G.R. No.

188539 March 12, 2014

MARIANO LIM, Petitioner,

vs.
SECURITY BANK CORPORATION,* Respondent.

DECISION

PERALTA, J.:

This deals with the Petition for Review on Certiorari under Rule 45 of the Rules of Court praying that the Decision1of the
Court of Appeals (CA), promulgated on July 30, 2008, and the Resolution2 dated June 1, 2009, denying petitioner's
motion for reconsideration thereof, be reversed and set aside.

Petitioner executed a Continuing Suretyship in favor of respondent to secure "any and all types of credit accommodation
that may be granted by the bank hereinto and hereinafter" in favor of Raul Arroyo for the amount of ₱2,000,000.00 which
is covered by a Credit Agreement/Promissory Note.3 Said promissory note stated that the interest on the loan shall be 19%
per annum, compounded monthly, for the first 30 days from the date thereof, and if the note is not fully paid when due, an
additional penalty of 2% per month of the total outstanding principal and interest due and unpaid, shall be imposed.

In turn, the Continuing Suretyship4 executed by petitioner stipulated that:

3. Liability of the Surety. - The liability of the Surety is solidary and not contingent upon the pursuit of the Bank of
whatever remedies it may have against the Debtor or the collaterals/liens it may possess. If any of the Guaranteed
Obligations is not paid or performed on due date (at stated maturity or by acceleration), the Surety shall, without need for
any notice, demand or any other act or deed, immediately become liable therefor and the Surety shall pay and perform the
same.5

Guaranteed Obligations are defined in the same document as follows:

a) "Guaranteed Obligations" - the obligations of the Debtor arising from all credit accommodations extended by the Bank
to the Debtor, including increases, renewals, roll-overs, extensions, restructurings, amendments or novations thereof, as
well as (i) all obligations of the Debtor presently or hereafter owing to the Bank, as appears in the accounts, books and
records of the Bank, whether direct or indirect, and (ii) any and all expenses which the Bank may incur in enforcing any
of its rights, powers and remedies under the Credit Instruments as defined hereinbelow.6

The debtor, Raul Arroyo, defaulted on his loan obligation. Thereafter, petitioner received a Notice of Final Demand dated
August 2, 2001, informing him that he was liable to pay the loan obtained by Raul and Edwina Arroyo, including the
interests and penalty fees amounting to ₱7,703,185.54, and demanding payment thereof. For failure of petitioner to
comply with said demand, respondent filed a complaint for collection of sum of money against him and the Arroyo
spouses. Since the Arroyo spouses can no longer be located, summons was not served on them, hence, only petitioner
actively participated in the case.

After trial, the Regional Trial Court of Davao (RTC) rendered judgment against petitioner.7 The dispositive portion of the
RTC Decision reads as follows:

Wherefore, judgment is hereby rendered ordering defendant Lim to pay the following sums.

1. The principal sum of two million pesos plus nineteen percent interest of the outstanding principal interest due
and unpaid to be computed from January 28, 1997 until fully paid, plus two percent interest per month as penalty
to be computed from February 28, 1997 until fully paid.

2. Four hundred thousand pesos as attorney's fees.

3. Thirty thousand pesos as litigation expenses.

SO ORDERED.8

Petitioner appealed to the CA, but the appellate court, in its Decision dated July 30, 2008, affirmed the RTC judgment
with the modification that interest be computed from August 1, 1997; the penalty should start only from August 28, 1997;
the award of attorney's fees is set at 10% of the total amount due; and the award for litigation expenses increased to
₱92,321.10.9

Petitioner's motion for reconsideration of the CA Decision was denied per Resolution dated June 1, 2009.

Petitioner then elevated the matter to this Court via a petition for review on certiorari, where the main issue is whether
petitioner may validly be held liable for the principal debtor's loan obtained six months after the execution of the
Continuing Suretyship.

The other issues, such as the proper computation of the total indebtedness and the amount of litigation expenses are
factual matters that had been satisfactorily addressed by the CA, to wit: (1) the CA ruled that respondent should
recompute the total amount due, since the proceeds from the foreclosure of the real estate and chattel mortgages were
deducted only on June 20, 2001, when the public auctions were conducted on August 26, 1998 and September 7, 1999,
respectively, thus, the amount of the proceeds from the foreclosure of the mortgaged properties should have been
deducted from the amount of indebtedness on the date the public auction was held; and (2) the CA likewise pointed out
that as can be seen from the Legal Fees Form,10 the litigation expense incurred by respondent was ₱92,321.10, the amount
it paid as filing fee. It is hornbook principle that this Court is not a trier of facts, hence, such issues will not be revisited by
this Court in the present petition. With regard to the propriety of making petitioner a hostile witness, respondent is correct
that the issue cannot be raised for the first time on appeal. Thus, the Court will no longer address these issues which had
been improperly raised in this petition for review on certiorari.

