G.R. No. 72275. November 13, 1991.
* statements of account rendered by the plaintiff-
PACIFIC BANKING CORPORATION, petitioner, vs. HON.
INTERMEDIATE APPELLATE COURT AND ROBERTO REGALA,
JR., respondents.
This is a petition for review on certiorari of the decision
(pp. 21-31, Rollo) of the Intermediate Appellate Court
(now Court of Appeals) in AC-G.R. C.V. No. 02753,1
which modified the decision of the trial court against
herein private respondent Roberto Regala, Jr., one of
the defendants in the case for sum of money filed by
Pacific Banking Corporation.
The facts of the case as adopted by the respondent
appellate court from herein petitioner’s brief before
said court are as follows:
“On October 24, 1975, defendant Celia Syjuco Regala
(hereinafter referred to as Celia Regala for brevity),
applied for and obtained from the plaintiff the issuance
and use of Pacificard credit card (Exhs. ‘A’, ‘A-1’),
under the “Terms and Conditions Governing the
Issuance and Use of Pacificard (Exh. ‘B’ and hereinafter
referred to as Terms and Conditions), a copy of which
was issued to and received by the said defendant on
the date of the application and expressly agreed that
the use of the Pacificard is governed by said Terms and
Conditions. On the same date, the defendant-
appelant Robert Regala, Jr., spouse of defendant Celia
Regala, executed a ‘Guarantor’s Undertaking’ (Exh. ‘A-
1-a’) in favor of the appellee Bank, whereby the latter
agreed ‘jointly and severally of Celia Aurora Syjuco
Regala, to pay the Pacific Banking Corporation upon
demand, any and all indebtedness, obligations,
charges or liabilities due and incurred by said Celia
Aurora Syjuco Regala with the use of the Pacificard, or
renewals thereof, issued in her favor by the Pacific
Banking Corporation’. It was also agreed that ‘any
changes of or novation in the terms and conditions in
connection with the issuance or use of the Pacificard,
or any extension of time to pay such obligations,
charges or liabilities shall not in any manner release
me/us from responsibility hereunder, it being
understood that I fully agree to such charges, novation
or extension, and that this understanding is a continuing
one and shall subsist and bind me until the liabilities of
the said Celia Syjuco Regala have been fully satisfied or
paid.’
“Plaintiff-appellee Pacific Banking Corporation has
contracted with accredited business establishments to
honor purchases of goods and/or services by Pacificard
holders and the cost thereof to be advanced by the
plaintiff-appellee for the account of the defendant
cardholder, and the latter undertook to pay any
appellee for the advances thus made within thirty (30)
days from the date of the statement, provided that any
overdue account shall earn interest at the rate of 14%
per annum from date of default.
“The defendant Celia Regala, as such Pacificard
holder, had purchased goods and/or services on credit
(Exh. ‘C’, ‘C-1’ to ‘C-112’) under her Pacificard, for
which the plaintiff advanced the cost amounting to
P92,803.98 at the time of the filing of the complaint.
‘In view of defendant Celia Regala’s failure to settle her
account for the purchases made thru the use of the
Pacificard, a written demand (Exh. ‘D’) was sent to the
latter and also to the defendant Roberto Regala, Jr.
(Exh. ‘ ’) under his ‘Guarantor’s Undertaking’.
“A complaint was subsequently filed in Court for
defendant’s (sic) repeated failure to settle their
obligation. Defendant Celia Regala was declared in
default for her failure to file her answer within the
reglementary period. Defendant-appellant Roberto
Regala, Jr., on the other hand, filed his Answer with
Counterclaim admitting his execution of the
‘Guarantor’s Understanding, ‘but with the
understanding that his liability would be limited to
P2,000.00 per month.’
“In view of the solidary nature of the liability of the
parties, the presentation of evidence ex-parte as
against the defendant Celia Regala was jointly held
with the trial of the case as against the defendant
Roberto Regala.
“After the presentation of plaintiff’s testimonial and
documentary evidence, fire struck the City Hall of
Manila, including the court where the instant case was
pending, as well as all its records.
“Upon plaintiff-appellee’s petition for reconstitution, the
records of the instant case were duly reconstituted.
Thereafter, the case was set for pre-trial conference
with respect to the defendant-appellant Roberto
Regala on plaintiff-appellee’s motion, after furnishing
the latter a copy of the same. No opposition thereto
having been interposed by defendant-appellant, the
trial court set the case for pre-trial conference. Neither
did said defendant-appellant nor his counsel appear
on the date scheduled by the trial court for said
conference despite due notice. Consequently, plaintiff-
appellee moved that the defendant-appellant Roberto
Regala be declared as in default and that it be
allowed to present its evidence ex-parte, which motion
was granted. On July 21, 1983, plaintiff-appellee
presented its evidence ex-parte. (pp. 23-26, Rollo)
After trial, the court a quo rendered judgment on
December 5, 1983, the dispositive portion of which
reads:
“WHEREFORE, the Court renders judgment for the
plaintiff and against the defendants condemning the
latter, jointly and severally, to pay said plaintiff the
amount of P92,803.98, with interest thereon at 14% per
annum, compounded annually, from the time of
demand on November 17, 1978 until said principal
amount is fully paid; plus 15% of the principal obligation
as and for attorney’s fees and expense of suit; and the
costs.
“The counterclaim of defendant Roberto Regala, Jr. is
dismissed for lack of merit.
“SO ORDERED.” (pp. 22-23, Rollo)
The defendants appealed from the decision of the
court a quo to the Intermediate Appellate Court.
On August 12, 1985, respondent appellate court
rendered judgment modifying the decision of the trial
court. Private respondent Roberto Regala, Jr. was
made liable only to the extent of the monthly credit
limit granted to Celia Regala, i.e., at P2,000.00 a month
and only for the advances made during the one year
period of the card’s effectivity counted from October
29, 1975 up to October 29, 1976. The dispositive portion
of the decision states:
“WHEREFORE, the judgment of the trial court dated
December 5, 1983 is modified only as to appellant
Roberto Regala, Jr., so as to make him liable only for
the purchases made by defendant Celia Aurora Syjuco
Regala with the use of the Pacificard from October 29,
1975 up to October 29, 1976 up to the amount of
P2,000.00 per month only, with interest from the filing of
the complaint up to the payment at the rate of 14% per
annum without pronouncement as to costs.” (p. 32,
Rollo)
A motion for reconsideration was filed by Pacific
Banking Corporation which the respondent appellate
court denied for lack of merit on September 19, 1985
(p. 33, Rollo).
On November 8, 1985, Pacificard filed this petition. The
petitioner contends that while the appellate court
correctly recognized Celia Regala’s obligation to
Pacific Banking Corp. for the purchases of goods and
services with the use of a Pacificard credit card in the
total amount of P92,803.98 with 14% interest per annum,
it erred in limiting private respondent Roberto Regala,
Jr.’s liability only for purchases made by Celia Regala
with the use of the card from October 29, 1975 up to
October 29, 1976 up to the amount of P2,000.00
permonth with 14% interest from the filing of the
complaint.
There is merit in this petition.
The pertinent portion of the “Guarantor’s Undertaking”
which private respondent Roberto Regala, Jr. signed in
favor of Pacific Banking Corporation provides:
“I/We, the undersigned, hereby agree, jointly and
severally with Celia Syjuco Regala to pay the Pacific
Banking Corporation upon demand any and all
indebtedness, obligations, charges or liabilities due and
incurred by said Celia Syjuco Regala with the use of the
Pacificard or renewals thereof issued in his favor by the
Pacific Banking Corporation. Any changes of or
Novation in the terms and conditions in connection with
the issuance or use of said Pacificard, or any extension
of time to pay such obligations, charges or liabilities
shall not in any manner release me/us from the
responsibility hereunder, it being understood that the
undertaking is a continuing one and shall subsist and
bind me/us until all the liabilities of the said Celia Syjuco
Regala have been fully satisfied or paid.” (p. 12, Rollo)
The undertaking signed by Roberto Regala, Jr. although
denominated “Guarantor’s Undertaking,” was in
substance a contract of surety. As distinguished from a
contract of guaranty where the guarantor binds himself
to the creditor to fulfill the obligation of the principal
debtor only in case the latter should fail to do so, in a
contract of suretyship, the surety binds himself solidarily
with the principal debtor (Art. 2047, Civil Code of the
Philippines).
We need not look elsewhere to determine the nature
and extent of private respondent Roberto Regala, Jr.’s
undertaking. As a surety he bound himself jointly and
severally with the debtor Celia Regala “to pay the
Pacific Banking Corporation upon demand, any and all
indebtedness, obligations, charges or liabilities due and
incurred by said Celia Syjuco Regala with the use of
Pacificard or renewals thereof issued in (her) favor by
Pacific Banking Corporation.” This undertaking was also
provided as a condition in the issuance of the
Pacificard to Celia Regala, thus:
“5. A Pacificard is issued to a Pacificard-holder against
the joint and several signature of a third party and as
such, the Pacificard-holder and the guarantor assume
joint and several liabilities for any and all amount arising
out of the use of the Pacificard.” (p. 14, Rollo)
The respondent appellate court held that “all the other
rights of the guarantor are not thereby lost by the
guarantor becoming liable solidarily and therefore a
surety.” It further ruled that although the surety’s liability
is like that of a joint and several debtor, it does not
make him the debtor but still the guarantor (or the
surety), relying on the case of Government of the
Philippines v. Tizon, G.R. No. L-22108, August 30, 1967, 20
SCRA 1182. Consequently, Article 2054 of the Civil Code
providing for a limited liability on the part of the
guarantor or debtor still applies.
