JN DEVT CORP. V. PHILGUARANTEE GR. NO. 151311, AUG.

31, 2005 Facts: Traders Royal Bank (TRB) extended a loan for JN Devt Corp. (petitioner) worth 2 Million pesos. Said loan was covered by several securities, including a letter of guarantee from PhilGuarantee (respondent). Upon the maturity of the loan, petitioner failed to pay, upon which TRB requested that the respondent make good of its guarantee. Respondent paid 934,824.34 pesos to the bank, then made several demands to petitioner, but to no avail. This led to the suit filed by PhilGuarantee against JN Devt. Petitioner avers that PhilGuarantee had no more legal duty to pay TRB due to the expiration of the contract of guarantee. TRB was also able to foreclose the real estate mortgage executed by JN, therefore extinguishing the obligation. Issue: Whether or not petitioners are liable to PhilGuarantee despite it payment after the expiration of the contract of guarantee as well as the lack of consent to the extension of TRB to JN. Held: 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. Such benefit may only be invoked after legal remedies against the principal debtor have been expanded. Thus, it was held that the creditor must first obtain a judgment against the principal debtor before assuming to run after the alleged guarantor, for obviously the exhaustion of the principals property cannot even begin to take place before judgment has been obtained. Also, in order that the guarantor may make use of the benefit of excussion, he must set it up against the creditor upon the latters demand for payment and point out to the creditor available property of the debtor within the Philippines sufficient to cover the amount of the debt. While a guarantor enjoys the benefit of excussion, nothing prevents him from paying the obligation once demand is made on him. Excussion, after all, is a right granted to him by law and as such he may opt to make use of it or waive it. PhilGuarantees waiver of the right of excussion cannot prevent it from demanding reimbursement from petitioners. The law clearly requires the debtor to indemnify the guarantor what the latter has paid.

TRADERS INSURANCE V. DY ENG BIOK 104 PHIL 806 Facts: Dy Eng Giok was a provincial sales agent of Distillery Corporation, with the responsibility of remitting sales proceeds to the principal corporation. He has a running balance and to satisfy payment, a surety bond was issued with petitioner as guarantor, whereby they bound themselves liable to the distillery corporation. More purchases was made by Dy Eng Giok and he was able to pay for these additional purchases. Nonetheless, the payment was first applied to his prior payables. A remaining balance still is unpaid. Thus, an action was filed against sales agent and surety company. Judgment was rendered in favor of the corporation. Issue: Whether or not a guaranty or suretyship covers obligations prior to it. Held: The remittances of Dy Eng Giok should first be applied to the obligation first contracted by him and covered by the surety agreement. First, in the absence of express stipulation, a guaranty or suretyship operates prospectively and not retroactively. It only secures the debts contracted after the guaranty takes effect. To apply the payment to the obligations contracted before the guaranty would make the surety answer for debts outside the guaranty. The surety agreement didn't guarantee the payment of any outstanding balance due from the principal debtor but only he would turn out the sales proceeds to the Distileria and this he has done, since his remittances exceeded the value of the sales during the period of the guaranty. Second, since the Dy Eng Bioks obligations prior to the guaranty were not covered, and absent any express stipulation, any prior payment made should be applied to the debts that were guaranteed since they are to be regarded as the more onerous debts.

HIGGINS V. SELLNER GR. NO. L-158025 Facts: