PhilGuarantee could
have opted to waive the need for consent to such extensions. o Indeed, a guarantor is not precluded
from waiving his right to be notified of or to give his consent to extensions obtained by the debtor.
• In the instant case, PhilGuarantees waiver can be inferred from its actual payment to TRB after
the latters demand, despite JNs failure to pay the renewal/guarantee fee as indicated in the guarantee.
ISSUE #3: WON PhilGuarantee’s failure to give its express consent to the alleged extensions granted by
TRB to JN had extinguished the guarantee? No.
• The requirement that the guarantor should consent to any extension granted by the creditor to
the debtor under Art. 2079 is for the benefit of the guarantor. As such, it is likewise waivable by the
guarantor.
• There 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.
o It recognizes the right of a guarantor to recover what it has paid, even if payment was made
before the debt becomes due,[43] or if made without notice to the debtor,[44] subject of course to
some conditions.
o As to invocation of Willex Plastic Industries Corp v CA – MISPLACED.
o In the said case, the guarantor claimed that it could not be proceeded against without first
exhausting all of the properties of the debtor. The Court, finding that there was an express renunciation
of the benefit of excussion in the contract of guarantee, ruled against the guarantor.
o 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.
o 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.
ISSUE #4: Did TRB’s alleged foreclosure of the real estate mortgage over the land executed as security
for the loan agreement extinguish PhilGuarantee’s obligation? No.
• The foreclosure was made on 27 August 1993, after the case was submitted for decision in 1992
and before the issuance of the decision of the court a quo in 1998.
• foreclosure was resorted to by TRB against JN when they both had become aware that
PhilGuarantee had already paid TRB and that there was a pending case filed by PhilGuarantee against
petitioners.
• This matter was not raised and proved in the trial court, nor in the appeal before the CA, but
raised for the first time in petitioners motion for reconsideration in the CA.
o CA: The documents evidencing foreclosure of mortgage cannot be considered as newly