The main issue deserves scant consideration, but the matter of the award of attorney's fees deserves reexamination.

The nature of a suretyship is elucidated in Philippine Charter Insurance Corporation v. Petroleum Distributors & Service
Corporation11 in this wise:

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.
This was explained in the case of Stronghold Insurance Company, Inc. v. Republic-Asahi Glass Corporation, where it was
written:

The surety's obligation is not an original and direct one for the performance of his own act, but merely accessory or
collateral to the obligation contracted by the principal. Nevertheless, although the contract of a surety is in essence
secondary only to a valid principal obligation, his liability to the creditor or promisee of the principal is said to be direct,
primary and absolute; in other words, he is directly and equally bound with the principal.

xxxx

Thus, suretyship arises upon the solidary binding of a person deemed the surety with the principal debtor for the purpose
of fulfilling an obligation. A surety is considered in law as being the same party as the debtor in relation to whatever is
adjudged touching the obligation of the latter, and their liabilities are interwoven as to be inseparable. x x x.12

In this case, what petitioner executed was a Continuing Suretyship, which the Court described in Saludo, Jr. v. Security
Bank Corporation13 as follows:

The essence of a continuing surety has been highlighted in the case of Totanes v. China Banking Corporation in this wise:

Comprehensive or continuing surety agreements are, in fact, quite commonplace in present day financial and commercial
practice. A bank or financing company which anticipates entering into a series of credit transactions with a particular
company, normally requires the projected principal debtor to execute a continuing surety agreement along with its
sureties. By executing such an agreement, the principal places itself in a position to enter into the projected series of
transactions with its creditor; with such suretyship agreement, there would be no need to execute a separate surety contract
or bond for each financing or credit accommodation extended to the principal debtor.14

The terms of the Continuing Suretyship executed by petitioner, quoted earlier, are very clear.1âwphi1 It states that
petitioner, as surety, shall, without need for any notice, demand or any other act or deed, immediately become liable and
shall pay "all credit accommodations extended by the Bank to the Debtor, including increases, renewals, roll-overs,
extensions, restructurings, amendments or novations thereof, as well as (i) all obligations of the Debtor presently or
hereafter owing to the Bank, as appears in the accounts, books and records of the Bank, whether direct or indirect, and

(ii) any and all expenses which the Bank may incur in enforcing any of its rights, powers and remedies under the Credit
Instruments as defined hereinbelow."15 Such stipulations are valid and legal and constitute the law between the parties, as
Article 2053 of the Civil Code provides that "[a] guaranty may also be given as security for future debts, the amount of
which is not yet known; x x x." Thus, petitioner is unequivocally bound by the terms of the Continuing Suretyship. There
can be no cavil then that petitioner is liable for the principal of the loan, together with the interest and penalties due
thereon, even if said loan was obtained by the principal debtor even after the date of execution of the Continuing
Suretyship.

With regard to the award of attorney's fees, it should be noted that Article 2208 of the Civil Code does not prohibit
recovery of attorney's fees if there is a stipulation in the contract for payment of the same. Thus, in Asian Construction
and Development Corporation v. Cathay Pacific Steel Corporation (CAPASCO),16 the Court, citing Titan Construction
Corporation v. Uni-Field Enterprises, Inc.,17 expounded as follows:

The law allows a party to recover attorney's fees under a written agreement. In Barons Marketing Corporation v. Court of
Appeals, the Court ruled that:

[T]he attorney's fees here are in the nature of liquidated damages and the stipulation therefor is aptly called a penal clause.
It has been said that so long as such stipulation does not contravene law, morals, or public order, it is strictly binding upon
defendant. The attorney's fees so provided are awarded in favor of the litigant, not his counsel.