It is true that under Article 2054 of the Civil Code, “(A)
guarantor may bind himself for less, but not for more
than the principal debtor, both as regards the amount
and the onerous nature of the conditions.2 It is likewise
not disputed by the parties that the credit limit granted
to Celia Regala was P2,000.00 per month and that
Celia Regala succeeded in using the card beyond the
original period of its effectivity, October 29, 1979. We
do not agree however, that Roberto Jr.’s liability should
be limited to that extent. Private respondent Roberto
Regala, Jr., as surety of his wife, expressly bound himself
up to the extent of the debtor’s (Celia) indebtedness
likewise expressly waiving any “discharge in case of any
change or novation of the terms and conditions in
connection with the issuance of the Pacificard credit
card.” Roberto, in fact, made his commitment as a
surety a continuing one, binding upon himself until all
the liabilities of Celia Regala have been fully paid. All
these were clear under the “Guarantor’s Undertaking”
Roberto signed, thus:
“x x x. Any changes of or novation in the terms and
conditions in connection with the issuance or use of
said Pacificard, or any extension of time to pay such
obligations, charges or liabilities shall not in any manner
release me/us from the responsibility hereunder, it being
understood that the undertaking is a continuing one
and shall subsist and bind me/us until all the liabilities of
of the said Celia Syjuco Regala have been fully satisfied
or paid.” (p. 12, supra; italics supplied)
Private respondent Roberto Regala, Jr. had been
made aware by the terms of the undertaking of future
changes in the terms and conditions governing the
issuance of the credit card to his wife and that
notwithstanding, he voluntarily agreed to be bound as
a surety. As in guaranty, a surety may secure additional
and future debts of the principal debtor the amount of
which is not yet known (see Article 2053, supra).
The application by respondent court of the ruling in
Government v. Tizon, supra is misplaced. It was held in
that case that:
“x x x, although the defendants bound themselves in
solidum, the liability of the Surety under its bond would
arise only if its codefendants, 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.”
A guarantor or surety does not incur liability unless the
principal debtor is held liable. It is in this sense that a
surety, although solidarily liable with the principal
debtor, is different from the debtor. It does not mean,
however, that the surety cannot be held liable to the
same extent as the principal debtor. The nature and
extent of the liabilities of a guarantor or a surety is
determined by the clauses in the contract of suretyship
(see PCIB v. CA, L-34959, March 18, 1988, 159 SCRA 24).
ACCORDINGLY, the petition is GRANTED. The
questioned decision of respondent appellate court is
SET ASIDE and the decision of the trial court is
REINSTATED.
SO ORDERED.
Note.—The obligation of a surety cannot extend
beyond what is stipulated in the surety bond. (Central
Surety and Insurance Co., Inc. vs. Ubay, 135 SCRA 58.)
Obligations and Contracts; Suretyship; Distinguished
from Guaranty.—The undertaking signed by Roberto
Regala, Jr. although denominated “Guarantor’s
Undertaking,” was in substance a contract of surety. As
distinguished from a contract of guaranty where the
guarantor binds himself to the creditor to fulfill the
obligation of the principal debtor only in case the latter
should fail to do so, in a contract of suretyship, the
surety binds himself solidarily with the principal debtor
(Art. 2047, Civil Code of the Philippines). We need not
look elsewhere to determine the nature and extent of
private respondent Roberto Regala, Jr.’s undertaking.
As a surety he bound himself jointly and severally with
the debtor Celia Regala “to pay the Pacific Banking
Corporation upon demand, any and all indebtedness,
obligations, charges or liabilities due and incurred by
said Celia Syjuco Regala with the use of Pacificard or
renewals thereof issued in (her) favor by Pacific Banking
Corporation.”
Same; Same; Same.—It is true that under Article 2054 of
the Civil Code, “(A) guarantor may bind himself for less,
but not for more than the principal debtor, both as
regards the amount and the onerous nature of the
conditions. It is likewise not disputed by the parties that
the credit limit granted to Celia Regala was P2,000.00
per month and that Celia Regala succeeded in using
the card beyond the original period of its effectivity,
October 29, 1979. We do not agree however, that
Roberto Jr.’s liability should be limited to that extent.
Private respondent Roberto Regala, Jr., as surety of his
wife, expressly bound himself up to the extent of the
debtor’s (Celia) indebtedness likewise expressly waiving
any “discharge in case of any change or novation of
the terms and conditions in connection with the
issuance of the Pacificard credit card.” Roberto, in fact,
made his commitment as a surety a continuing one,
binding upon himself until all the liabilities of Celia
Regala have been fully paid.

Same; Same; Same.—Private respondent Roberto

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

Same; Same; Same.—A guarantor or surety does not

incur liability unless the principal debtor is held liable. It
is in this sense that a surety, although solidarily liable
with the principal debtor, is different from the debtor. It
does not mean, however, that the surety cannot be
held liable to the same extent as the principal debtor.
The nature and extent of the liabilities of a guarantor or
a surety is determined by the clauses in the contract of
suretyship (see PCIB v. CA, L-34959, March 18, 1988, 159
SCRA 24).
 G.R. No. 113931 May 6, 1998
E. ZOBEL, INC., petitioner,
vs.
THE COURT OF APPEALS, CONSOLIDATED BANK AND
TRUST CORPORATION, and SPOUSES RAUL and ELEA R.
CLAVERIA, respondents.
MARTINEZ, J.:
This petition for review on certiorari seeks the reversal of
the decision 1 of the Court of Appeals dated July 13,
1993 which affirmed the Order of the Regional Trial
Court of Manila, Branch 51, denying petitioner's Motion
to Dismiss the complaint, as well as the
Resolution 2 dated February 15, 1994 denying the
motion for reconsideration thereto.
The facts are as follows:
Respondent spouses Raul and Elea Claveria, doing
business under the name "Agro Brokers," applied for a
loan with respondent Consolidated Bank and Trust
Corporation (now SOLIDBANK) in the amount of Two
Million Eight Hundred Seventy Five Thousand Pesos
(P2,875,000.00) to finance the purchase of two (2)
maritime barges and one tugboat 3 which would be
used in their molasses business. The loan was granted
subject to the condition that respondent spouses
execute a chattel mortgage over the three (3) vessels
to be acquired and that a continuing guarantee be
executed by Ayala International Philippines, Inc., now
herein petitioner E. Zobel, Inc., in favor of SOLIDBANK.
The respondent spouses agreed to the arrangement.
Consequently, a chattel mortgage and a Continuing
Guaranty 4 were executed.
Respondent spouses defaulted in the payment of the
entire obligation upon maturity. Hence, on January 31,
1991, SOLIDBANK filed a complaint for sum of money
with a prayer for a writ of preliminary attachment,
against respondents spouses and petitioner. The case
was docketed as Civil Case No. 91-55909 in the
Regional Trial Court of Manila.
Petitioner moved to dismiss the complaint on the
ground that its liability as guarantor of the loan was
extinguished pursuant to Article 2080 of the Civil Code
of the Philippines. It argued that it has lost its right to be
subrogated to the first chattel mortgage in view of
SOLIDBANK's failure to register the chattel mortgage
with the appropriate government agency.
SOLIDBANK opposed the motion contending that
Article 2080 is not applicable because petitioner is not
a guarantor but a surety.
On February 18, 1993, the trial court issued an Order,
portions of which reads:
After a careful consideration of the matter on hand,
the Court finds the ground of the motion to dismiss
without merit. The document referred to as "Continuing
Guaranty" dated August 21, 1985 (Exh. 7) states as
follows:
For and in consideration of any existing indebtedness to
you of Agro Brokers, a single proprietorship owned by
Mr. Raul Claveria for the payment of which the
undersigned is now obligated to you as surety and in
order to induce you, in your discretion, at any other
manner, to, or at the request or for the account of the
borrower, . . .
The provisions of the document are clear, plain and
explicit.
Clearly therefore, defendant E. Zobel, Inc. signed as
surety. Even though the title of the document is
"Continuing Guaranty", the Court's interpretation is not
limited to the title alone but to the contents and
intention of the parties more specifically if the language
is clear and positive. The obligation of the defendant
Zobel being that of a surety, Art. 2080 New Civil Code
will not apply as it is only for those acting as guarantor.
In fact, in the letter of January 31, 1986 of the
defendants (spouses and Zobel) to the plaintiff it is
requesting that the chattel mortgage on the vessels
and tugboat be waived and/or rescinded by the bank
inasmuch as the said loan is covered by the Continuing
Guaranty by Zobel in favor of the plaintiff thus thwarting
the claim of the defendant now that the chattel
mortgage is an essential condition of the guaranty. In its
letter, it said that because of the Continuing Guaranty
in favor of the plaintiff the chattel mortgage is rendered
unnecessary and redundant.
With regard to the claim that the failure of the plaintiff
to register the chattel mortgage with the proper
government agency, i.e. with the Office of the
Collector of Customs or with the Register of Deeds
makes the obligation a guaranty, the same merits a
scant consideration and could not be taken by this
Court as the basis of the extinguishment of the
obligation of the defendant corporation to the plaintiff
as surety. The chattel mortgage is an additional security
and should not be considered as payment of the debt
in case of failure of payment. The same is true with the
failure to register, extinction of the liability would not lie.
WHEREFORE, the Motion to Dismiss is hereby denied and
defendant E. Zobel, Inc., is ordered to file its answer to
the complaint within ten (10) days from receipt of a
copy of this Order. 5
Petitioner moved for reconsideration but was denied
on April 26, 1993. 6
Thereafter, petitioner questioned said Orders before the
respondent Court of Appeals, through a petition
for certiorari, alleging that the trial court committed
grave abuse of discretion in denying the motion to
dismiss.
