Petitioner Lirag Textile Miil, Inc.

and defendant Social Security System (SSS) entered into a Purchase Agreement wherein the latter will purchase preferred shares of stock from the former which is worth one million pesos. Defendant paid petitioner in the amount of P500, 000 as evidence by Stock Certificate 128 and another P500, 000 as evidenced by Stock Certificate 139. The following conditions were stipulated in the Purchase Agreement: (1) that petitioner will repurchase or redeem Stock Certificates 128 and 139 from defendant at regular intervals for one year and to pay dividends, and (2) that in case of failure, the entire obligation shall become due and demandable and petitioner shall be liable in the amount equivalent to 12% of the amount then outstanding as liquidated damages. Furthermore, Basilio Lirag signed as a surety in the event Lirag Textile Mills, Inc. fails to make good on its obligation. However, due to financial reverses, petitioner corporation failed to redeem the stock certificates and pay the dividends despite defendant's demand letter. Because of such failure, defendant SSS sent a demand letter to Basilio Lirag, requiring him to fulfill his obligation as surety. But he was also unable to comply with such obligation. So SSS filed a petition for Specific Performance and damages with the Court of First Instance in Rizal, praying for the fulfillment of Lirag Textile Mills, Inc. and Basilio Lirag's obligations. The CFI ruled in favor of SSS, saying that the Purchase Agreement was a debt instrument. Hence this present petition. Petitioners argue that the lower court erred in its decision. They contend that the obligation to redeem the stock certificates and pay the dividends does not exist on the ground the SSS is a preferred stockholder of the Lirag Textile Mills, Inc. and because of its financial condition upon which such liability depended. Basilio Lirag further contends that since the corporation's obligation is without basis, he also is not liable. ISSUE: Whether or not Basilio Lirag is liable for the entire obligation.

HELD: The petition is without merit. The purchase agreement is indeed a debt instrument since the parties intended the repurchase of the certificates at scheduled dates to be an absolute obligation, which is not dependent on the corporations financial standing. Basilio Lirag is liable for the corporation's default since he bound himself as surety. There is a difference between the obligation of a surety and the obligation of a guarantor. In guaranty, the guarantor merely insures the principal debtor's solvency and binds himself to pay in the event the latter fails to pay. While the surety provides insurance for the debt and undertakes to pay if the principal does not pay. Since Lirag Textile Mills, Inc. did not pay, Basilio Lirag, as surety, is obligated to pay immediately without qualification. Thus, he is liable for the entire obligation. The decision of the lower court is affirmed