On the other hand, the law also allows parties to a contract to stipulate on liquidated damages to be paid in case of breach.
A stipulation on liquidated damages is a penalty clause where the obligor assumes a greater liability in case of breach of
an obligation. The obligor is bound to pay the stipulated amount without need for proof on the existence and on the
measure of damages caused by the breach.18

However, even if such attorney's fees are allowed by law, the courts still have the power to reduce the same if it is
unreasonable. In Trade & Investment Corporation of the Philippines v. Roblett Industrial Construction Corp.,19 the Court
equitably reduced the amount of attorney's fees to be paid since interests and penalties had ballooned to thrice as much as
the principal debt. That is also the case here. The award of attorney's fees amounting to ten percent (10%) of the principal
debt, plus interest and penalty charges, would definitely exceed the principal amount; thus, making the attorney's fees
manifestly exorbitant. Hence, we reduce the amount of attorney's fees to ten percent (10%) of the principal debt only.

WHEREFORE, the petition is PARTIALLY GRANTED. The Decision of the Court of Appeals, dated July 30, 2008, in
CA-G.R. CV No. 00462, is AFFIRMED with MODIFICATION in that the award of attorney's fees is reduced to ten
percent (10%) of the principal debt only.

SO ORDERED.
 GOVERNMENT OF THE REPUBLIC OF THE PHILIPPINES, represented by the BUREAU OF SUPPLY
COORDINATION vs. MARCELINO TIZON, ET AL.
[G.R. No. L-22108. August 30, 1967]