On July 13, 1993, the Court of Appeals rendered the
assailed decision the dispositive portion of which reads:
WHEREFORE, finding that respondent Judge has not
committed any grave abuse of discretion in issuing the
herein assailed orders, We hereby DISMISS the petition.
A motion for reconsideration filed by petitioner was
denied for lack of merit on February 15, 1994.
Petitioner now comes to us via this petition arguing that
the respondent Court of Appeals erred in its finding: (1)
that Article 2080 of the New Civil Code which provides:
"The guarantors, even though they be solidary, are
released from their obligation whenever by some act of
the creditor they cannot be subrogated to the rights,
mortgages, and preferences of the latter," is not
applicable to petitioner; (2) that petitioner's obligation
to respondent SOLIDBANK under the continuing
guaranty is that of a surety; and (3) that the failure of
respondent SOLIDBANK to register the chattel
mortgage did not extinguish petitioner's liability to
respondent SOLIDBANK.
We shall first resolve the issue of whether or not
petitioner under the "Continuing Guaranty" obligated
itself to SOLIDBANK as a guarantor or a surety.
A contract of surety is an accessory promise by which a
person binds himself for another already bound, and
agrees with the creditor to satisfy the obligation if the
debtor does not. 7 A contract of guaranty, on the other
hand, is a collateral undertaking to pay the debt of
another in case the latter does not pay the debt. 8
Strictly speaking, guaranty and surety are nearly
related, and many of the principles are common to
both. However, under our civil law, they may be
distinguished thus: A surety is usually bound with his
principal by the same instrument, executed at the
same time, and on the same consideration. He is an
original promissor and debtor from the beginning, and
is held, ordinarily, to know every default of his principal.
Usually, he will not be discharged, either by the mere
indulgence of the creditor to the principal, or by want
of notice of the default of the principal, no matter how
much he may be injured thereby. On the other hand,
the contract of guaranty is the guarantor's own
separate undertaking, in which the principal does not
join. It is usually entered into before or after that of the
principal, and is often supported on a separate
consideration from that supporting the contract of the
principal. The original contract of his principal is not his
contract, and he is not bound to take notice of its non-
performance. He is often discharged by the mere
indulgence of the creditor to the principal, and is
usually not liable unless notified of the default of the
principal. 9
Simply put, a surety is distinguished from a guaranty in
that a guarantor is the insurer of the solvency of the
debtor and thus binds himself to pay if the principal
is unable to pay while a surety is the insurer of the debt,
and he obligates himself to pay if the principal does not
pay. 10
Based on the aforementioned definitions, it appears
that the contract executed by petitioner in favor of
SOLIDBANK, albeit denominated as a "Continuing
Guaranty," is a contract of surety. The terms of the
contract categorically obligates petitioner as "surety" to
induce SOLIDBANK to extend credit to respondent
spouses. This can be seen in the following stipulations.
For and in consideration of any existing indebtedness to
you of AGRO BROKERS, a single proprietorship owned
by MR. RAUL P. CLAVERIA, of legal age, married and
with business address . . . (hereinafter called the
Borrower), for the payment of which the undersigned is
now obligated to you as surety and in order to
induce you, in your discretion, at any time or from time
to time hereafter, to make loans or advances or to
extend credit in any other manner to, or at the request
or for the account of the Borrower, either with or
without purchase or discount, or to make any loans or
advances evidenced or secured by any notes, bills
receivable, drafts, acceptances, checks or other
instruments or evidences of indebtedness . . . upon
which the Borrower is or may become liable as maker,
endorser, acceptor, or otherwise, the undersigned
agrees to guarantee, and does hereby guarantee, the
punctual payment, at maturity or upon demand, to
you of any and all such instruments, loans, advances,
credits and/or other obligations herein before referred
to, and also any and all other indebtedness of every
kind which is now or may hereafter become due or
owing to you by the Borrower, together with any and all
expenses which may be incurred by you in collecting
all or any such instruments or other indebtedness or
obligations hereinbefore referred to, and or in enforcing
any rights hereunder, and also to make or cause any
and all such payments to be made strictly in
accordance with the terms and provisions of any
agreement (g), express or implied, which has (have)
been or may hereafter be made or entered into by the
Borrower in reference thereto, regardless of any law,
regulation or decree, now or hereafter in effect which
might in any manner affect any of the terms or
provisions of any such agreements(s) or your right with
respect thereto as against the Borrower, or cause or
permit to be invoked any alteration in the time, amount
or manner of payment by the Borrower of any such
instruments, obligations or indebtedness; . . . (Emphasis
Ours)
One need not look too deeply at the contract to
determine the nature of the undertaking and the
intention of the parties. The contract clearly disclose
that petitioner assumed liability to SOLIDBANK, as a
regular party to the undertaking and obligated itself as
an original promissor. It bound itself jointly and severally
to the obligation with the respondent spouses. In fact,
SOLIDBANK need not resort to all other legal remedies
or exhaust respondent spouses' properties before it can
hold petitioner liable for the obligation. This can be
gleaned from a reading of the stipulations in the
contract, to wit:
. . . If default be made in the payment of any of the
instruments, indebtedness or other obligation hereby
guaranteed by the undersigned, or if the Borrower, or
the undersigned should die, dissolve, fail in business, or
become insolvent, . . ., or if any funds or other property
of the Borrower, or of the undersigned which may be or
come into your possession or control or that of any third
party acting in your behalf as aforesaid should be
attached of distrained, or should be or become subject
to any mandatory order of court or other legal process,
then, or any time after the happening of any such
event any or all of the instruments of indebtedness or
other obligations hereby guaranteed shall, at your
option become (for the purpose of this guaranty) due
and payable by the undersigned forthwith without
demand of notice, and full power and authority are
hereby given you, in your discretion, to sell, assign and
deliver all or any part of the property upon which you
may then have a lien hereunder at any broker's board,
or at public or private sale at your option, either for
cash or for credit or for future delivery without
assumption by you of credit risk, and without either the
demand, advertisement or notice of any kind, all of
which are hereby expressly waived. At any sale
hereunder, you may, at your option, purchase the
whole or any part of the property so sold, free from any
right of redemption on the part of the undersigned, all
such rights being also hereby waived and released. In
case of any sale and other disposition of any of the
property aforesaid, after deducting all costs and
expenses of every kind for care, safekeeping,
collection, sale, delivery or otherwise, you may apply
the residue of the proceeds of the sale and other
disposition thereof, to the payment or reduction, either
in whole or in part, of any one or more of the
obligations or liabilities hereunder of the undersigned
whether or not except for disagreement such liabilities
or obligations would then be due, making proper
allowance or interest on the obligations and liabilities
not otherwise then due, and returning the overplus, if
any, to the undersigned; all without prejudice to your
rights as against the undersigned with respect to any
and all amounts which may be or remain unpaid on
any of the obligations or liabilities aforesaid at any time
(s).
xxx xxx xxx
Should the Borrower at this or at any future time furnish,
or should be heretofore have furnished, another surety
or sureties to guarantee the payment of his obligations
to you, the undersigned hereby expressly waives all
benefits to which the undersigned might be entitled
under the provisions of Article 1837 of the Civil Code
(beneficio division), the liability of the undersigned
under any and all circumstances being joint and
several; (Emphasis Ours)
The use of the term "guarantee" does not ipso
facto mean that the contract is one of guaranty.
Authorities recognize that the word "guarantee" is
frequently employed in business transactions to
describe not the security of the debt but an intention to
be bound by a primary or independent obligation. 11 As
aptly observed by the trial court, the interpretation of a
contract is not limited to the title alone but to the
contents and intention of the parties.
Having thus established that petitioner is a surety,
Article 2080 of the Civil Code, relied upon by petitioner,
finds no application to the case at bar. In Bicol Savings
and Loan Association vs. Guinhawa, 12 we have ruled
that Article 2080 of the New Civil Code does not apply
where the liability is as a surety, not as a guarantor.
But even assuming that Article 2080 is applicable,
SOLIDBANK's failure to register the chattel mortgage did
not release petitioner from the obligation. In the
Continuing Guaranty executed in favor of SOLIDBANK,
petitioner bound itself to the contract irrespective of
the existence of any collateral. It even released
SOLIDBANK from any fault or negligence that may
impair the contract. The pertinent portions of the
contract so provides:
. . . the undersigned (petitioner) who hereby agrees to
be and remain bound upon this guaranty, irrespective
of the existence, value or condition of any collateral,
and notwithstanding any such change, exchange,
settlement, compromise, surrender, release, sale,
application, renewal or extension, and notwithstanding
also that all obligations of the Borrower to you
outstanding and unpaid at any time(s) may exceed
the aggregate principal sum herein above prescribed.
This is a Continuing Guaranty and shall remain in full
force and effect until written notice shall have been
received by you that it has been revoked by the
undersigned, but any such notice shall not be released
the undersigned from any liability as to any instruments,
loans, advances or other obligations hereby
guaranteed, which may be held by you, or in which
you may have any interest, at the time of the receipt of
such notice. No act or omission of any kind on your part
in the premises shall in any event affect or impair this
guaranty, nor shall same be affected by any change
which may arise by reason of the death of the
undersigned, of any partner (s) of the undersigned, or
of the Borrower, or of the accession to any such
partnership of any one or more new partners. (Emphasis
supplied)
In fine, we find the petition to be without merit as no
reversible error was committed by respondent Court of
Appeals in rendering the assailed decision.
WHEREFORE, the decision of the respondent Court of
Appeals is hereby AFFIRMED. Costs against the
petitioner.
SO ORDERED.
