Guaranty & Suretyship: In General; Nature & Extent

Dio vs. Court of Appeals (1992)

In 1977, Uy Tiam Enterprises and Freight Services (UTEFS), thru its
representative Uy Tiam, applied for and obtained credit accommodations
from Metrobank in the sum of Php700,000. This was secured by Continuing
Suretyships separately executed by petitioners Norberto Uy (who agreed to
pay Php300,000) and Jacinto Dio (who bound himself liable up to
Php800,000). Uy Tiam paid the obligation under this letter of credit in 1977.
UTEFS obtained another credit accommodation in 1978, which was likewise
settled before he applied and obtained another in 1979 in the sum of
Php815,600. This sum covered UTEFS purchase of fertilizers from Planters
Producst. Uy and Dio did not sign the application for this credit and were
not asked to execute suretyship or guarantee. UTEFS executed a trust
receipt whereby it agreed to deliver to Metrobank the goods in the event of
non-sale, and if sold, the proceeds will be delivered to Metrobank. However,
UTEFS did not comply with its obligation. As a result, Metrobank demanded
payment from UTEFS and the sureties, Uy & Dio. The sureties refused to
pay on the ground that the obligation for which they executed the continuing
suretyship agreement has been paid. RTC ruled in favor of the petitioners,
CA affirmed.
Issue: WON petitioners are liable for payment of the 1979
transaction under the continuing suretyship agreement they
executed in 1977. Assuming that they are, what is the extent of their
liability?
The Supreme Court held that Uy & Dio are liable. The agreement they
executed in 1977 is a continuing suretyship, one which is not limited to a
single transaction but which contemplates a succession of liabilities, for
which, as they accrue, the guarantor becomes liable. The agreement that
petitioners signed expressly provided that it is a continuing guaranty and
shall be in full force and effect until written notice to the bank that it has
been revoked by the surety. As to the 2nd issue, petitioners are only liable up
to the maximum limit fixed in the continuing suretyship agreements
(Php800,000 for Dio and Php300,000 for Uy). The law is clear that a
guarantor may bind himself for less, but not for more than the principal
debtor, both as regards the amount and the onerous nature of the conditions
(Art. 2054). CA decision ordering petitioners to pay P2,397,883.68 which
represents the amount due inclusive of interest and charges, is modified.

Willex Plastic, Inc. v. CA, International Corporate Bank (1996)

Doctrine: It is never necessary that a guarantor or surety should receive
any part orbenefit, if such there be, accruing to his principal
Facts:
1978: Inter-Resin took out a loan from Manila Bank. As additional security,
Inter-Resin andInvestment Underwriting (IUCP) executed a Continuing
SuretyAgreement stating that the are liable to Manila Bank solidarily for the
loan taken outby Inter-Resin
1979: Inter-Resin and Willex Plastic executed a Continuing Guarantee for
the loanwhich Inter-Resin obtained from Investment Underwriting to the
extent of P5M.
1981: Investment Underwriting (IUCP) paid Manila Bank P4M to satisfy
Inter-Resins 1978 Obligation
Investment Underwriting (IUCP) then demanded payment of the P4M from
bothInter-Resin and Willex
oInter-Resin paid IUCP P600K from the proceeds of its fire insurance
Willex denied obligation, it alleged that it is only a guarantor of the
principal, henceits liability was only secondary to the principal and that it did
not receiveconsideration nor benefit from the contract between the bank and
Inter-Resin.
Willex insisted that IUCP should pursue Inter-Resin and apply to the loan
the assetsof the latter first before going after it.
Willex further alleged that it is guarantor of a loan to Manila Bank and
not toInterbank, hence the Continuing Guaranty cannot be retroactive
applied as contractsof suretyship contemplates future dealing.
ISSUE: WON Willex is liable as guarantor for the loans obtained by
Inter-Resin to IUCP?
Yes
HELD:
Intent is controlling: clear from the evidence that the Continuing
Guaranteeexecuted by Willex with Inter-Resinwould cover sums obtained (in
the past retroactive) and/or to be obtained by Inter-Resin Industrial from
Interbank Although a contract of suretyship is ordinarily not to be construed as
retrospective,in the end the intention of the parties as revealed by the
evidence is controlling apply it to the 1978 loan.

Guarantor or surety is bound by the same consideration that makes the

contracteffective between the principal parties thereto. . . . It is never
necessary that aguarantor or surety should receive any part or benefit, if
such there be, accruing tohis principal.
PNB vs. CA, Luzon Surety Co.
Facts: Estanislao Depusoy, and the Republic of the Philippines, represented
by the Director of PublicWorks, entered into a building contract, for the
construction
of
the
GSTS
building
at
Arroceros
Street
,M a n i l a , D e p u s o y t o f u r n i s h a l l m a t e r i a l s , l a b o r , p l a n s , a n d s
u p p l i e s n e e d e d i n t h e c o n s t r u c t i o n . Depusoy applied for credit
accommodation with the
plaintiff.
This was
approved by
the Board of Directors in various resolutions subject to the
conditions that he would assign all payments to be received from
the Bureau of Public Works of the GSIS to the b ank, furnish a
surety
bond,
and
the
surety to deposit P10,000.00 to the plaintiff. Thetotal accommodati
on granted to Depusoy was P100, 000.00. This was later extended by
another P10,000.00 and P25,000.00, but in no case should the
loan exceed P100,000.00. In compliance with
these
conditions, Depusoy executed a Deed of A s s i g n m e n t o f a l l m o n e y
to be received by
him from the
G S I S t o P N B . D e p u s o y d e f a u l t e d i n h i s building contract with the
Bureau of Public Works, and sometime in September, 1957, the Bureau
of Public Works rescinded its contract with Dernisoy. No furher
amounts were thereafter paid by the GSIS to lie plaintiff bank.
The amount of
the loan of
Depusoy
which
remains unpaid, including interest, is over P100,000.00. Demands
for payment were made upon Depusoy and Luzon, and as no
payment was made, therefore herein petitioner filed with the trial court a
complaint against Estanislao Depusoyand private respondent Luzon Surety
Co. Inc. (LSCI).
Issue: WON Luzon Surety is liable
Held: the bonds executed by private respondent LSCI were to guarantee the
faithful performance of Depusoy of his obligation under the Deed of
Assignment and not to guarantee payment of the loans orthe debt of
Depusoy to petitioner to the extent of P100,000.00. Besides, even if there
had been anydoubt on the terms and conditions of the surety agreement,
the doubt should be resolved in favor of the surety. As concretely put in
Article 2056 of the Civil Code, "A guaranty is not presumed, it must beexpressed and cannot extend to more than what is stipulated therein." LSCI is

liable to the full extentthereof, such liability is strictly limited to that

assumed by its terms."