Facts:
A bidding was conducted by the Bureau of Supply Coordination of the Department of General Services, for the
supply of "one (1) Baylift portable heavy-duty truck and two (2) Baylift Ramps, U.S. Manufacture". Marcelino Tizon won
the bid, having offered the lowest bid. To guarantee faithful performance of the conditions of the bid, the Bureau of Supply
Coordination required Tizon Engineering to give a bond in the sum of P10,000.00.
The Surety issued its bond for the said amount in favor of the Republic of the Philippines. Tizon Engineering failed
to deliver the equipment called for constraining the Bureau to purchase the equipment from Fema Trading, the second lowest
bidder. Notwithstanding demands made by the Bureau of Supply on defendants Marcelino Tizon and the Surety to pay said
amount, they failed and refused. Hence, complaint was filed to recover said sums with interests.
Defendant Tizon averred in his answer that: (a) "the alleged bidding conducted by the Bureau of Supply is in utter
disregard and wanton violation of the Rules and Regulations of the said office hence not liable since the bond-issued by the
Surety "answers only (for) those contracts legally entered into by the herein defendants with the Bureau of Supply and
certainly not those contracts and/or bids which are of doubtful legality, as in the present case."
The defendant Surety, in answer to the complaint, admitted having executed a bond in favor of the Republic of the
Philippines for the purpose as therein stated, but denied "that it failed and refused to pay the demand (of the plaintiff), the
truth of the matter being that its co-defendant, Marcelino Tizon, doing business under the name of Tizon Engineering, has
put it on notice not to settle the claim because he is not in any way whatsoever liable to plaintiff." As cross-claim against
defendant Tizon, the Surety asserted that if it is made liable to the plaintiff on its bond, Marcelino Tizon should be ordered
to make the corresponding reimbursement, with interest of 12%, plus attorney's fees.
After trial, judgment was rendered in favor of the plaintiff and against the defendants, ordering the latter to pay,
jointly and severally.
Only defendant Tizon appealed. The plaintiff then filed a motion praying praying among others to remand the case
to the City Court, as concerns the Surety, for execution of the judgment rendered in said court.
The Surety opposed the motion on two grounds: (a) that although it did not appeal from the decision of the inferior
court, the appeal interposed by its co-defendant inured to its benefit, because the obligation sued on "is so dependent on that
of the principal debtor, that the Surety is considered in law as being the same party in relation to whatever is adjudged,
touching the obligation of its co-defendant"; and (b) the appeal of its co-defendant, the principal debtor, "should be
considered in law as to include the defendant Surety, in view of the latter's cross-claim against the former." The opposition
was over-ruled in the order appealed from.
Issue:
WoN an appeal by one of the parties sentenced to pay solidarily a sum of money, inures to the benefit of the other
who did not appeal.
Held:
The pronouncements in the case of Municipality of Orion vs. Concha, 50 Phil. 682, provide ample guideposts in the
resolution of the issue at bar. In said case this Court held:
The judgment was joint and several, which means that they are severally liable. We have made a careful examination
of numerous authorities and believe that we are correct in saying that the effect of the appeal by one judgment debtor
upon the co-debtors depends upon the particular facts and conditions in each case.
xxx xxx xxx
If the judgment can only be sustained upon the liability of the one who appeals and the liability of the other co-
judgment debtors depends solely upon the question whether or not the appellant is liable, and the judgment is
revoked as to that appellant, then the result of his appeal will inure to the benefit of all.
The rule is quite general that a reversal as to parties appealing does not necessitate a reversal as to parties not
appealing, but that the judgment may be affirmed or left undisturbed as to them. An exception to the rule exists,
 however, where a judgment cannot be reversed as to the party appealing without affecting the rights of his co-
debtor. (4 C.J. 1184)
A reversal of a judgment on appeal is binding on the parties to the suit, but does not inure to the benefit of parties
against whom judgment was rendered in the lower court who did not join in the appeal, unless their rights and
liabilities and those of the parties appealing are so interwoven and dependent as to be inseparable, in which case
a reversal as to one operates as a reversal as to all. (4 C.J., 1206; Alling vs. Wenzel, 133 Ill., 264-278.)
Solution of the question posed in this appeal hinges on the nature of the obligation assumed by the Surety under its
bond. As Article 1222 of the new Civil Code provides:
A solidary debtor may, in actions filed by the creditor, avail himself of all defenses which are derived from the
nature of the obligation and of those which are personal to him, or pertain to his own share. With respect to those
which personally belong to the others, he may avail himself thereof only as regards that part of the debt for which
the latter are responsible.
Pertinent parts of the surety bond provides:
That we, Tizon Engineering, as principal, and the Capital Insurance & Surety Co., Inc., as surety, . . . are held and
firmly bound unto the Republic of the Philippines, in the penal sum of P10,000.00, for the payment of which sum,
well and truly to be made, we bind ourselves, Jointly and Severally, by these presents.
Whereas, the principal agrees to comply with all the terms and conditions of the proposal with the Bureau of Supply;
NOW THEREFORE, the conditions of this obligations are such that if the above bounden principal shall, in case
he becomes the successful bidder in any of the proposal of the Bureau of Supply — (a) accept a contract with the
Republic of the Philippines, represented by the Bureau of Supply; (b) faithfully and truly performs in good faith the
contract; (c) to pay to the Republic of the Philippines, in case of delay and/or default in the execution of the contract,
any loss or damages which the latter may suffer by reason thereof, not to exceed the sum of P10,000.00, Philippine
currency, then this obligation shall be void, otherwise it shall remain in full force and effect.
It thus appears that the Surety bound itself, jointly and severally, with the principal obligor to pay the Republic of
the Philippines any loss or damage the latter may suffer, not exceeding P10,000.00, "in case of delay and/or default in the
execution of the contract."
However, although the defendants bound themselves in solidum, the liability of the Surety under its bond would
arise only if its co-defendant, the principal obligor, should fail to comply with the contract. To paraphrase the ruling in the
case of Municipality of Orion vs. Concha, the liability of the Surety is "consequent upon the liability" of Tizon, or "so
dependent on that of the principal debtor" that the Surety "is considered in law as being the same party as the debtor in
relation to whatever is adjudged, touching the obligation of the latter"; or the liabilities of the two defendants herein "are so
interwoven and dependent as to be inseparable." Changing the expression, if the defendants are held liable, their liability to
pay the plaintiff would be solidary, but the nature of the Surety's undertaking is such that it does not incur liability unless
and until the principal debtor is held liable.
True, it is that the Surety did not appeal the decision of the inferior court to the Court of First Instance, and on
account of its failure to appeal, it lost its personality to appear in the latter court or to file an answer therein. However this
may be, it is not certain at this stage of the proceeding that the Surety's liability unto plaintiff has attached. The principal
debtor has asserted on appeal that it has no liability whatsoever to the plaintiff, and, if this assertion be proven and sustained,
the reversal of the judgment of the inferior court would operate as a reversal on the Surety, even though it did not appeal, in
view of the dependency of its obligation upon the liability of the principal debtor. The principal debtor might succeed in his
appeal; in such eventuality, the judgment of the inferior court could not continue in force against the Surety. Consequently,
it is premature at this juncture to execute said judgment against the Surety.
The situation of the Surety may be likened to that of a defaulting defendant whose right is protected under Section
4, Rule 18 of the Rules of Court as follows:
Judgment When Some Defendants Answer and Others make Default.—When a complaint states a common cause of
action against several defendants, some of whom answer, and the others fail to do so, the court shall try the case
against all upon the answer thus filed and render judgment upon the evidence presented. The same procedure applies
when a common cause of action is pleaded in a counterclaim, cross-claim and third-party claim.
Albeit it may not personally be allowed to file an answer in the Court of First Instance, having failed to interpose
an appeal, the Surety can rely on the answer of its co-defendant and derive benefit therefrom if the judgment on appeal
should turn out to be favorable to the answering defendant (Castro vs. Peña, 80 Phil. 488, 502).
Dispositive Portion:
Upon the foregoing considerations, that portion of the appealed order remanding the record of the case to the City
Court of Manila for execution of the decision of said court is hereby set aside, without costs.