Obligations; Contracts; Surety; Guaranty; Words and
Phrases; “Surety” and “Guaranty,” Explained.—A
contract of surety is an accessory promise by which a
person binds himself for another already bound, and
agrees with the creditor to satisfy the obligation if the
debtor does not. A contract of guaranty, on the other
hand, is a collateral undertaking to pay the debt of
another in case the latter does not pay the debt.
Same; Same; Same; Same; Same; “Surety” and
“Guaranty,” Distinguished; Simply put, a surety is
distinguished from a guaranty in that a guarantor is the
insurer of the solvency of the debtor and thus binds
himself to pay if the principal is unable to pay while a
surety is the insurer of the debt, and he obligates himself
to pay if the principal does not pay.—Strictly speaking,
guaranty and surety are nearly related, and many of
the principles are common to both. However, under our
civil law, they may be distinguished thus: A surety is
usually bound with his principal by the same instrument,
executed at the same time, and on the same
consideration. He is an original promissor and debtor
from the beginning, and is held, ordinarily, to know
every default of his principal. Usually, he will not be
discharged, either by the mere indulgence of the
creditor to the principal, or by want of notice of the
default of the principal, no matter how much he may
be injured thereby. On the other hand, the contract of
guaranty is the guarantor’s own separate undertaking,
in which the principal does not join. It is usually entered
into before or after that of the principal, and is often
supported on a separate consideration from that
supporting the contract of the principal. The original
contract of his principal is not his contract, and he is not
bound to take notice of its non-performance. He is
often discharged by the mere indulgence of the
creditor to the principal, and is usually not liable unless
notified of the default of the principal. Simply put, a
surety is distinguished from a guaranty in that a
guarantor is the insurer of the solvency of the debtor
and thus binds himself to pay if the principal is unable to
pay while a surety is the insurer of the debt, and he
obligates himself to pay if the principal does not pay.
Same; Same; Same; Same; Same; The use of the term
“guarantee” does not ipso facto mean that the
contract is one of guaranty—authorities recognize that
the word “guarantee” is frequently employed in
business transactions to describe not the security of the
debt but an intention to be bound by a primary or
independent obligation.—The use of the term
“guarantee” does not ipso facto mean that the
contract is one of guaranty. Authorities recognize that
the word “guarantee” is frequently employed in
business transactions to describe not the security of the
debt but an intention to be bound by a primary or
independent obligation. As aptly observed by the trial
court, the interpretation of a contract is not limited to
the title alone but to the contents and intention of the
parties.
Same; Same; Same; Same; Article 2080 of the New Civil
Code does not apply where the liability is as a surety,
not as a guarantor.—Having thus established that
petitioner is a surety, Article 2080 of the Civil Code,
relied upon by petitioner, finds no application to the
case at bar. In Bicol Savings and Loan Association vs.
Guinhawa, we have ruled that Article 2080 of the New
Civil Code does not apply where the liability is as a
surety, not as a guarantor.
Same; Same; Same; Same; Chattel Mortgages; A
creditor’s failure to register the chattel mortgage did
not release a guarantor from his obligation where in the
Continuing Guaranty the latter bound itself to the
contract irrespective of the existence of any
collateral.—But even assuming that Article 2080 is
applicable, SOLIDBANK’s failure to register the chattel
mortgage did not release petitioner from the
obligation. In the Continuing Guaranty executed in
favor of SOLIDBANK, petitioner bound itself to the
contract irrespective of the existence of any collateral.
It even released SOLIDBANK from any fault or
negligence that may impair the contract.
Notes.—Where obligee has accepted the surety bond,
it becomes valid and enforceable irrespective of
whether or not the premium has been paid by the
obligor to the surety. (Philippine Pryce Assurance
Corporation vs. Court of Appeals, 230 SCRA 164 [1994])
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 guarantor or surety is bound by the same
consideration that makes the contract effective
between the principal parties thereto. (Willex Plastic
Industries Corporation vs. Court of Appeals, 256 SCRA
478 [1996])
 G.R. No. L-47495 August 14, 1941
THE TEXAS COMPANY (PHIL.), INC., petitioner,
vs.
TOMAS ALONSO, respondent.
LAUREL, J.:
On November 5, 1935 Leonor S. Bantug and Tomas
Alonso were sued by the Texas Company (P.I.), Inc. in
the Court of First Instance of Cebu for the recovery of
the sum of P629, unpaid balance of the account of
Leonora S. Bantug in connection with the agency
contract with the Texas Company for the faithful
performance of which Tomas Alonso signed the
following:
For value received, we jointly and severally do hereby
bind ourselves and each of us, in solidum, with Leonor S.
Bantug the agent named in the within and foregoing
agreement, for full and complete performance of
same hereby waiving notice of non-performance by or
demand upon said agent, and the consent to any and
all extensions of time for performance. Liability under
this undertaking, however, shall not exceed the sum of
P2,000, Philippine currency.
Witness the hand and seal of the undersigned affixed in
the presence of two witness, this 12th day of August,
1929.
Leonor S. Bantug was declared in default as a result of
her failure to appear or answer, but Tomas Alonso filed
an answer setting up a general denial and the special
defenses that Leonor S. Bantug made him believe that
he was merely a co-security of one Vicente Palanca
and he was never notified of the acceptance of his
bond by the Texas Company. After trial, the Court of
First Instance of Cebu rendered judgment on July 10,
1973, which was amended on February 1, 1938,
sentencing Leonor S. Bantug and Tomas Alonso to pay
jointly and severally to the Texas Company the sum of
P629, with interest at the rate of six per cent (6%) from
the date of filing of the complaint, and with
proportional costs. Upon appeal by Tomas Alonso, the
Court of Appeals modified the judgment of the Court
of First Instance of Cebu in the sense that Leonor S.
Bantug was held solely liable for the payment of the
aforesaid sum of P629 to the Texas Company, with the
consequent absolution of Tomas Alonso. This case is
now before us on petition for review by certiorari of the
decision of the Court of Appeals. It is contended by the
petitioner that the Court of Appeals erred in holding
that there was merely an offer of guaranty on the part
of the respondent, Tomas Alonso, and that the latter
cannot be held liable thereunder because he was
never notified by the Texas Company of its
acceptance.
The Court of Appeals has placed reliance upon our
decision in National Bank vs. Garcia (47 Phil., 662), while
the petitioner invokes the case of National Bank vs.
Escueta, (50 Phil., 991). In the first case, it was held that
there was merely an offer to give bond and, as there
was no acceptance of the offer, this court refused to
give effect to the bond. In the second case, the
sureties were held liable under their surety agreement
which was found to have been accepted by the
creditor, and it was therein ruled that an acceptance
need not always be express or in writing. For the
purpose of this decision, it is not indispensable for us to
invoke one or the other case above cited. The Court of
Appeals found as a fact, and this is conclusive in this
instance, that the bond in question was executed at
the request of the petitioner by virtue of the following
clause of the agency contract:
Additional Security. — The Agent shall whenever
requested by the Company in addition to the guaranty
herewith provided, furnish further guaranty or bond,
conditioned upon the Agent's faithful performance of
this contract, in such individuals of firms as joint and
several sureties as shall be satisfactory to the Company.
In view of the foregoing clause which should be the law
between the parties, it is obvious that, before a bond is
accepted by the petitioner, it has to be in such form
and amount and with such sureties as shall be
satisfactory hereto; in other words, the bond is subject
to petitioner's approval. The logical implication arising
from this requirement is that, if the petitioner is satisfied
with any such bond, notice of its acceptance or
approval should necessarily be given to the property
party in interest, namely, the surety or guarantor. In this
connection, we are likewise bound by the finding of the
Court of Appeals that there is no evidence in this case
tending to show that the respondent, Tomas Alonso,
ever had knowledge of any act on the part of
petitioner amounting to an implied acceptance, so as
to justify the application of our decision in National
Bank vs. Escueta (50 Phil., 991).
While unnecessary to this decision, we choose to add a
few words explanatory of the rule regarding the
necessity of acceptance in case of bonds. Where there
is merely an offer of, or proposition for, a guaranty, or
merely a conditional guaranty in the sense that it
requires action by the creditor before the obligation
becomes fixed, it does not become a binding
obligation until it is accepted and, unless there is a
waiver of notice of such acceptance is given to, or
acquired by, the guarantor, or until he has notice or
knowledge that the creditor has performed the
conditions and intends to act upon the guaranty.
(National Bank vs. Garcia, 47 Phil., 662; C. J., sec. 21, p.
901; 24 Am. Jur., sec. 37, p. 899.) The acceptance need
not necessarily be express or in writing, but may be
indicated by acts amounting to acceptance. (National
Bank vs. Escueta, 50 Phil., 991.) Where, upon the other
hand, the transaction is not merely an offer of guaranty
but amounts to direct or unconditional promise of
guaranty, unless notice of acceptance is made a
condition of the guaranty, all that is necessary to make
the promise binding is that the promise should act upon
it, and notice of acceptance is not necessary (28 C. J.,
sec. 25, p. 904; 24 Am. Jur., sec 37, p. 899), the reason
being that the contract of guaranty is unilateral
(Visayan Surety and Insurance Corporation vs. Laperal,
G.R. No. 46515, promulgated June 14, 1940).
The decision appealed from will be, as the same is
hereby, affirmed, with costs of this instance against the
petitioner. So ordered.
G.R. No. 147561 June 22, 2006
STRONGHOLD INSURANCE COMPANY, INC., Petitioner,
vs.
REPUBLIC-ASAHI GLASS CORPORATION, Respondent.
DECISION
PANGANIBAN, CJ:
Asurety company’s liability under the performance
bond it issues is solidary. The death of the principal
obligor does not, as a rule, extinguish the obligation
and the solidary nature of that liability.