discovered evidence. The said documents were already subsisting and should have been presented
during the trial of the case. The alleged foreclosure sale was made on August 23, 1993 while the decision
was rendered by the trial court on August 20, 1998 about five (5) years thereafter. These documents
were likewise not submitted by the defendants-appellees when they submitted their appellees Brief to
this Court. Thus, these cannot be considered as newly discovered evidence but are more correctly
ascribed as suppressed forgotten evidence
• Besides, the complaint a quo was filed by PhilGuarantee as guarantor for JN, and its cause of
action was premised on its payment of JNs obligation after the latters default. PhilGuarantee was well
within its rights to demand reimbursement for such payment made, regardless of whether the creditor,
TRB, was subsequently able to obtain payment from JN.
o If double payment was indeed made, then it is JN which should go after TRB, and not
PhilGuarantee.
o 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.
ISSUE #5: Was Narciso Cruz’s signature on the guarantee forged? No.
• Save for the denial of Narciso Cruz that it was not his signature in the Undertaking and the
perfunctory comparison of the signatures, nothing in the records would support the claim of forgery.
• Forgery cannot be presumed and must be proved by clear, positive and convincing evidence and
the burden of proof lies on the party alleging forgery. [52] Mere denial will not suffice to overcome the
positive value of the Undertaking, which is a notarized document, has in its favor the presumption of
regularity, and carries the evidentiary weight conferred upon it with respect to its due execution.
DISPOSITION
• Petitions denied, CA decision affirmed.
5. WILLEX PLASTIC INDUSTRIES, CORPORATION vs. HON. COURT OF APPEALS and INTERNATIONAL
CORPORATE BANK, G.R. No. 103066 April 25, 1996
6. BENJAMIN BITANGA vs. PYRAMID CONSTRUCTION ENGINEERING CORPORATION, G.R. No. 173526
August 28, 2008
FACTS: Pyramid 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 wife Marilyn.
Respondent alleged in its Complaint that, it entered into an agreement with Macrogen Realty, of which
Bitanga is the President, to construct for the latter the Shoppers Gold Building located in Parañaque City.
Respondent commenced civil, structural, and architectural works on the construction project. However,
Macrogen failed to settle respondent’s progress billings. Petitioner, through his representatives and
agents, assured respondent that the outstanding account of Macrogen would be paid and relying on the
assurances made by petitioner, respondent continued the construction project.
Later, respondent suspended work on the construction project since the conditions that it imposed for
the continuation thereof, including payment of unsettled accounts, had not been complied with by
Macrogen. Respondent 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 and Macrogen entered into a
Compromise Agreement, with petitioner acting as signatory for and in behalf of Macrogen Realty.
Under the Compromise Agreement, Macrogen Realty agreed to pay respondent the total amount of
P6,000,000.00 by installments. Petitioner guaranteed the obligations of Macrogen Realty under the
Compromise Agreement by executing a Contract of Guaranty in favor of respondent, by virtue of which
he irrevocably and unconditionally guaranteed the full and complete payment of the principal amount
of liability of Macrogen. Upon joint motion of respondent and Macrogen Realty, the CIAC approved the
Compromise Agreement.
Macrogen Realty failed and refused to pay all the monthly installments agreed upon in the Compromise
Agreement. Hence respondent moved for the issuance of a writ of execution against Macrogen, which
CIAC granted.
The sheriff filed a return stating that he was unable to locate any property of Macrogen Realty, except
its bank deposit of P20,242.33, with the Planters Bank, 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, respondent’s demands were left
unheeded.
Petitioner filed with the RTC his Answer to respondent’s 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.
ISSUE: WON petitioner cam avail of the benefit of excussion
HELD: petition denied for lack of merit; CA affirmed; Bitanga (alone; not including his wife who is not a
party to the compromise agreement) is liable as per Compromise Agreement or the contract of
guaranty.
NO
Under a contract of guarantee, the guarantor binds himself to the creditor to fulfill the obligation of the
principal debtor in case the latter should fail to do so. The guarantor who pays for a debtor, in turn,
must be indemnified by the latter. However, the guarantor cannot be compelled to pay the creditor
unless the latter has exhausted all the property of the debtor and resorted to all the legal remedies
against the debtor. This is what is otherwise known as the benefit of excussion
Article 2060 of the Civil Code reads:
Art. 2060. In order that the guarantor may make use of the benefit of excussion, he must set it up
against the creditor upon the latter’s demand for payment from him, and point out to the creditor
available property of the debtor within Philippine territory, sufficient to cover the amount of the debt
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 petitioner’s part forecloses his right to set up the defense
of excussion.
Worthy of note as well is the Sheriff’s 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 Bitanga cannot be compelled to pay Pyramid because the
Macrogen Realty has allegedly sufficient assets. Reason: The said [petitioner] had not genuinely
controverted the return made by Sheriff Bisnar, who affirmed that, after exerting diligent efforts, he was
not able to locate any property belonging to the Macrogen Realty, except for a bank deposit with the
Planter’s 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
7. SECURITY BANK AND TRUST COMPANY, Inc. vs. RODOLFO M. CUENCA, G.R. No. 138544 October 3,
2000
petitioner bank cannot hold herein respondent liable for loans obtained in excess of the amount or
beyond the period stipulated in the original agreement, absent any clear stipulation showing that the
latter waived his right to be notified thereof, or to give consent thereto.
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 DENROn 10 November 1980, Security Bank
and Trust Co. granted appellant Sta. Ines a credit line in the amount of (P8,000,000.00) effective til
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 additionalsecurity, 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
Agreementdated 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 maybe 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
dated18February 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 surety therefore released from liability.
ISSUES:
• whether the 1989 Loan Agreement novated the original credit accommodation and Cuenca’s
liability under the Indemnity Agreement YES(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:
A. 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 accommodation. 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 liquidate the 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."2)
• 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.
B. 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 waiver is vague and uncertain. It confers no clear
authorization on the bank or Sta. Ines to modify or extend the originalobligation without the consent of
the surety or notice thereto.
1) NOT Continuing Surety
That the Indemnity Agreement is a continuing surety does not authorize the bank to extend the scope
of the principal 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.”
2) Special Nature of the JSS
It is a common banking practice to require the JSS ("joint and solidary signature") of a major stockholder
or corporateofficer, 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 corporatepersonality, 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 agree to act as surety in the 1989 Loan
Agreement, because at that time, he was no longer an officer or a stockholder of the debtor-
corporation. Verily, he was not in a position then to ensure the payment of the obligation. Neither did
he have any reason to bind himself further to a bigger and more onerous obligation.
9. JOSEPH COCHINGYAN, JR. and JOSE K. VILLANUEVA vs. R & B SURETY AND INSURANCE
COMPANY, INC., G.R. No. L-47369, June 30, 1987
FACTS:
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, issued by the respondent R & B Surety and Insurance Co., Inc. (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.
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.
ISSUES:
Whether the Trust Agreement extended the term of the Surety Bond so as to release petitioners from
their obligation as indemnitors thereof as they did not give their consent to the execution of the Trust
Agreement; and
HELD:
The Indemnity Agreement speaks of the several indemnitors "apply[ing] jointly and severally (in
solidum) to the R & B Surety] — to become SURETY upon a SURETY BOND demanded by and in favor of
[PNB] in the sum of [P400,000.00] for the faithful compliance of the terms and conditions set forth in
said SURETY BOND — ." This part of the Agreement suggests that the indemnitors (including the
petitioners) would become co-sureties on the Security Bond in favor of PNB.
The record, however, is bereft of any indication that the petitioners-indemnitors ever in fact became co-
sureties of R & B Surety vis-a-vis the PNB. The petitioners, so far as the record goes, remained simply
indemnitors bound to R & B Surety but not to PNB, such that PNB could not have directly demanded
payment of the Principal Obligation from the petitioners. Thus, we do not see how Article 2079 of the
Civil Code-which provides in part that "[a]n extension granted to the debtor by the creditor without the
consent of the guarantor extinguishes the guaranty" could apply in the instant case.
The petitioner-indemnitors are, as, it were, second-tier parties so far as the PNB was concerned and any
extension of time granted by PNB to any of the first-tier obligators (PAGRICO, R &B Surety and the
trustors[s]) could not prejudice the second-tier parties.
The theory behind Article 2079 is that an extension of time given to the principal debtor by the creditor
without the surety of his right to pay the creditor and to be immediately subrogate ed to the creditor's
remedies against the principal debtor upon the original maturity date. The surety is said to be entitled to
protect himself against the principal debtor upon the orginal maturity date. The surety is said to be
entitled to protect himself against the contingency of the principal debtor or the indemnitors becoming
insolvent during the extended period