G.R. No. L-45848 November 9,1977

TOWERS ASSURANCE CORPORATION, petitioner,

vs.
ORORAMA SUPERMART, ITS OWNER-PROPRIETOR, SEE HONG and JUDGE BENJAMIN K. GOROSPE,
Presiding Judge, Court of First Instance of Misamis Oriental, Branch I, respondents.

Benjamin Tabique & Zosimo T. Vasalla for petitioner.

Rodrigo F. Lim, Jr. for private respondent.

AQUINO, J.:

This case is about the liability of a surety in a counterbond for the lifting of a writ of preliminary attachment.

On February 17, 1976 See Hong, the proprietor of Ororama Supermart in Cagayan de Oro City, sued the spouses Ernesto
Ong and Conching Ong in the Court of First Instance of Misamis Oriental for the collection of the sum of P 58,400 plus
litigation expenses and attorney's fees (Civil Case No. 4930).

See Hong asked for a writ of preliminary attachment. On March 5, 1976, the lower court issued an order of attachment.
The deputy sheriff attached the properties of the Ong spouses in Valencia, Bukidnon and in Cagayan de Oro City.

To lift the attachment, the Ong spouses filed on March 11, 1976 a counterbond in 'the amount of P 58,400 with Towers
Assurance Corporation as surety. In that undertaking, the Ong spouses and Towers Assurance Corporation bound
themselves to pay solidarity to See Hong the sum of P 58,400.

On March 24, 1976 the Ong spouses filed an answer with a counterclaim. For non-appearance at the pre- trial, the Ong
spouses were declared in default.

On October 25, 1976, the lower court rendered a decision, ordering not only the Ong spouses but also their surety, Towers
Assurance Corporation, to pay solidarily to See Hong the sum of P 58,400. The court also ordered the Ong spouses to pay
P 10,000 as litigation expenses and attorney's fees.

Ernesto Ong manifested that he did not want to appeal. On March 8, 1977, Ororama Supermart filed a motion for
execution. The lower court granted that motion. The writ of execution was issued on March 14 against the judgment
debtors and their surety. On March 29, 1977, Towers Assurance Corporation filed the instant petition for certiorari where
it assails the decision and writ of execution.

We hold that the lower court acted with grave abuse of discretion in issuing a writ of execution against the surety without
first giving it an opportunity to be heard as required in Rule 57 of tie Rules of Court which provides:

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

Under section 17, in order that the judgment creditor might recover from the surety on the counterbond, it is necessary (1)
that execution be first issued against the principal debtor and that such execution was returned unsatisfied in whole or in
part; (2) that the creditor made a demand upon the surety for the satisfaction of the judgment, and (3) that the surety be
given notice and a summary hearing in the same action as to his liability for the judgment under his counterbond.

The first requisite mentioned above is not applicable to this case because Towers Assurance Corporation assumed a
solidary liability for the satisfaction of the judgment. A surety is not entitled to the exhaustion of the properties of the
principal debtor (Art. 2959, Civil Code; Luzon Steel Corporation vs. Sia, L-26449, May 15, 1969, 28 SCRA 58, 63).

But certainly, the surety is entitled to be heard before an execution can be issued against him since he is not a party in the
case involving his principal. Notice and hearing constitute the essence of procedural due process. (Martinez vs. Villacete
116 Phil. 326; Insurance & Surety Co., Inc. vs. Hon. Piccio, 105 Phil. 1192, 1200, Luzon Surety Co., Inc. vs. Beson, L-
26865-66, January 30. 1970. 31 SCRA 313).