The Case
Before us is a Petition for Review1 under Rule 45 of the
Rules of Court, seeking to reverse the March 13, 2001
Decision2 of the Court of Appeals (CA) in CA-GR CV
No. 41630. The assailed Decision disposed as follows:
"WHEREFORE, the Order dated January 28, 1993 issued
by the lower court is REVERSED and SET ASIDE. Let the
records of the instant case be REMANDED to the lower
court for the reception of evidence of all parties."3
The Facts
The facts of the case are narrated by the CA in this
wise:
"On May 24, 1989, [respondent] Republic-Asahi Glass
Corporation (Republic-Asahi) entered into a contract
with x x x Jose D. Santos, Jr., the proprietor of JDS
Construction (JDS), for the construction of roadways
and a drainage system in Republic-Asahi’s compound
in Barrio Pinagbuhatan, Pasig City, where [respondent]
was to pay x x x JDS five million three hundred thousand
pesos (P5,300,000.00) inclusive of value added tax for
said construction, which was supposed to be
completed within a period of two hundred forty (240)
days beginning May 8, 1989. In order ‘to guarantee the
faithful and satisfactory performance of its
undertakings’ x x x JDS, shall post a performance bond
of seven hundred ninety five thousand pesos
(P795,000.00). x x x JDS executed, jointly and severally
with [petitioner] Stronghold Insurance Co., Inc. (SICI)
Performance Bond No. SICI-25849/g(13)9769.
"On May 23, 1989, [respondent] paid to x x x JDS seven
hundred ninety five thousand pesos (P795,000.00) by
way of downpayment.
"Two progress billings dated August 14, 1989 and
September 15, 1989, for the total amount of two
hundred seventy four thousand six hundred twenty one
pesos and one centavo (P274,621.01) were submitted
by x x x JDS to [respondent], which the latter paid.
According to [respondent], these two progress billings
accounted for only 7.301% of the work supposed to be
undertaken by x x x JDS under the terms of the
contract.
"Several times prior to November of 1989,
[respondent’s] engineers called the attention of x x x
JDS to the alleged alarmingly slow pace of the
construction, which resulted in the fear that the
construction will not be finished within the stipulated
240-day period. However, said reminders went
unheeded by x x x JDS.
"On November 24, 1989, dissatisfied with the progress of
the work undertaken by x x x JDS, [respondent]
Republic-Asahi extrajudicially rescinded the contract
pursuant to Article XIII of said contract, and wrote a
letter to x x x JDS informing the latter of such rescission.
Such rescission, according to Article XV of the contract
shall not be construed as a waiver of [respondent’s]
right to recover damages from x x x JDS and the latter’s
sureties.
"[Respondent] alleged that, as a result of x x x JDS’s
failure to comply with the provisions of the contract,
which resulted in the said contract’s rescission, it had to
hire another contractor to finish the project, for which it
incurred an additional expense of three million two
hundred fifty six thousand, eight hundred seventy four
pesos (P3,256,874.00).
"On January 6, 1990, [respondent] sent a letter to
[petitioner] SICI filing its claim under the bond for not
less than P795,000.00. On March 22, 1991, [respondent]
again sent another letter reiterating its demand for
payment under the aforementioned bond. Both letters
allegedly went unheeded.
"[Respondent] then filed [a] complaint against x x x JDS
and SICI. It sought from x x x JDS payment
of P3,256,874.00 representing the additional expenses
incurred by [respondent] for the completion of the
project using another contractor, and from x x x JDS
and SICI, jointly and severally, payment of P750,000.00
as damages in accordance with the performance
bond; exemplary damages in the amount
of P100,000.00 and attorney’s fees in the amount of at
least P100,000.00.
"According to the Sheriff’s Return dated June 14, 1991,
submitted to the lower court by Deputy Sheriff Rene R.
Salvador, summons were duly served on defendant-
appellee SICI. However, x x x Jose D. Santos, Jr. died the
previous year (1990), and x x x JDS Construction was no
longer at its address at 2nd Floor, Room 208-A, San
Buena Bldg. Cor. Pioneer St., Pasig, Metro Manila, and
its whereabouts were unknown.
"On July 10, 1991, [petitioner] SICI filed its answer,
alleging that the [respondent’s] money claims against
[petitioner and JDS] have been extinguished by the
death of Jose D. Santos, Jr. Even if this were not the
case, [petitioner] SICI had been released from its
liability under the performance bond because there
was no liquidation, with the active participation and/or
involvement, pursuant to procedural due process, of
herein surety and contractor Jose D. Santos, Jr., hence,
there was no ascertainment of the corresponding
liabilities of Santos and SICI under the performance
bond. At this point in time, said liquidation was
impossible because of the death of Santos, who as
such can no longer participate in any liquidation. The
unilateral liquidation on the party (sic) of [respondent]
of the work accomplishments did not bind SICI for
being violative of procedural due process. The claim of
[respondent] for the forfeiture of the performance bond
in the amount of P795,000.00 had no factual and legal
basis, as payment of said bond was conditioned on the
payment of damages which [respondent] may sustain
in the event x x x JDS failed to complete the contracted
works. [Respondent] can no longer prove its claim for
damages in view of the death of Santos. SICI was not
informed by [respondent] of the death of Santos. SICI
was not informed by [respondent] of the unilateral
rescission of its contract with JDS, thus SICI was deprived
of its right to protect its interests as surety under the
performance bond, and therefore it was released from
all liability. SICI was likewise denied due process when it
was not notified of plaintiff-appellant’s process of
determining and fixing the amount to be spent in the
completion of the unfinished project. The procedure
contained in Article XV of the contract is against public
policy in that it denies SICI the right to procedural due
process. Finally, SICI alleged that [respondent] deviated
from the terms and conditions of the contract without
the written consent of SICI, thus the latter was released
from all liability. SICI also prayed for the award
of P59,750.00 as attorney’s fees, and P5,000.00 as
litigation expenses.
"On August 16, 1991, the lower court issued an order
dismissing the complaint of [respondent] against x x x
JDS and SICI, on the ground that the claim against JDS
did not survive the death of its sole proprietor, Jose D.
Santos, Jr. The dispositive portion of the [O]rder reads as
follows:
‘ACCORDINGLY, the complaint against the defendants
Jose D. Santos, Jr., doing business under trade and
style, ‘JDS Construction’ and Stronghold Insurance
Company, Inc. is ordered DISMISSED.
‘SO ORDERED.’
"On September 4, 1991, [respondent] filed a Motion for
Reconsideration seeking reconsideration of the lower
court’s August 16, 1991 order dismissing its complaint.
[Petitioner] SICI field its ‘Comment and/or Opposition to
the Motion for Reconsideration.’ On October 15, 1991,
the lower court issued an Order, the dispositive portion
of which reads as follows:
‘WHEREFORE, premises considered, the Motion for
Reconsideration is hereby given due course. The Order
dated 16 August 1991 for the dismissal of the case
against Stronghold Insurance Company, Inc., is
reconsidered and hereby reinstated (sic). However, the
case against defendant Jose D. Santos, Jr. (deceased)
remains undisturbed.
‘Motion for Preliminary hearing and Manifestation with
Motion filed by [Stronghold] Insurance Company Inc.,
are set for hearing on November 7, 1991 at 2:00 o’clock
in the afternoon.
‘SO ORDERED.’
"On June 4, 1992, [petitioner] SICI filed its
‘Memorandum for Bondsman/Defendant SICI (Re:
Effect of Death of defendant Jose D. Santos, Jr.)’
reiterating its prayer for the dismissal of [respondent’s]
complaint.
"On January 28, 1993, the lower court issued the
assailed Order reconsidering its Order dated October
15, 1991, and ordered the case, insofar as SICI is
concerned, dismissed. [Respondent] filed its motion for
reconsideration which was opposed by [petitioner] SICI.
On April 16, 1993, the lower court denied [respondent’s]
motion for reconsideration. x x x."4
Ruling of the Court of Appeals
The CA ruled that SICI’s obligation under the surety
agreement was not extinguished by the death of Jose
D. Santos, Jr. Consequently, Republic-Asahi could still
go after SICI for the bond.
The appellate court also found that the lower court had
erred in pronouncing that the performance of the
Contract in question had become impossible by
respondent’s act of rescission. The Contract was
rescinded because of the dissatisfaction of respondent
with the slow pace of work and pursuant to Article XIII
of its Contract with JDS.
The CA ruled that "[p]erformance of the [C]ontract was
impossible, not because of [respondent’s] fault, but
because of the fault of JDS Construction and Jose D.
Santos, Jr. for failure on their part to make satisfactory
progress on the project, which amounted to non-
performance of the same. x x x [P]ursuant to the
[S]urety [C]ontract, SICI is liable for the non-
performance of said [C]ontract on the part of JDS
Construction."5
Hence, this Petition.6
Issue
Petitioner states the issue for the Court’s consideration
in the following manner:
"Death is a defense of Santos’ heirs which Stronghold
could also adopt as its defense against obligee’s
claim."7
More precisely, the issue is whether petitioner’s liability
under the performance bond was automatically
extinguished by the death of Santos, the principal.
The Court’s Ruling
The Petition has no merit.
Sole Issue:
Effect of Death on the Surety’s Liability
Petitioner contends that the death of Santos, the bond
principal, extinguished his liability under the surety
bond. Consequently, it says, it is automatically released
from any liability under the bond.
As a general rule, the death of either the creditor or the
debtor does not extinguish the obligation.8 Obligations
are transmissible to the heirs, except when the
transmission is prevented by the law, the stipulations of
the parties, or the nature of the obligation.9 Only
obligations that are personal10 or are identified with the
persons themselves are extinguished by death.11
Section 5 of Rule 8612 of the Rules of Court expressly
allows the prosecution of money claims arising from a
contract against the estate of a deceased debtor.
