2047

1. MACHETTI v HOSPICIO DE SAN JOSE

During the duration of the trial however, Machetti, declared insolvent and an order was entered suspending
the proceeding in the present case. Thus, the Hospicio filed a motion asking that the Fidelity and Surety
Company be made cross-defendant to the exclusion of Machetti and that the proceedings be continued as to
said company, which motion was granted and subsequently, the Hospicio filed a complaint against the
Fidelity and Surety Company for a judgement against the company upon its guaranty. The CFI rendered
judgment against Fidelity.
ISSUE: Whether or not Fidelity is answerable to the Hospicio as guaranty of Machetti.
HELD:
A) Guarantor implies an undertaking of guaranty, as distinguished from suretyship and in this case, it appears
that the contract is the guarantor's separate undertaking in which the principal does not join, that its rests on
a separate consideration moving from the principal and that although it is written in continuation of the
contract for the construction of the building, it is a collateral undertaking separate and distinct from the
latter. All of these circumstances are distinguishing features of contracts of guaranty.
B) On the other hand, a surety undertakes to pay if the principal does not pay, the guarantor only binds
himself to pay if the principal cannot pay. The one is the insurer of the debt, the other an insurer of the
solvency of the debtor. This latter liability is what the Fidelity Company assumed in this case. Thus, Fidelity
having bound itself to pay only the event its principal, cannot pay it follows that it cannot be compelled to pay
until it is shown that Machetti is unable to pay. The judgment appealed from is therefore reversed.

PHIL EXPORT v VP EUSEBIO

FACTS: Respondent entered into contract with SOB for construction of Therapy Bldg. SOB demanded bonds to
secure performance. Project was delayed
DOCTRINE: 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 the person binds himself solidarily
with the principal debtor, the contract is called suretyship.
That the guarantee issued by the petitioner is unconditional and irrevocable does not make the
petitioner a surety. As a guaranty, it is still characterized by its subsidiary and conditional quality because it
does not take effect until the fulfillment of the condition. Unconditional guarantee is still subject to the
condition that the principal debtor should default in his obligation first before resort to the guarantor could
be had.

MANILA RAILROAD v ALVENDIA
Facts:
CFI sentenced Manila Railroad Co. (MRC) and Manila Port Service (MPS) to pay Bataan Refining Corp.
MPS filed a notice of appeal accompanied by an appeal bond.
Noticing that the appeal bond was only executed by MPS signed by the manager and Standard Insurance
(as surety) signed by the vice-president, the trial court rejected the record on appeal.
It is contended by MRC that the MPS, being a mere subsidiary or department of MRC, without legal
personality of its own, the bond filed by the former should be a bond for the MRC and that the appeal of
the latter should have been given due course.

Issue: Whether or not the notice of appeal should be accepted?
Held:
No, the notice of appeal should be rejected.
Where there is no principal debtor in the appeal bond, it is void and unenforceable. The mere recital in
the body of the instrument, We, MRC et. al, as principal and the Standard Insurance Co. Inc xxx as surety
does not suffice to make contract binding on the MRC unless it is shown that the same was authorized by it.
Neither the signature nor the acknowledgment indicates that the act of that of the MRC or that the latter had
empowered MPS to execute the bond in its behalf. The result would be that the appeal bond is void and
unenforceable for lack of principal debtor or obligation.
While the surety bound itself to pay jointly and severally, such an undertaking presupposes that the
obligation is to be enforceable against someone else besides the surety and the latter could always claim that
it was never its intention to be the sole person obliged thereby.

IFC v IMPERIAL TEXTILE

Facts: IFC extended to PPIC a loan of US$7,000,000.00, payable in sixteen (16) semi-annual
installments of US$437,500.00 each, beginning June 1, 1977 to December 1, 1984. On December 17,
1974, a Guarantee Agreement was executed with Imperial Textile Mills, Inc. (ITM). ITM agreed to
guarantee PPIC's obligations under the loan agreement. PPIC paid the installments due on June 1,
1977, December 1, 1977 and June 1, 1978. Despite the rescheduling of the installment payments,
however, PPIC defaulted. IFC demanded ITM and Grandtex, as guarantors of PPIC, to pay the
outstanding balance. However, the outstanding balance remained unpaid.

Issue: The issue is whether ITM is a surety, and thus solidarily liable with PPIC for the payment of the loan.

Ruling: Yes. The Agreement uses guarantee and guarantors, prompting ITM to base its argument on those
words. This Court is not convinced that the use of the two words limits the Contract to a mere guaranty. The
specific stipulations in the Contract show otherwise.

While referring to ITM as a guarantor, the Agreement specifically stated that the corporation was 'jointly and
severally liable. To put emphasis on the nature of that liability, the Contract further stated that ITM was a
primary obligor, not a mere surety. Those stipulations meant only one thing: that at bottom, and to all legal
intents and purposes, it was a surety.

Indubitably therefore, ITM bound itself to be solidarily.