WHEREFORE, the order and writ of execution, insofar as they concern Towers Corporation, are set aside. The lower
court is directed to conduct a summary hearing on the surety's liability on its counterbound. No costs.

SO ORDERED.

WILLEX PLASTIC INDUSTRIES, CORPORATION, vs. CA and INTERNATIONAL CORPORATE BANK

Inter-Resin Industrial Corporation opened a letter of credit with the Manila Banking Corporation. To secure payment of the
credit accommodation, Inter-Resin Industrial and the Investment and Underwriting Corporation of the Philippines (IUCP)
executed two documents, both entitled "Continuing Surety Agreement", whereby they bound themselves solidarily to pay
Manilabank.
Thereafter, Inter-Resin Industrial, together with Willex Plastic Industries Corp., executed a "Continuing Guaranty" in favor
of IUCP whereby "For and in consideration of the sum or sums obtained and/or to be obtained by Inter-Resin Industrial
Corporation" from IUCP, Inter-Resin Industrial and Willex Plastic jointly and severally guarantee "the prompt and
punctual payment at maturity of the NOTE/S issued by the DEBTOR/S to the extent of the aggregate principal sum of
FIVE MILLION PESOS (P5,000,000.00) Philippine Currency and such interests, charges and penalties as hereafter may be
specified."
Following demand upon it, IUCP paid to Manilabank the sum of P4,334,280.61 representing Inter-Resin Industrial's
outstanding obligation. Atrium Capital Corp., which in the meantime had succeeded IUCP, demanded from Inter-Resin
Industrial and Willex Plastic the payment of what it (IUCP) had paid to Manilabank. As neither one of the sureties paid,
Atrium filed this case in the court below against Inter-Resin Industrial and Willex Plastic.
Inter-Resin Industrial paid some of the amounts due. Willex Plastic denied the material allegations of the complaint. It
argues that under the "Continuing Guaranty," its liability is for sums obtained by Inter-Resin Industrial from Interbank, not
for sums paid by the latter to Manilabank for the account of Inter-Resin Industrial.
As already stated, the amount had been paid by Interbank's predecessor-in-interest, Atrium Capital, to Manilabank pursuant
to the "Continuing Surety Agreements" made on December 1, 1978. In denying liability to Interbank for the amount, Willex
Plastic argues that under the "Continuing Guaranty," its liability is for sums obtained by Inter-Resin Industrial from
Interbank, not for sums paid by the latter to Manilabank for the account of Inter-Resin Industrial.
Issue
Whether under the "Continuing Guaranty" signed on April 2, 1979, Willex Plastic may be held jointly and severally liable
with Inter-Resin Industrial for the amount by Interbank to Manilabank.
Held
Yes. Willex Plastic has overlooked is the fact that evidence aliunde was introduced in the trial court to explain that it was
actually to secure payment to Interbank (formerly IUCP) of amounts paid by the latter to Manilabank that the "Continuing
Guaranty" was executed.
Interbank adduced evidence to show that the "Continuing Guaranty" had been made to guarantee payment of amounts made
by it to Manilabank and not of any sums given by it as loan to Inter-Resin Industrial.
Accordingly, the trial court found that it was "to secure the guarantee made by plaintiff of the credit accommodation granted
to defendant IRIC [Inter-Resin Industrial] by Manilabank, [that] the plaintiff required defendant IRIC to execute a chattel
mortgage in its favor and a Continuing Guaranty which was signed by the defendant Willex Plastic Industries Corporation."
Similarly, the Court of Appeals found it to be an undisputed fact that "to secure the guarantee undertaken by plaintiff-
appellee [Interbank] of the credit accommodation granted to Inter-Resin Industrial by Manilabank, plaintiff-appellee
required defendant-appellants to sign a Continuing Guaranty.
Willex Plastic admitted that it was "to secure the aforesaid guarantee, that INTERBANK required principal debtor IRIC
[Inter-Resin Industrial] to execute a chattel mortgage in its favor, and so a 'Continuing Guaranty' was executed on April 2,
1979 by WILLEX PLASTIC INDUSTRIES CORPORATION (WILLEX for brevity) in favor of INTERBANK for and in
consideration of the loan obtained by IRIC [Inter-Resin Industrial]."
Put in another way the consideration necessary to support a surety obligation need not pass directly to the surety, a
consideration moving to the principal alone being sufficient. For a "guarantor or surety is bound by the same
consideration that makes the contract effective between the principal parties thereto. . . . It is never necessary that a guarantor
or surety should receive any part or benefit, if such there be, accruing to his principal."