Evidently, those claims are not actually
extinguished.13 What is extinguished is only the obligee’s
action or suit filed before the court, which is not then
acting as a probate court.14
In the present case, whatever monetary liabilities or
obligations Santos had under his contracts with
respondent were not intransmissible by their nature, by
stipulation, or by provision of law. Hence, his death did
not result in the extinguishment of those obligations or
liabilities, which merely passed on to his estate.15 Death
is not a defense that he or his estate can set up to wipe
out the obligations under the performance bond.
Consequently, petitioner as surety cannot use his death
to escape its monetary obligation under its
performance bond.
The liability of petitioner is contractual in nature,
because it executed a performance bond worded as
follows:
"KNOW ALL MEN BY THESE PRESENTS:
"That we, JDS CONSTRUCTION of 208-A
San Buena Building, contractor, of
Shaw Blvd., Pasig, MM Philippines, as
principal and the STRONGHOLD
INSURANCE COMPANY, INC. a
corporation duly organized and
existing under and by virtue of the laws
of the Philippines with head office at
Makati, as Surety, are held and firmly
bound unto the REPUBLIC ASAHI GLASS
CORPORATION and to any individual,
firm, partnership, corporation or
association supplying the principal with
labor or materials in the penal sum of
SEVEN HUNDRED NINETY FIVE
THOUSAND (P795,000.00), Philippine
Currency, for the payment of which
sum, well and truly to be made, we
bind ourselves, our heirs, executors,
administrators, successors and assigns,
jointly and severally, firmly by these
presents.
"The CONDITIONS OF THIS OBLIGATION
are as follows;
"WHEREAS the above bounden
principal on the ___ day of __________,
19__ entered into a contract with the
REPUBLIC ASAHI GLASS CORPORATION
represented by _________________, to
fully and faithfully. Comply with the site
preparation works road and drainage
system of Philippine Float Plant at
Pinagbuhatan, Pasig, Metro Manila.
"WHEREAS, the liability of the Surety
Company under this bond shall in no
case exceed the sum of PESOS SEVEN
HUNDRED NINETY FIVE THOUSAND
(P795,000.00) Philippine Currency,
inclusive of interest, attorney’s fee, and
other damages, and shall not be liable
 for any advances of the obligee to the
principal.
"WHEREAS, said contract requires the
said principal to give a good and
sufficient bond in the above-stated
sum to secure the full and faithfull
performance on its part of said
contract, and the satisfaction of
obligations for materials used and
labor employed upon the work;
"NOW THEREFORE, if the principal shall
perform well and truly and fulfill all the
undertakings, covenants, terms,
conditions, and agreements of said
contract during the original term of
said contract and any extension
thereof that may be granted by the
obligee, with notice to the surety and
during the life of any guaranty required
under the contract, and shall also
perform well and truly and fulfill all the
undertakings, covenants, terms,
conditions, and agreements of any
and all duly authorized modifications
of said contract that may hereinafter
be made, without notice to the surety
except when such modifications
increase the contract price; and such
principal contractor or his or its sub-
contractors shall promptly make
payment to any individual, firm,
partnership, corporation or association
supplying the principal of its sub-
contractors with labor and materials in
the prosecution of the work provided
for in the said contract, then, this
obligation shall be null and void;
otherwise it shall remain in full force
and effect. Any extension of the period
of time which may be granted by the
obligee to the contractor shall be
considered as given, and any
modifications of said contract shall be
considered as authorized, with the
express consent of the Surety.
"The right of any individual, firm, partnership,
corporation or association supplying the contractor
with labor or materials for the prosecution of the work
hereinbefore stated, to institute action on the penal
bond, pursuant to the provision of Act No. 3688, is
hereby acknowledge and confirmed."16
As a surety, petitioner is solidarily liable with Santos in
accordance with the Civil Code, which provides as
follows:
"Art. 2047. By guaranty a person, called the 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 solidarily with the principal
debtor, the provisions of Section 4,17 Chapter 3, Title I of
this Book shall be observed. In such case the contract is
called a suretyship."
xxxxxxxxx
"Art. 1216. The creditor may proceed against any one
of the solidary debtors or some or all of them
simultaneously. The demand made against one of
them shall not be an obstacle to those which may
subsequently be directed against the others, so long as
the debt has not been fully collected."
Elucidating on these provisions, the Court in Garcia v.
Court of Appeals18 stated thus:
"x x x. 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. x x x."19
Under the law and jurisprudence, respondent may sue,
separately or together, the principal debtor and the
petitioner herein, in view of the solidary nature of their
liability. The death of the principal debtor will not work
to convert, decrease or nullify the substantive right of
the solidary creditor. Evidently, despite the death of the
principal debtor, respondent may still sue petitioner
alone, in accordance with the solidary nature of the
latter’s liability under the performance bond.
WHEREFORE, the Petition is DENIED and the Decision of
the Court of Appeals AFFIRMED. Costs against
petitioner.
SO ORDERED.
Obligations and Contracts; Death of a Party; As a
general rule, the death of either the creditor or the
debtor does not extinguish the obligation—obligations
are transmissible to the heirs, except when the
transmission is prevented by the law, the stipulations of
the parties, or the nature of the obligation.—As a
general rule, the death of either the creditor or the
debtor does not extinguish the obligation. Obligations
are transmissible to the heirs, except when the
transmission is prevented by the law, the stipulations of
the parties, or the nature of the obligation. Only
obligations that are personal or are identified with the
persons themselves are extinguished by death. Section
5 of Rule 86 of the Rules of Court expressly allows the
prosecution of money claims arising from a contract
against the estate of a deceased debtor. Evidently,
those claims are not actually extinguished. What is
extinguished is only the obligee’s action or suit filed
before the court, which is not then acting as a probate
court.
Same; Same; Surety; Since death is not a defense that
a party or his estate can set up to wipe out the
obligations under a performance bond, the surety
cannot use such party’s death to escape its monetary
obligation.—In the present case, whatever monetary
liabilities or obligations Santos had under his contracts
with respondent were not intransmissible by their
nature, by stipulation, or by provision of law. Hence, his
death did not result in the extinguishment of those
obligations or liabilities, which merely passed on to his
estate. Death is not a defense that he or his estate can
set up to wipe out the obligations under the
performance bond. Consequently, petitioner as surety
cannot use his death to escape its monetary obligation
under its performance bond.
Same; Same; Same; Although the contract of 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—he is directly
and equally bound with the principal.—As a surety,
petitioner is solidarily liable with Santos in accordance
with the Civil Code, which provides as follows: “Art.
2047. By guaranty a person, called the 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 solidarily with the principal
debtor, the provisions of Section 4, Chapter 3, Title I of
this Book shall be observed. In such case the contract is
called a suretyship.” x x x x x x x x x “Art. 1216. The
creditor may proceed against any one of the solidary
debtors or some or all of them simultaneously. The
demand made against one of them shall not be an
obstacle to those which may subsequently be directed
against the others, so long as the debt has not been
fully collected.” Elucidating on these provisions, the
Court in Garcia v. Court of Appeals, 191 SCRA 493
(1990), stated thus: “x x x. 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. x x
x.”
Same; Same; Same; The death of the principal debtor
will not work to convert, decrease or nullify the
substantive right of the solidary creditor.—Under the law
and jurisprudence, respondent may sue, separately or
together, the principal debtor and the petitioner herein,
in view of the solidary nature of their liability. The death
of the principal debtor will not work to convert,
decrease or nullify the substantive right of the solidary
creditor. Evidently, despite the death of the principal
debtor, respondent may still sue petitioner alone, in
accordance with the solidary nature of the latter’s
liability under the performance bond. Stronghold
Insurance Company, Inc. vs. Republic-Asahi Glass
Corporation, 492 SCRA 179, G.R. No. 147561 June 22,
2006
G.R. No. 173526 August 28, 2008
BENJAMIN BITANGA, petitioner,
vs.
PYRAMID CONSTRUCTION ENGINEERING
CORPORATION, respondent.
DECISION
CHICO-NAZARIO, J.:
Assailed in this Petition for Review under Rule 451 of the
Revised Rules of Court are: (1) the Decision2 dated 11
April 2006 of the Court of Appeals in CA-G.R. CV No.
78007 which affirmed with modification the partial
Decision3 dated 29 November 2002 of the Regional Trial
Court (RTC), Branch 96, of Quezon City, in Civil Case
No. Q-01-45041, granting the motion for summary
judgment filed by respondent Pyramid Construction
and Engineering Corporation and declaring petitioner
Benjamin Bitanga and his wife, Marilyn Bitanga
(Marilyn), solidarily liable to pay P6,000,000.000 to
respondent; and (2) the Resolution4 dated 5 July 2006
of the appellate court in the same case denying
petitioner’s Motion for Reconsideration.
The generative facts are:
On 6 September 2001, respondent filed with the RTC a
Complaint for specific performance and damages with
application for the issuance of a writ of preliminary
attachment against the petitioner and Marilyn. The
Complaint was docketed as Civil Case No. Q-01-45041.
Respondent alleged in its Complaint that on 26 March
1997, it entered into an agreement with Macrogen
Realty, of which petitioner is the President, to construct
for the latter the Shoppers Gold Building, located at Dr.
A. Santos Avenue corner Palayag Road, Sucat,
Parañaque City. Respondent commenced civil,
structural, and architectural works on the construction
project by May 1997. However, Macrogen Realty failed
to settle respondent’s progress billings. Petitioner,
through his representatives and agents, assured
respondent that the outstanding account of Macrogen
Realty would be paid, and requested respondent to
continue working on the construction project. Relying
on the assurances made by petitioner, who was no less
than the President of Macrogen Realty, respondent
continued the construction project.