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CASES FOR QUARANTY

LS 206 – Credit Transactions Part 4 – Guaranty

We find that Rosalina is liable as an accommodation mortgagor.

In Belo v. PNB, we had the occasion to declare:

In Inciong, Jr. v. CA, we elucidated further in this wise:

2. SPOUSES EDUARDO B. EVANGELISTA and EPIFANIA C. EVANGELISTA vs. MERCATOR FINANCE

3. Respondents Salazar and Lamecs:

IN VIEW WHEREOF, the petition is dismissed.

Hence, this petition.

FACTS: Petition for review on certiorari of CA decision & resolution

o 2. P400k attorney’s fees

o 3. P30k litigation expenses

As elucidated in Philippine Charter Insurance Corporation v. Petroleum Distributors & Service

Continuing Suretyship as described in Saludo Jr. vs. Security Bank

Who has a better title, PCSO or New Dagupan?

New Dagupan has the better title.

Aglibot is a major stockholder of PLCC

Aglibot cannot invoke the benefit of excussion

A special promise to answer for the debt, default, or miscarriage of another;

Aglibot is an accommodation party... and therefore liable to Santia

She is what the Negotiable Instruments Law calls an accommodation party.

Petition of Bank no merit.CA affirmed.

A. Original Obligation Extinguished by Novation

• NOT mere renewal/ Extension

• Binding Nature of the Credit Approval Memorandum

1) NOT Continuing Surety

2) Special Nature of the JSS

Aglibot is a major stockholder of PLCC

A special promise to answer for the debt, default, or miscarriage of another;

Aglibot is an accommodation party... and therefore liable to Santia

She is what the Negotiable Instruments Law calls an accommodation party.

Nature of Action: Determination of solidary liability of individual respondents.

Whether the individual respondents are entitled to the benefit of excussion.

Aglibot is a major stockholder of PLCC

Aglibot cannot invoke the benefit of excussion

A special promise to answer for the debt, default, or miscarriage of another;

Aglibot is an accommodation party... and therefore liable to Santia

She is what the Negotiable Instruments Law calls an accommodation party.

o As to invocation of Willex Plastic Industries Corp v CA – MISPLACED.

o In this case, PhilGuarantee is not invoking the benefit of excussion. It cannot be

o The benefit of excussion, as well as the requirement of consent to extensions of payment, is a

o CA: The documents evidencing foreclosure of mortgage cannot be considered as newly

• Petitions denied, CA decision affirmed.

ISSUE: WON petitioner cam avail of the benefit of excussion

Article 2060 of the Civil Code reads:

Art. 2059. This excussion shall not take place:

As the Court of Appeals correctly ruled:

Petition of Bank no merit.CA affirmed.

A. Original Obligation Extinguished by Novation

• NOT mere renewal/ Extension

• Binding Nature of the Credit Approval Memorandum

1) NOT Continuing Surety

2) Special Nature of the JSS

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