JACINTO UY DIÑO and NORBERTO UY, petitioners, vs. HON. COURT OF APPEALS and METROPOLITAN
BANK AND TRUST COMPANY
In 1977, Uy Tiam Enterprises and Freight Services (UTEFS), thru its representative Uy Tiam, applied for and obtained
credit accommodations (letter of credit and trust receipt accommodations) from the Metropolitan Bank and Trust Company.
To secure the aforementioned credit accommodations, Norberto Uy and Jacinto Uy Diño executed separate Continuing,
dated 25 February 1977, in favor of the MBTC. This credit accommodation has been fully paid.
Subsequent transactions flowed smoothly until UTEFS executed and delivered to METROBANK a Trust Receipt whereby
the former acknowledged receipt in trust from the latter of the received goods from Planters Products which amounted to
P815,600.00. Being the entrustee, the UTEFS agreed to deliver to METROBANK the entrusted goods in the event of non-
sale or, if sold, the proceeds of the sale thereof, on or before September 2, 1979.
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. They denied liability on the transaction. In its reply, the bank informed him that the source of his liability is
the Continuing Suretyship which he executed on February 25, 1977. On demand, UTEFS paid some of the outstanding
amount.
As a rejoinder, Diño 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.
Since it could no longer collect the balance of amount due, METROBANK thus filed a complaint for collection of a sum of
money. Norberto Uy and Jacinto Uy Diño (sureties-defendants) filed a motion to dismiss the complaint on the ground of
lack of cause of action. They maintained that the obligation which they guaranteed in 1977 has been extinguished since it
has already been paid in the same year. Accordingly, the Continuing Suretyships executed in 1977 cannot be availed of to
secure Uy Tiam's Letter of Credit obtained in 1979 because a guaranty cannot exist without a valid obligation. It was
further argued that they cannot be held liable for the obligation contracted in 1979 because they are not privies
thereto as it was contracted without their participation.
METROBANK filed its opposition to the motion to dismiss. Invoking the terms and conditions embodied in the
comprehensive suretyships separately executed by sureties-defendants, the bank argued that sureties-movants bound
themselves as solidary obligors of defendant Uy Tiam to both existing obligations and future ones. The RTC and the CA
ruled in favor of MBTC and held the sureties solidarily liable.
Issues
1. Whether petitioners are liable as sureties for the 1979 obligations of Uy Tiam to METROBANK by virtue of the
Continuing Suretyship Agreements they separately signed in 1977; and
2. On the assumption that they are, what is the extent of their liabilities for said 1979 obligations.

Held
1. Yes, they are still liable. Under the Civil Code, a guaranty may be given to secure even future debts, the amount of
which may not be known at the time the guaranty is executed. This is the basis for contracts denominated as a continuing
guaranty or suretyship. 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 s 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.
Paragraph IV of both agreements stipulate that:
"VI. This is a continuing guaranty and shall remain in full force and effect until written notice shall have been received
by the BANK that it has been revoked by the SURETY, but any such notice shall not release the SURETY from any liability
as to any instruments, loans, advances or other obligations hereby guaranteed, which may be held by the BANK, or in which
the BANK may have any interest at the time of the receipt of such notice. x x x
The foregoing stipulations unequivocally reveal that the suretyship agreements in the case at bar are continuing in nature.
Petitioners do not deny this; in fact, they candidly admitted it. Neither have they denied the fact that they had not revoked
the suretyship agreements.
Petitioners maintain, however, that their Continuing Suretyship Agreements cannot be made applicable to the 1979
obligation because the latter was not yet in existence when the agreements were executed in 1977; under Article 2052 of
the Civil Code, a guaranty "cannot exist without a valid obligation." We cannot agree. First of all, the succeeding article
provides that "[a] guaranty may also be given as security for future debts, the amount of which is not yet known."
Secondly. Article 2052 speaks about a valid obligations, as distinguished from a void obligation, and not an existing
or current obligation. This distinction is made clearer in the second paragraph of Article 2052 which reads:
"Nevertheless, a guaranty may be constituted to guarantee the performance of a voidable or an unenforceable contract. It
may also guarantee a natural obligation."
2. By express mandate of the Continuing Suretyship Agreements which they had signed, petitioners separately bound
themselves to pay interests, expenses, attorney's fees and costs. The last two items are pegged at not less than ten percent
(10%) of the amount due.