In August 1998, 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 Realty. On 1 September
1999, 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.
Petitioner, through counsel, then conveyed to
respondent his purported willingness to amicably settle
the arbitration case. On 17 April 2000, before the
arbitration case could be set for trial, respondent and
Macrogen Realty entered into a Compromise
Agreement,5 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 in six
equal monthly installments, with each installment to be
delivered on the 15th day of the month, beginning 15
June 2000. Macrogen Realty also agreed that if it would
default in the payment of two successive monthly
installments, immediate execution could issue against it
for the unpaid balance, without need of judgment or
decree from any court or tribunal. Petitioner
guaranteed the obligations of Macrogen Realty under
the Compromise Agreement by executing a Contract
of Guaranty6 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 Realty in the sum of P6,000,000.00.
Upon joint motion of respondent and Macrogen Realty,
the CIAC approved the Compromise Agreement on 25
April 2000.7
However, contrary to petitioner’s assurances,
Macrogen Realty failed and refused to pay all the
monthly installments agreed upon in the Compromise
Agreement. Hence, on 7 September 2000, respondent
moved for the issuance of a writ of execution 8 against
Macrogen Realty, which CIAC granted.
On 29 November 2000, the sheriff9 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, on 3 January 2001, a written
demand10 on petitioner, as guarantor of Macrogen
Realty, to pay the P6,000,000.00, or to point out
available properties of the Macrogen Realty within the
Philippines sufficient to cover the obligation
guaranteed. It also made verbal demands on
petitioner. Yet, respondent’s demands were left
unheeded.
Thus, according to respondent, petitioner’s obligation
as guarantor was already due and demandable. As to
Marilyn’s liability, respondent contended that
Macrogen Realty was owned and controlled by
petitioner and Marilyn and/or by corporations owned
and controlled by them. Macrogen Realty is 99%
owned by the Asian Appraisal Holdings, Inc. (AAHI),
which in turn is 99% owned by Marilyn. Since the
completion of the construction project would have
redounded to the benefit of both petitioner and
Marilyn and/or their corporations; and considering,
moreover, Marilyn’s enormous interest in AAHI, the
corporation which controls Macrogen Realty, Marilyn
cannot be unaware of the obligations incurred by
Macrogen Realty and/or petitioner in the course of the
business operations of the said corporation.
Respondent prayed in its Complaint that the RTC, after
hearing, render a judgment ordering petitioner and
Marilyn to comply with their obligation under the
Contract of Guaranty by paying respondent the
amount of P6,000,000.000 (less the bank deposit of
Macrogen Realty with Planter’s Bank in the amount
of P20,242.23) and P400,000.000 for attorneys fees and
expenses of litigation. Respondent also sought the
issuance of a writ of preliminary attachment as security
for the satisfaction of any judgment that may be
recovered in the case in its favor.
Marilyn filed a Motion to Dismiss,11 asserting that
respondent had no cause of action against her, since
she did not co-sign the Contract of Guaranty with her
husband; nor was she a party to the Compromise
Agreement between respondent and Macrogen
Realty. She had no part at all in the execution of the
said contracts. Mere ownership by a single stockholder
or by another corporation of all or nearly all of the
capital stock of another corporation is not by itself a
sufficient ground for disregarding the separate
personality of the latter corporation. Respondent
misread Section 4, Rule 3 of the Revised Rules of Court.
The RTC denied Marilyn’s Motion to Dismiss for lack of
merit, and in its Order dated 24 January 2002 decreed
that:
The Motion To Dismiss Complaint Against Defendant
Marilyn Andal Bitanga filed on November 12, 2001 is
denied for lack of merit considering that Sec. 4, Rule 3,
of the Rules of Court (1997) specifically provides, as
follows:
"SEC. 4. Spouses as parties. – Husband and wife shall sue
or be sued jointly, except as provided by law."
and that this case does not come within the
exception.12
Petitioner filed with the RTC on 12 November 2001, his
Answer13 to respondent’s Complaint averring therein
that he never made representations to respondent that
Macrogen Realty would faithfully comply with its
obligations under the Compromise Agreement. He did
not offer to guarantee the obligations of Macrogen
Realty to entice respondent to enter into the
Compromise Agreement but that, on the contrary, it
was respondent that required Macrogen Realty to offer
some form of security for its obligations before agreeing
to the compromise. Petitioner further alleged that his
wife Marilyn was not aware of the obligations that he
assumed under both the Compromise Agreement and
the Contract of Guaranty as he did not inform her
about said contracts, nor did he secure her consent
thereto at the time of their execution.
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 Realty 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. Consequently, petitioner presented his
counterclaim for damages.
At the pre-trial held on 5 September 2002, the parties
submitted the following issues for the resolution of the
RTC:
(1) whether the defendants were liable under the
contract of guarantee dated April 17, 2000 entered into
between Benjamin Bitanga and the plaintiff;
(2) whether defendant wife Marilyn Bitanga is liable in
this action;
(3) whether the defendants are entitled to the benefit
of excussion, the plaintiff on the one hand claiming that
it gave due notice to the guarantor, Benjamin Bitanga,
and the defendants contending that no proper notice
was received by Benjamin Bitanga;
(4) if damages are due, which party is liable; and
(5) whether the benefit of excussion can still be invoked
by the defendant guarantor even after the notice has
been allegedly sent by the plaintiff although proper
receipt is denied.14
On 20 September 2002, prior to the trial proper,
respondent filed a Motion for Summary
Judgment.15 Respondent alleged therein that it was
entitled to a summary judgment on account of
petitioner’s admission during the pre-trial of the
genuineness and due execution of the Contract of
Guaranty. The contention of petitioner and Marilyn that
they were entitled to the benefit of excussion was not a
genuine issue. Respondent had already exhausted all
legal remedies to collect from Macrogen Realty, but its
efforts proved unsuccessful. Given that the inability of
Macrogen Realty as debtor to pay the amount of its
debt was already proven by the return of the writ of
execution to CIAC unsatisfied, the liability of petitioner
as guarantor already arose.16 In any event, petitioner
and Marilyn were deemed to have forfeited their right
to avail themselves of the benefit of excussion because
they failed to comply with Article 2060 17 of the Civil
Code when petitioner ignored respondent’s demand
letter dated 3 January 2001 for payment of the amount
he guaranteed.18 The duty to collect the supposed
receivables of Macrogen Realty from its creditors could
not be imposed on respondent, since petitioner and
Marilyn never informed respondent about such
uncollected credits even after receipt of the demand
letter for payment. The allegation of petitioner and
Marilyn that they could not respond to respondent’s
demand letter since they did not receive the same was
unsubstantiated and insufficient to raise a genuine issue
of fact which could defeat respondent’s Motion for
Summary Judgment. The claim that Marilyn never
participated in the transactions that culminated in
petitioner’s execution of the Contract of Guaranty was
nothing more than a sham.
In opposing respondent’s foregoing Motion for
Summary Judgment, petitioner and Marilyn countered
that there were genuinely disputed facts that would
require trial on the merits. They appended thereto an
affidavit executed by petitioner, in which he declared
that his spouse Marilyn could not be held personally
liable under the Contract of Guaranty or the
Compromise Agreement, nor should her share in the
conjugal partnership be made answerable for the
guaranty petitioner assumed, because his undertaking
of the guaranty did not in any way redound to the
benefit of their family. As guarantor, petitioner was
entitled to the benefit of excussion, and he did not
waive his right thereto. He never received the
respondent’s demand letter dated 3 January 2001, as
Ms. Dette Ramos, the person who received it, was not
an employee of Macrogen Realty nor was she
authorized to receive the letter on his behalf. As a
guarantor, petitioner could resort to the benefit of
excussion at any time before judgment was rendered
against him.19 Petitioner reiterated that Macrogen
Realty had uncollected credits which were more than
sufficient to satisfy the claim of respondent.
On 29 November 2002, the RTC rendered a partial
Decision, the dispositive portion of which provides:
WHEREFORE, summary judgment is rendered ordering
defendants SPOUSES BENJAMIN BITANGA and MARILYN
ANDAL BITANGA to pay the [herein respondent], jointly
and severally, the amount of P6,000,000.00,
less P20,242.23 (representing the amount garnished
bank deposit of MACROGEN in the Planters Bank,
Buendia Branch); and the costs of suit.
Within 10 days from receipt of this partial decision, the
[respondent] shall inform the Court whether it shall still
pursue the rest of the claims against the defendants.
Otherwise, such claims shall be considered waived.20
Petitioner and Marilyn filed a Motion for
Reconsideration of the afore-quoted Decision, which
the RTC denied in an Order dated 26 January 2003.21
In time, petitioner and Marilyn filed an appeal with the
Court of Appeals, docketed as CA-G.R. CV 78007. In its
Decision dated 11 April 2006, the appellate court held:
UPON THE VIEW WE TAKE OF THIS CASE, THUS, the
judgment appealed from must be, as it hereby is,
MODIFIED to the effect that defendant-appellant
Marilyn Bitanga is adjudged not liable, whether
solidarily or otherwise, with her husband the defendant-
appellant Benjamin Bitanga, under the compromise
agreement or the contract of guaranty. No costs in this
instance.22
In holding that Marilyn Bitanga was not liable, the Court
of Appeals cited Ramos v. Court of Appeals,23 in which
it was declared that a contract cannot be enforced
against one who is not a party to it. The Court of
Appeals stated further that the substantial ownership of
shares in Macrogen Realty by Marilyn Bitanga was not
enough basis to hold her liable.
The Court of Appeals, in its Resolution dated 5 July 2006,
denied petitioner’s Motion for Reconsideration 24 of its
earlier Decision.
Petitioner is now before us via the present Petition with
the following assignment of errors:
I the service of a copy of the demand letter on the
THE COURT OF APPEALS GRAVELY ERRED IN AFFIRMING
THE VALIDITY OF THE PARTIAL SUMMARY JUDGMENT BY
THE REGIONAL TRIAL COURT OF QUEZON CITY, BRANCH
96, DESPITE THE CLEAR EXISTENCE OF DISPUTED GENUINE
AND MATERIAL FACTS OF THE CASE THAT SHOULD HAVE
REQUIRED A TRIAL ON THE MERITS.
II
THE COURT OF APPEALS GRAVELY ERRED IN NOT
UPHOLDING THE RIGHT OF PETITIONER BENJAMIN M.
BITANGA AS A MERE GUARANTOR TO THE BENEFIT OF
EXCUSSION UNDER ARTICLES 2058, 2059, 2060, 2061,
AND 2062 OF THE CIVIL CODE OF THE PHILIPPINES.25
As in the two courts below, it is petitioner’s position that
summary judgment is improper in Civil Case No. Q-01-
45041 because there are genuine issues of fact which
have to be threshed out during trial, to wit:
(A) Whether or not there was proper service of notice
to petitioner considering the said letter of demand was
allegedly received by one Dette Ramos at Macrogen
office and not by him at his residence.
(B) Whether or not petitioner is entitled to the benefit of
excussion?26
We are not persuaded by petitioner’s arguments.
Rule 35 of the Revised Rules of Civil Procedure provides:
Section 1. Summary judgment for claimant. – A party
seeking to recover upon a claim, counterclaim, or
cross-claim or to obtain a declaratory relief may, at any
time after the pleading in answer thereto has been
served, move with supporting affidavits, depositions or
admissions for a summary judgment in his favor upon all
or any part thereof.
For a summary judgment to be proper, the movant
must establish two requisites: (a) there must be no
genuine issue as to any material fact, except for the
amount of damages; and (b) the party presenting the
motion for summary judgment must be entitled to a
judgment as a matter of law. Where, on the basis of the
pleadings of a moving party, including documents
appended thereto, no genuine issue as to a material
fact exists, the burden to produce a genuine issue shifts
to the opposing party. If the opposing party fails, the
moving party is entitled to a summary judgment.27
In a summary judgment, the crucial question is: are the
issues raised by the opposing party not genuine so as to
justify a summary judgment?28
First off, we rule that the issue regarding the propriety of
petitioner in his office is a sham issue. It is not a bar to
the issuance of a summary judgment in respondent’s
favor.
A genuine issue is an issue of fact which requires the
presentation of evidence as distinguished from an issue
which is a sham, fictitious, contrived or false claim. To
forestall summary judgment, it is essential for the non-
moving party to confirm the existence of genuine
issues, as to which he has substantial, plausible and
fairly arguable defense, i.e.,29 issues of fact calling for
the presentation of evidence upon which reasonable
findings of fact could return a verdict for the non-
moving party, although a mere scintilla of evidence in
support of the party opposing summary judgment will
be insufficient to preclude entry thereof.
Significantly, petitioner does not deny the receipt of the
demand letter from the respondent. He merely raises a
howl on the impropriety of service thereof, stating that
"the address to which the said letter was sent was not
his residence but the office of Macrogen Realty, thus it
cannot be considered as the correct manner of
conveying a letter of demand upon him in his personal
capacity."30
Section 6, Rule 13 of the Rules of Court states:
SEC. 6. Personal service. – Service of the papers may be
made by delivering personally a copy to the party or his
counsel, or by leaving it in his office with his clerk or
with a person having charge thereof. If no person is
found in his office, or his office is not known, or he has
no office, then by leaving the copy, between the hours
of eight in the morning and six in the evening, at the
party’s or counsel’s residence, if known, with a person
of sufficient age and discretion then residing therein.
The affidavit of Mr. Robert O. Pagdilao, messenger of
respondent’s counsel states in part:
2. On 4 January 2001, Atty. Jose Vicente B. Salazar, then
one of the Associates of the ACCRA Law Offices,
instructed me to deliver to the office of Mr. Benjamin
Bitanga a letter dated 3 January 2001, pertaining to
Construction Industry Arbitration Commission (hereafter,
"CIAC") Case No. 99-56, entitled "Pyramid Construction
Engineering Corporation vs. Macrogen Realty
Corporation."
3. As instructed, I immediately proceeded to the office
of Mr. Bitanga located at the 12th Floor, Planters
Development Bank Building, 314 Senator Gil Puyat
Avenue, Makati City. I delivered the said letter to Ms.
Dette Ramos, a person of sufficient age and discretion,
who introduced herself as one of the employees of Mr.
Bitanga and/or of the latter’s companies.31 (Emphasis
supplied.)
We emphasize that when petitioner signed the
Contract of Guaranty and assumed obligation as
guarantor, his address in the said contract was the
same address where the demand letter was
served.32 He does not deny that the said place of
service, which is the office of Macrogen, was also the
address that he used when he signed as guarantor in
the Contract of Guaranty. Nor does he deny that this is
his office address; instead, he merely insists that the
person who received the letter and signed the
receiving copy is not an employee of his company.
Petitioner could have easily substantiated his allegation
by a submission of an affidavit of the personnel
manager of his office that no such person is indeed
employed by petitioner in his office, but that evidence
was not submitted.33 All things are presumed to have
been done correctly and with due formality until the
contrary is proved. This juris tantum presumption stands
even against the most well-reasoned allegation
pointing to some possible irregularity or anomaly.34 It is
petitioner’s burden to overcome the presumption by
sufficient evidence, and so far we have not seen
anything in the record to support petitioner’s charges of
anomaly beyond his bare allegation. Petitioner cannot
now be heard to complain that there was an irregular
service of the demand letter, as it does not escape our
attention that petitioner himself indicated "314 Sen. Gil
Puyat Avenue, Makati City" as his office address in the
Contract of Guaranty.
Moreover, under Section 6, Rule 13 of the Rules of
Court, there is sufficiency of service when the papers, or
in this case, when the demand letter is personally
delivered to the party or his counsel, or by leaving it in
his office with his clerk or with a person having charge
thereof, such as what was done in this case.
We have consistently expostulated that in summary
judgments, the trial court can determine a genuine
issue on the basis of the pleadings, admissions,
documents, affidavits or counter affidavits submitted by
the parties. When the facts as pleaded appear
uncontested or undisputed, then there is no real or
genuine issue or question as to any fact, and summary
judgment is called for.35
The Court of Appeals was correct in holding that:
Here, the issue of non-receipt of the letter of demand is
a sham or pretended issue, not a genuine and
substantial issue. Indeed, against the positive assertion
of Mr. Roberto O. Pagdilao (the private courier) in his
affidavit that he delivered the subject letter to a certain
Ms. Dette Ramos who introduced herself as one of the
employees of [herein petitioner] Mr. Benjamin Bitanga
and/or of the latter’s companies, said [petitioner]
merely offered a bare denial. But bare denials,
unsubstantiated by facts, which would be admissible in
evidence at a hearing, are not sufficient to raise a
genuine issue of fact sufficient to defeat a motion for
summary judgment.36
We further affirm the findings of both the RTC and the
Court of Appeals that, given the settled facts of this
case, petitioner cannot avail himself of the benefit of
excussion.
Under a contract of guarantee, the guarantor binds
himself to the creditor to fulfill the obligation of the
principal debtor in case the latter should fail to do so.
The guarantor who pays for a debtor, in turn, must be
indemnified by the latter. However, the guarantor
cannot be compelled to pay the creditor unless the
latter has exhausted all the property of the debtor and
resorted to all the legal remedies against the debtor.
This is what is otherwise known as the benefit of
excussion.37
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.38
The afore-quoted provision imposes a condition for the
invocation of the defense of excussion. Article 2060 of
the Civil Code clearly requires that in order for the
guarantor to make use of the benefit of excussion, he
must set it up against the creditor upon the latter’s
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.39
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 [herein petitioner]
Benjamin 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
Joseph F. 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.40
WHEREFORE, premises considered, the instant petition
is DENIED for lack of merit. The Decision of the Court of
Appeals dated 11 April 2006 and its Resolution dated 5
July 2006 are AFFIRMED. Costs against petitioner.
SO ORDERED.
Civil Law; Guaranty; Benefit of Excussion; 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.—
We further affirm the findings of both the RTC and the
Court of Appeals that, given the settled facts of this
case, petitioner cannot avail himself of the benefit of
excussion. Under a contract of guarantee, the
guarantor binds himself to the creditor to fulfill the
obligation of the principal debtor in case the latter
should fail to do so. The guarantor who pays for a
debtor, in turn, must be indemnified by the latter.
However, the guarantor cannot be compelled to pay
the creditor unless the latter has exhausted all the
property of the debtor and resorted to all the legal
remedies against the debtor. This is what is otherwise
known as the benefit of excussion.
Same; Same; Same; In order for the guarantor to make
use of the benefit of excussion, he must set it up against
the creditor upon the latter’s 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.—The afore-quoted provision
imposes a condition for the invocation of the defense
of excussion. Article 2060 of the Civil Code clearly
requires that in order for the guarantor to make use of
the benefit of excussion, he must set it up against the
creditor upon the latter’s demand for payment and
point out to the creditor available property of the
debtor within the Philippines sufficient to cover the
amount of the debt. It must be stressed that despite
having been served a demand letter at his office,
petitioner still failed to point out to the respondent
properties of Macrogen Realty sufficient to cover its
debt as required under Article 2060 of the Civil Code.
Such failure on petitioner’s part forecloses his right to set
up the defense of excussion.