Even without such stipulations, the petitioners would, nevertheless, be liable for the interest and judicial costs. Article 2055
of the Civil Code provides:
"ARTICLE 2055. A guaranty is not presumed; it must be express and cannot extend to more than what is stipulated
therein.
The limit of the petitioners' respective liabilities must be determined from the suretyship agreement each had signed. It is
undoubtedly true that the law looks upon the contract of suretyship with a jealous eye, and the rule is settled that the
obligation of the surety cannot be extended by implication beyond its specified limits. To the extent, and in the manner, and
under the circumstances pointed out in his obligation, he is bound, and no farther.
Indeed, the Continuing Suretyship Agreements signed by petitioner Diño — and petitioner Uy fix the aggregate amount of
their liability, at any given time, at P800,000.00 and P300,000.00, respectively. The law is clear that a guarantor may bind
himself for less, but not for more than the principal debtor, both as regards the amount and the onerous nature of the
conditions.

G.R. No. L-10749 April 25, 1958

BRIGIDO R. VALENCIA, petitioner,

vs.
REHABILITATION FINANCE CORPORATION and COURT OF APPEALS, respondents.

Valencia v RFC and Court of Appeals

Facts:

 On May 1952, respondent issued and advertised to the general public an invitation to bid for the construction if a
reinforced concrete building in Davao.
 In response to the invitation, petitioner submitted a bid on complete construction, electrical installations, and
plumbing installations.
 In June 1952, respondents Board of Governors passed a resolution awarding the contract for construction of the
building to Sanchez & Antigua Engineering Co.; the electrical installation to Lorenzo Sarmiento; and the
plumbing installations to petitioner Valencia.
 This notice was given to petitioner through a letter where it was also indicated that petitioner is invited to the
office for contract signing.
 Petitioner replied expressing his “thanks and appreciation” and stating that it would be to the respondent’s
advantage to award the contract for the plumbing installations to the contractor of the main building, because the
presence of the petitioner’s men in the building might give said contractor an excuse to seek extension of time;
and because plumbing installations should go hand in hand with the progress of the work of the construction of
the building
 In view of the petitioner’s failure to sign the contract, respondent awarded the same to the contractor of the
building.
 Respondent, then, brought action against petitioner to recover P6,200 representing the difference between the
amount of contract awarded to him at the price at which the plumbing installations were awarded to Sanchez &
Antigua Engineering Co.
 Petitioner answered and said that upon being notified of the award in his favor, he “prepared all the necessary
equipment, materials and plumbers to do and perform the installations. But without his consent and knowledge,
respondent entered into a contract with Sanchez so he set up a counterclaim of P5,000.
 CFI: Absolved petitioner
 CA: reversed CFI’s decision; Judgment was for the respondent.
 Hence, the present case.

Issues:
1. W/N the award given to petitioner modified the contract making it incomplete and invalid.
2. W/N the petitioner’s offer was good only until June 15, 1952 since it was accompanied by a bond which expires
on the same date. (Since petitioner only knew of the ward on June 22, the contract then was not perfected).
 3. W/N the contract was perfected with the non-fulfillment of the condition requiring the giving of a performance
bond.

Held:
1. No.
2. No.
3. Yes. The contract was perfected.

Doctrine:
1. The proposal submitted by the petitioner consisted of (1) complete construction of the building, (2) electrical
installations, and (3) plumbing installations.
 Each one of these was complete in itself
 Each item was distinct, separate and independent from the other items
 The award given to the petitioner was neither a modification of his offer nor a partial acceptance thereof.
 It was an unqualified acceptance of the fourth item of his bod, which constituted a complete offer.
2. The petitioner’s bid did not specify its duration. Although the bond itself expired on June 1952, this does not
mean that the bid lapsed on the same date.
 The bond does not represent the principal obligation itself.
 It is merely an accessory.
 That is to say, the principal obligation may stand without the existence of the bond.
 Moreover, the bond was given for the benefit of the respondent, not of the petitioner, so the former could
legally waive said benefit.
 Petitioner’s conduct is contrary to his contention that his bid has lapsed with the expiration of the said
bond.
o He did not object upon receipt of notice of the award
o He did not even say that his offer has expired already

3. Such condition (giving of a performance bond) presupposes existence of a contract.

 The existence of the contractual relation between the parties did not depend upon the posting of a
performance bond.